Life insurance is a contract binding a life insurance company to compensate a beneficiary for the death of a person insured. If the insured dies, the company will provide a cash payment to the beneficiary. Life insurance is used to protect the economic value of a human life with regards to those who may be financially dependent upon it.
Types of life insurance Term Life Insurance
Term life insurance provides protection for a specified period of time. A death benefit is paid to the beneficiary if the insured dies within a specified period of time while the policy is still in force. Many term life insurance plans can be converted to permanent life insurance plans without evidence of insurability. Level premium term life insurance has premiums which remain level over a specified period of time. These plans have premiums that remain level for a period of 5, 10, 15, 20, 25 and 30 years. After the initial level period expires, the annual premium increases each year, subject to a guaranteed maximum. In general, term life insurance is suitable when your life insurance needs are temporary or your life insurance needs are long-term but your budget does not permit the higher premiums of permanent life insurance.
What Is Return of Premium (ROP) Term Life Insurance Policy?
A return of premium term life insurance policy typically offers a level death benefit with fully guaranteed* level premiums for the first 15, 20, or 30 years, though this may vary by company and state. Under the return-of-premium feature, the cumulative premiums paid, not including substandard and rider charges, will be returned at the end of the level term period if the policy is in force at that time. Often, a portion of the cumulative premiums will be returned upon surrender after the policy has been in force for a specified number of years. Most return of premium life insurance policies allows for conversion to permanent insurance offered by the same company during the covered period without further evidence of insurability. *guarantees subject to the claims-paying ability of the underwriting insurance company Whole Life Insurance Whole Life insurance is permanent life insurance and provides protection for life. As long as premiums are paid, a death benefit is paid to the beneficiary. The premiums for whole life insurance policies are designed to remain level over time. In addition, these policies accumulate cash values on a tax-deferred basis. The rate of return on whole life insurance cash values is dependent upon a number of factors including the results of an insurance company's investment performance. Cash values can be used for a variety of options:
There is no magic formula to determine how much life insurance you should have; however, there are a number of factors that should be considered when estimating how much life insurance you should carry. They include:
Life insurance has many uses for both individuals and businesses. Some common uses include: