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Life Insurance
Regardless of your stage of life, life insurance is a sure stepping stone to your future. Life insurance provides financial protection to help replace lost income, cover expenses and protect your lifestyle so you and your family can plan for the future.
What is a Life Insurance?
Life insurance is a contract between an individual and an insurance company. In exchange for the payment of premiums, the insurance company agrees to pay a lump sum of money, known as the death benefit, to the individual’s beneficiaries upon their death.
Life insurance provides financial protection for the individual’s loved ones in the event of their death. The death benefit can be used to cover expenses such as funeral costs, mortgage , and ongoing living expenses. Additionally, life insurance can also serve as a tool for estate planning and wealth transfer.
When you purchase a life insurance policy, you pay regular premiums to the insurance company. The amount of the premiums is based on a variety of factors, including the insured’s age, health, and lifestyle habits.
When checking life insurance, pay attention to the following points
- It is important to determine the coverage you need. It depends on your family’s financial obligations and lifestyle.
- Factors such as income, mortgage expenses, children’s education, lifestyle expenses and funeral expenses should be considered.
- Choosing the right type of coverage with the right coverage is essential to ensure your family’s financial security
Types of life insurance
There are two main categories of life insurance that help protect your family.
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Term life
Term insurance covers for a certain period of time, eg 10 years, 20 years, 30 years or you can pick a term as per your need. If you die during that term, the money is paid to the beneficiary tax free, but after the term ends, you have to buy new insurance.
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Permanent life insurance
Permanent life insurance i.e., whole life insurance, participating life insurance and universal life provides lifetime coverage with a "cash value" component. This serves many purposes, including helping to build a safety net for retirement, leaving in-heritance for grandchildren, or providing financial support to the either of the surviving spouse while providing lifetime protection and other financial benefits.
A life insurance includes the following
Life insurance provides financial protection for your loved ones when you are not around. Knowing everything that life insurance covers is essential.
Death benefits
It is the amount that the insurance company pays when the insured person dies. These benefits are tax free.
Beneficiary
It refers to the person(s) who receive the death provision. The entire benefit can be received by one person (such as your surviving spouse) or you can split it proportionately between several people. However, the beneficiary need not be a blood relative and need not be an individual. If you want, you can leave all or part of your donation to a charity or other organization.
Period or period of coverage
It is the period of time for which the insurance company agrees to pay the death benefit. Term insurance is defined for a specific number of years such as 10, 20 or 30 years. Permanent insurance is insured until the end of life as long as the insurance premium is paid and as long as the life of everyone continues.
Premium
the monthly or annual payment required to maintain the validity of the insurance policy.
Cash Value
The investment component of an insurance policy that builds up over time and can be cashed out or borrowed tax free. Term insurance has no cash value.
Different types of life insurance policies
Term life insurance
A term life policy is exactly what the name suggests: Insurance for a specific period or time, usually between 10 and 30 years. Term life insurance has no cash value. It is designed solely to provide a pay-out to your beneficiaries if you die during the term. Most individual insurance policies have equal premiums payment, where you pay the same amount each month. When the term expires, it also results in the expiry of your cover. In such a case you have to buy a new policy. It is vital to note that the older you are, the more expensive it gets to buy a new term life insurance policy. However, there are many providers that allow you to convert your term policy into a permanent life insurance policy for your partial or complete coverage period.
Whole life insurance
Whole life insurance is the simplest form of permanent life insurance that provides coverage for a lifetime. It includes a cash value component which means a part of your premium money is located in a cash value account and that amount grows tax-deferred over time, so you pay no taxes on the gains.
Whole life insurance has three defining characteristics:
- The premium level remains the same throughout life.
- Death benefit is guaranteed if guaranteed premium is paid.
- Policies include guaranteed cash values that grow at a guaranteed rate.
Cash value provides several significant benefits that you can take advantage of while you are still alive. It takes a few years for it to grow into a useful amount, but once it does, you can borrow money against it, use it to pay insurance premiums, or even cash it in to live in retirement.
Universal life insurance
Universal life insurance is another form of permanent insurance that offers cash value and life coverage. But there’s a major difference with whole life or permanent life insurance: Universal life insurance has flexible premium.
With a universal policy, you can increase or decrease the amount you pay into the policy as you see fit within the policy limits. Paying less could end up having to pay higher amounts in later years to keep your coverage. This type of policy can be tailored to your lifestyle while providing the same kind of cash value growth as whole life.
Participating life insurance
If you want a flexible and tax-friendly way to protect what’s most important, participating life insurance may be just what you’re looking for.
Another way to grow wealth is through incentives and potential dividends. Participating life insurance allows you to have real benefits. Over time, this life insurance increases in cash value.
Access to these funds is guaranteed and can be used to cover immediate needs or fund your child’s education for as long as you are alive. When you die, your family, business or charity gets the money tax-free.
