What is the meaning of life insurance and what is its importance?Life insurance is a form of protection from financial loss that grants your beneficiaries cash benefits in the event of your death. Listed below are some important differences between different types of life insurance policies and what they mean for you.
When the unexpected happens, life insurance policies can help keep your loved ones financially afloat. For a monthly fee (also called a premium), you can ensure that those who depend on you and your income have help covering costs such as:
- Final expenses and funeral services
- Outstanding debts and/or mortgages
- Lost income
- Educational expenses
Having life insurance can mean peace of mind for your surviving loved ones.
Who Benefits From a Life Insurance Plan?
If you have a spouse, children or other financial dependents, a life insurance policy helps ensure their security. Other common beneficiaries can include:
- Business partners
- Employees
- Charities
What Type of Life Insurance Policy Is Right for Me?
Finding the right type of insurance policy doesn’t have to be complex. There are two main types of life insurance: term life insurance and permanent life insurance (sometimes referred to as whole life insurance).
- Term life insurance
This type of life insurance provides full coverage of benefits during a specific term (typically between 1 and 30 years). Term life insurance is usually less expensive than permanent insurance. It may require a medical exam, but some types of term life insurance (such as simplified issue or guaranteed issue plans) may not. Issuance of a simplified issue policy may depend upon answers to health questions set forth in the application.
In some cases, term life policies can be converted to whole life coverage if the insured decides he or she wants to change plan types. - Permanent life insuranceWhole life insurance covers you during the span of your entire life. You pay a premium each month, which builds cash value over time (like a savings account). You can cancel a permanent life insurance policy while you’re still alive. There are three typical types of permanent life insurance: whole life, universal life and variable life. Each form has adjustable benefits and cash accumulation options.