Life insurance policy contracts are divided into two basic classes, based on their terms and agreements: temporary and permanent. Each includes their own subtypes.
Temporary insurance (term assurance)
This type of policy provides life insurance for a specified time. It is less expensive than the permanent insurance and is not used for accumulating capital.
- Mortgage life insurance. This is a policy designed specifically for mortgage repayment. If the policyholder dies, this insurance covers the mortgage.
- Group life insurance. This insurance policy covers a whole group of people and is included in a complete employee benefit package. The policyholder is usually the employer.
This type of policy provides life insurance for the remaining lifetime of the insured. The owner grows its capital and can withdraw and access the money.
- Whole life insurance. This policy financially protects the policyholder’s family in case of an unexpected death and can also be used to build cash value and borrow it if needed.
- Universal life insurance. This policy also includes the death benefit, which can be reviewed and altered if the circumstances change. Unlike the whole life insurance policy, it lets the policyholder use the interest from the accumulated savings to help cover the cost of premiums.
- Endowment. This policy pays the accumulated lump of cash to the policyholder after a certain period. In case of unexpected death, the money goes to the beneficiaries.
What is a Life Insurance and Do You Need It?
Life insurance is a contract designed to protect your family and whoever may depend on you for financial support, upon the event of your death. If you don’t have a dependent, you need to cover at least the cost of personal debt, medical and funeral expenses, not to leave a legacy of unpaid expenses. Life insurance is optional if you have medical and funeral expenses covered. You can also leave your legacy to a charity or a cause of your choice. It is advised to get a life insurance at a relatively young age, as the younger and healthier you are the cheaper it costs, with lowered risk of failing the necessary medical exam.
The insured pays a premium, either in one lump of a sum or regularly.
Life insurance policies vary depending on the contract. They fall into two major categories.
- Protection policies. These are policies that provide a sum of money to help out with monthly payments in case of a specified event. This includes the term insurance life policy.
- Investment policies. These are policies where the primary objective is the growth of the capital for your beneficiaries. This includes the whole life, universal life, variable life policies.