What is Life Insurance?
Life insurance pays out a sum of money either with a death benefit on the death of the insured person or with a living benefit if he/she has been diagnosed with a terminal condition.
Two Primary Types of Life Insurance
Term Life Insurance
Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, called the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and you must either go without coverage or extend that coverage with different payments or conditions. If the person insured dies during the term, the death benefit will be paid to the beneficiary.
Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar for a specific time period of time. This type of coverage may be ideal if you need the protection of life insurance only for a specific purpose or limited time, such as the time until a mortgage is paid off or children grow up.
Whole Life Insurance
Whole life insurance, or whole of life assurance, is a life insurance policy that remains in force for the insured's whole life and requires (in most cases) premiums to be paid every year into the policy. Some policies are available with a limited number of years of guaranteed premiums.
Whole life policies accrue a cash value, which in addition to being refundable, can be used in non-forfeiture options such as a reduced paid up amount, or to provide the death benefit for an extended period after ceasing payments.
Universal Life Insurance
A type of permanent life insurance. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance charge, as well as any other policy charges and fees which are drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer, but has a contractual minimum rate.