Life is uncertain and one of the best ways to deal with that is being prepared. We know life insurance can be daunting and difficult to talk about, but we’ve provided basic life insurance facts to get you started.
When it comes to purchasing life insurance you have options. We’ve shared valuable information that will help you feel confident in selecting the right coverage for you.
Need to Know Life Insurance Facts
What is life insurance?
Wikipedia explains life insurance as, “a contract between an insurance policyholder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person.”
Basically, if you purchase life insurance and pay your premiums, following your death, a non-taxable sum of money will be given to your beneficiary/beneficiaries.
Are there different types of life insurance?
Yes. There are different types of life insurance, however, we have shared the definition for arguably the three most common.
- Whole Life Insurance | Whole life, sometimes called permanent insurance, is usually based on the dividends of the insuring company. Dividends earned on the policy are used to purchase more insurance called paid-up additions, and sometimes create cash value within the policy. It is also possible to pay for a limited amount of time so that your policy is paid up for the rest of your life.
- Universal Life insurance | Universal Life is usually permanent insurance. The policy has a life insurance component and a tax-free accumulation component. The monies in the savings component are invested in various forms of investments and returns in qualifying policies are generally free from tax. Significant accumulation can be accessed by the policy owner if required.
- Term Life Insurance | Term insurance is issued for a specific term of 10, 20 years all the way to Term 100. Through the term, premiums are guaranteed and remain level until the next renewal. Premiums will increase every renewal period and there are typically no cash values in term insurance. Most term policies allow the ability to convert to a permanent policy. Term policies are excellent for covering short-term needs such as credit lines and mortgages.
Life insurance can be overwhelming, and no amount of money could ever replace a loved one. However, it is an essential part of protecting your family.