Life insurance is a contract between an insurer and a policyholder. Life insurance is a protection against financial loss from the premature death of an insured.
The named beneficiary receives the proceeds and is thus protected from the financial impact of the death of the insured.
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The death benefit is paid by a life insurer in consideration for premium payments made by the insured. Life insurance can offer a combination of protection and saving components, and the proportion of these components in an insurance product may vary depending on the product type and consumer needs and preferences.
For example, if a product has 5% protection component and 95% savings component, then 95% of the premium will be allocated to the savings account of the policyholder, and the remaining 5% will be considered risk/ protection premium.
Common Types of Life Insurance:
The different types of life insurance policies exist to help provide a safety net for your loved ones if you were to pass away. The proceeds of a policy offer valuable financial comfort that can be used to help your family pay bills, such as the mortgage, childcare, and other day-to-day expenses. Buying life insurance is one of the most good decisions or financial gestures you can make.
Where life insurance can become complicated, however, is when it’s time to pick the right policy for your loved ones and your budget. Now I will explain the different types of life insurance coverage that exist to help you determine what may be the best fit for your family.
Following are the different types of life insurance policies available to you, including:
- Term life insurance
- Whole life insurance
- Endowment insurance
- Child Education and Marriage Plan
- Single premium plan
- Medically underwritten term life insurance
Term life insurance
Term life insurance is a simple life insurance product that offers to pay benefits in case of death during the tenure of the policy. If death or the contingent event does not happen during the tenure of the policy, the policy expires and the policyholder is not entitled to receive anything. Term life is best suited for persons who do not want a saving or investment component and want a basic life insurance product.
Whole life insurance
Whole life insurance is the simplest form of cash value insurance that comprises a protection and investment component. The investment component builds accumulated cash value that the insured individual can borrow against or withdraw. Under whole life the policyholder’s entire life is covered, and all death benefits are paid, and premiums recovered by the family upon the death of the policyholder, whenever that may be. Whole life insurance differs from universal life insurance with respect to premium payments. Under whole life insurance premiums are not flexible, and fixed payments are required to be made, whereas universal life insurance allows flexible premium payments.
Endowment life insurance is a popular product designed to pay a lump sum on maturity or on death of the insured. Under these policies, the sum insured plus bonuses are payable at the end of the specified number of years or at death of the life insured, if earlier. The policyholder has the choice with respect to how much he wants to save, and when he wants the policy to mature.
Child Education and Marriage Plan
The child education and marriage plans are offered to meet the financial needs at the time of occurrence of such events along with the protection of life. The policy has preset tenure, and if death of the policyholder occurs during the policy tenure, the insurance company pays periodic payments (or annuity) in the form of premiums on behalf of the policyholder and often periodic family income (i.e. pension) to the family of the deceased (policy beneficiary). Additionally, the insurance policy also pays a lump sum at policy maturity for meeting the expenses of marriage or education.
Single premium plan
Under Single premium plan insurance one lump sum payment is made at the beginning of the policy term that entitles the policy beneficiary to a death benefit i.e. payment of predetermined amount on the death of the insured. The death benefit is the amount paid as premiums plus the returns earned, as a result of investing in the instruments of policyholder’s choice.
It is a process life insurance companies use to determine the risk they will take on by offering your life insurance coverage. There are some life insurance policies, such as guaranteed-life insurance and simplified-issue life insurance, that don’t require a medical exam to qualify.