Life insurance is actually a legal contract between an insurer and an insurance holder or insurer, whereby the insurer promises to cover a designated insured individual a fixed amount of money upon his or her death. Depending on the agreement, other events like critical illness or terminal illness can also trigger payments. The fixed payment is calculated by subtracting the expected life-span from the amount of insurance provided. For example, if the insured had a life expectancy of one year, then the insurance company would have to make a payment equal to the difference – dying in one year less the amount of life insurance.
There are three basic types of life insurance. They are term life insurance, whole life insurance and universal life insurance. Term policies are for a specific term (terms vary greatly) and are generally easy to obtain and manage. In some instances, tax-deferred options can be incorporated into term policies to provide an additional source of funds. On the other hand, most whole life policies will earn a tax-deferred profit that is distributed between the beneficiaries.
Whole life insurance policies operate very much like a pension plan. The insurer pays a predetermined premium for a set period of time. When the insured dies during this period, the premiums paid by the insurer are fully taxable, regardless of whether the insured was alive or not. The benefit of whole life insurance policies is that the premiums are guaranteed to be paid. Also, the premium amount itself is determined by what the insurer believes the expected return will be, which may be based on future returns or existing results in the past.
Another option that many people consider when purchasing life insurance is universal life insurance. This policy type is very similar to term policies, however it does not require a medical exam for coverage. This policy type also allows the policyholder to adjust the premium amount on a yearly basis. However, unlike whole life insurance, it does not provide any death benefit should the insured die during the policy period.
The final type of life insurance companies is variable life insurance companies. These policies are typically sold to investors who want to protect their family’s interests for many years to come. Variable life insurance companies offer the policyholder a death benefit that fluctuates according to how the value of the policy itself has performed over the years. As the value of the policy rises and falls, so does the death benefit amount. Many variable life insurance companies base their premiums on investment goals, making them more expensive for younger, healthier policyholders. If you are in good health at the time of purchase, many insurers will offer you an adjustment option so that the premiums do not become too high.
Choosing the right insurer can be difficult, as there are many different insurers to choose from. To help you make the right choice, consider the needs of your family and how much risk you are willing to accept. For example, if you have young children, you may want to find an insurer that offers low premiums for the life of your children. Conversely, if you have a large estate, you may want to spend a lot of money on your premium to ensure that your death benefit is substantial enough to cover your debts and your dependents financially.
The best way to choose a life insurance company is to visit a few different insurers and get a quote based on how you compare the services they offer. Insurance agents typically make their commissions from the life insurance company they represent, so you can usually expect to see a standard premium for a long-term care policy. When you receive quotes from several insurers, use the numbers that correspond with the features that you would like to have, and then make a decision based on cost versus coverage.
After you’ve narrowed down your search by determining how much life insurance you need, you’ll be ready to make your decisions. To get the best rate, you should visit at least three different insurers to get price comparisons. If you have an existing policy, ask the life insurance agent handling your policy about the cost of extending your coverage. He or she may be able to offer you a discount based on your long-term financial needs. In addition, you can learn more about the financial needs of your beneficiaries by consulting a financial planning guide. In general, your financial needs will determine how much life insurance you need.