Life Insurance Basics
Life insurance is a policy that provides a benefit when the policyholder dies. But a person can also open a policy for someone else. For example, a wife can get a policy on her husband. If he dies, then she will receive the benefit. The purpose is to provide financial assistance to survivors or beneficiaries.
The main parties in a life insurance policy are the policyholder, the insurer, and the beneficiary. The policyholder purchases the policy and pays the premium, the insurer is the insurance company, and the beneficiary receives the monetary benefit.
The main purpose of this policy is to help compensate for lost income for a beneficiary. The beneficiary is usually a spouse, child, or some other family member. Insurance benefits can help families pay their mortgage, educational expenses, and more. Wealthy individuals may also purchase insurance to protect their assets and ensure their estates are properly transferred.
Three Types of Life Insurance
1. Term – This policy covers a set period, usually 10-20 years. Once the policy expires, the policyholder can renew unless they’re beyond the age allowed by the policy.
2. Whole – This policy covers the policyholder for a lifetime. The premiums are more expensive than others, but the policy gains cash value over time.
3. Universal – This policy has a flexible term period, and it preserves wealth as it offers tax benefits.
Before selling you a life insurance policy, the insurance company will determine if there are any risks associated with issuing you a policy. Your health, age, lifestyle, and family medical history is taken into account.