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What is a Life Insurance?
Basically speaking, a life insurance policy is a kind of contract that you have with an insurance company. What you get in exchange for your regular premium payments is a lump sum that comes from the insurance company, known as a death benefit, that gets paid to beneficiaries upon the passing of the insured.
Usually, a life insurance policy will be selected based on the goals and needs of the policy owner. Term life insurance will give you protection over a set period, while there is permanent insurance, also known as universal life, that offers lifetime coverage. It is best to note that death benefits from all kinds of life insurance payments are generally going to be income tax-free.
Term Life Insurance:
Term life coverage is set up to offer financial protection over a given period, such as 10 years or 20 years. When you have traditional term insurance, premium payments will stay the same over the coverage period that you choose. Once the period is done, the policy may offer continued coverage, which will be at a higher premium payment rate. A term life policy will usually be less expensive overall than permanent life insurance.
Needs Met: Term life lump sum payments can be useful for replacing any lost potential income for someone in their working years. It can also offer somewhat of a safety net for beneficiaries and ensure the financial goals of the family will be met. Goals may include paying off your mortgage, paying for college and keeping a business up and running.
Universal Life Insurance:
Universal life insurance is a kind of permanent life insurance that is made to offer lifetime coverage. Unlike a whole life plan, universal policies will be flexible and might allow you to raise up or lower your premium payments or your coverage amounts during your lifetime. Due to the lifetime coverage, universal life will also have a higher premium payment than the term life.
Needs Met: Universal coverage is usually used with a strategy for flexible estate planning for the preservation of wealth that will then be transferred to any beneficiaries. Another regular use would be the feature for long term income replacement, where need will extend beyond the working years. Some universal life insurance products are designed to focus on offering the building of cash value and death benefit coverage, whereas others will focus on guaranteed death benefit.
Permanent Life Insurance:
Whole life is a kind of permanent life insurance that is designed to give lifetime coverage. Lifetime coverage will mean that the whole life will have a higher payment on premiums over term life. The policy premium payments will usually be fixed. Unlike term life, whole life will have cash value, which will function as a savings component that will accumulate over time with a tax-deferred featured.
Burial Insurance:
Final expense insurance or burial insurance is another affordable option especially for the elderly and those who only need coverage for the funeral. This is the least expensive plan as this policy comes with some limitation.
This is crucial to pick the suitable type of coverage that is affordable and worth it considering long term investment. You can always contact an insurance agent to learn more about these policies so it helps you find the right plan. Once you find a decent policy, you don't need to worry anymore. You assure family's financial security by leaving a legacy. Today, a funeral costs around $9k on average in the USA which is rising every year. By purchasing a decent life insurance, the family doesn't need to be burdened with the escalating funeral expenses.
