Introduction
Life insurance is a contract between an individual, known as the policyholder (insuree), and an insurance company (insurer). In exchange for regular premium payments, the insurance company agrees to provide a financial benefit to the policyholder's beneficiaries upon the policyholder's death.
Individual may die because of different reasons like sickness, accident, advanced age or others. Sometimes, they might experience the ill effects of old age or advanced age and will be unable to manage the cost of medical treatment. Because of early death of parent or earner, his/her dependent will be seriously affected. They can't survive easily in the society. Thus in order to get the financial security on such circumstance, insurance can be done for his/her life which is known as life insurance. It is one of the well known of insurance in which the insurer promises to compensate a certain sum amount of money to the insuree or his/her dependent in the event of untimely death, sickness or old age and so forth. Under life insurance, the insurance company agrees to compensate a fixed amount of money to the insured or his/her nominees in case of the event i.e. early death or expiry of fixed period. It may be considered as contingent agreement on the grounds that the life cannot be compensated but just a predetermined sum is paid on if the policy holder dies or policy expired whichever is earlier.
Life insurance involves both elements i.e. investment and protection. It is considered as investment because insured gets the policy amount with bonus on the expiry of policy period. It is considered as protection because the nominee will get financial compensation in case of early death of the insured person. It is estimated that life insurance comprises eight percent of the total insurance business in the world. It was commenced from England and other European countries in the sixteenth century. The life insurance in modern kind was developed in the eighteenth century.
The main purpose of life insurance is to provide financial protection to the loved ones or dependents of the policyholder in the event of their untimely demise. The lump sum payment is made to the beneficiaries named in the policy after the death of policyholder which is also known as the death benefit. Such types of payment amount may help to cover various expenses such as funeral costs, mortgage payments, daily living expenses, education expenses, and other financial obligations.
Different types of life insurance policies are available in the market, including term life insurance and permanent life insurance. Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years. If the policyholder dies within the term, the death benefit is paid out to the beneficiaries. If the policy expires without a claim, there is no payout, and the coverage ends.
On the other hand, permanent life insurance is such type of life insurance that provides coverage for the entire lifetime of the policyholder, as long as the premiums are paid. Permanent life insurance policies, such as whole life or universal life insurance, also include a savings or investment component that accumulates cash value over time. This cash value can be used by the policyholder during their lifetime for various purposes, such as borrowing against it or surrendering the policy for a cash payout.
The main purpose of life insurance is commonly to provide financial security for dependents, cover outstanding debts or loans, maintain a certain standard of living, fund educational expenses, or leave a legacy for future generations. In my opinion, it is essential to assess your financial needs and consult with a qualified insurance professional to determine the appropriate type and amount of life insurance coverage for your specific situation.
Types of Life Insurance Policies
There are different types of life insurance policies that you can adopt. Choosing a good life insurance policy depends on your individual needs, financial goals, and personal circumstances. It's important to carefully consider your options and consult with a licensed insurance professional who can provide personalized advice. However, here are a few types of life insurance policies that are commonly considered:
1. Term Life Insurance
As the name is term life insurance, it offers coverage for a specified period of time or term, such as 10, 20, or 30 years. It provides a death benefit to beneficiaries if the policyholder passes away during the term. Term life insurance is generally more affordable compared to permanent life insurance options, making it suitable for individuals with temporary financial obligations or those seeking basic coverage.
2. Whole Life Insurance
Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime. It offers a death benefit to beneficiaries and includes a cash value component that accumulates over time. Generally, premiums on whole life insurance are higher than term life insurance, but the policy builds cash value that can be accessed during your lifetime.
3. Universal Life Insurance
Another form of permanent life insurance that offers greater flexibility is universal life insurance. It provides a death benefit and allows you to adjust your premium payments and death benefit amount as your financial needs change. Universal life insurance also builds cash value, which can be used to cover premiums, withdrawn, or left to accumulate over time.
4. Variable Life Insurance
Variable life insurance combines a death benefit with an investment component. It allows policyholders to allocate a portion of their premiums into various investment options, such as stocks and bonds. The cash value and death benefit can fluctuate based on the performance of the investments. Variable life insurance offers potential for higher returns but also involves investment risks.
Remember that the suitability of a life insurance policy depends on your specific circumstances, including your age, health, financial goals, and budget. It's crucial to assess your needs and work with a reputable insurance professional who can guide you through the selection process and help you choose a policy that aligns with your goals.
5. Endowment Life Insurance
Endowment life insurance is a type of insurance policy which is issued for a fixed period of time. It is generally issued for 15 years, 20 years, 25 years etc. Under this policy, the insured or policy holder has to pay the insurance premium till the endowment period only. Then, the sum assured is payable to the policy holder on the expiry of period along with bonus. But in case of death of the insured or policy holder before expiry of the maturity period, the sum assured is payable to his/her nominee or dependent. Endowment life insurance is done with a view to provide financial security to the family as well as to accumulate funds in old age or disability.
6. Anticipated Endowment Life Insurance
Anticipated endowment life insurance is a policy which is issued for a fixed period providing a withdrawal facility of certain amount at certain intervals during endowment period. Under this policy, a part of sum assured is paid at intervals during endowment period and balance of the assured amount is paid at the maturity. If the policy holder dies before maturity of policy period, the whole assured amount is payable to the nominee with bonus at once.
This policy is also issued for certain duration like in endowment life insurance. For payment of partial amount at certain intervals, it makes the certain provision. For example, if policy is taken for 15 years, 25% is paid after 5 years, next 25% is paid after 10 years and the balance is paid with bonus after 15 years or expiry of the policy period.
7. Endowment Life Insurance with Double Accident Benefit
This insurance policy is similar to an endowment life insurance. It is different in the case that some additional premium is received by the insurer form the insured to provide accident insurance facility. Under this policy, if the insured dies before maturity of the period due to accident, his/her nominee will get the double of assured amount. However in case of survival of the insured till the policy period, the insured will be paid only the sum assured amount with bonus. It is beneficial when one desired to transfer the risk that may happen due to accident.
8. Children's Education and Marriage Endowment Life Insurance
Under this type of life insurance, the concerned parents have to take a policy for a certain period like in endowment life insurance. The parents should pay the amount of premium regularly for the fixed period of time. A child becomes the nominee or representative of the policyholder. After the maturity of the policy, the insurer pays the sum assured to the policyholder that facilitates to manage for higher education and perform marriage function of the nominee. In case of death of the policyholder before maturity of the policy period, the sum assured will be paid to the nominee.
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