Life insurance is a contract between a person and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay death benefits to your beneficiaries after your death.
Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage, or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.
There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance protects for a certain period.
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Types of Life Insurance
The most popular types of life insurance sold according to the reports.
- Term Life Insurance
- Permanent life insurance
- Unit linked Insurance Plan
- Endowment Plan
- Whole Life Insurance
- Retirement Plan
Term Life Insurance
This is the most affordable type of life insurance; term life insurance is the most popular type of life insurance sold according to the report.
Term life insurance provides coverage for a certain amount of time and the premium payments stay the same amount for the duration of the policy. Typical policy lengths are of 10 -30 years.
If you pass away within the term of your policy, your beneficiaries can make a claim and receive the death benefit money, tax-free.
Once the term of the policy expires, you may be able to renew the coverage in increments of one year, known as guaranteed renewability. But each year of renewal will be at a higher rate.
Permanent Life Insurance
This type of life insurance provides lifelong coverage. It is more expensive than term life because it:
- Can last for the duration of your life.
- Usually builds cash value.
In some policies the money value may build slowly over many years, so don’t count on having access to a lot of money value right away. Your policy illustration will show the projected cash value.
Unit Linked Insurance Plan
One of the most unique life insurance types, a unit-linked insurance plan, is a thorough mixture of investment and insurance. As per the life insurance definition, the premium paid for the unit-linked insurance plan is partially used as a risk cover and partially invested in different funds.
Depending on the policyholder’s risk tolerance, they can invest in different funds offered by the insurance provider. Then the insurance provider invests the collected amount into different money-market instruments such as shares and equities.
Endowment Plan
The endowment plan is the traditional type of life insurance policy that is a blend of insurance and savings.
With life insurance types such as an endowment plan, if the life assured live longer than the policy period, the insurance company provides maturity benefit to the policyholder. Also, some endowment plans may offer periodic bonuses that are either paid on maturity or to the beneficiary in case of the policyholder’s untimely death.
Whole Life Insurance
Whole life insurance plans are amongst the life insurance types that cover the life insured for a lifetime, or in a few cases, up to the age of 100 years.
At the time of purchasing a whole life insurance policy, the sum assured gets determined. During the purchase, a nominee is mentioned. In case of any unfortunate event, as per the whole life insurance definition, they get paid with the death claim and any bonuses, if applicable.
Nevertheless, if the life assured lives longer than 100 years, the insurance provider gives the life insured with a maturity benefit equal to the endowment corpus.
Retirement Plan
Retirement life insurance plans support building a stable financial source for an individual’s retirement years. The purpose and meaning of life insurance for retirement are to help one become financially independent and live without any worry.
Most retirement life insurance definitions fall under life insurance types that offer annual pay-out or a one-time lump sum pay-out on the completion of 60 years of age. In case of an eventuality, within the policy term, the insurer pays the insurance benefit to your family.
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How Much Does Life Insurance Cost?
The cost of life insurance varies significantly depending on several different factors. One of the biggest cost factors will be the type of life insurance you buy.
Here are some of the most common factors affecting life insurance rates:
- Age
- Gender
- Health
- Lifestyle
Age
The younger you are when you buy a policy the less you will pay. That is because your chance of death is smaller.
Gender
Females have a life expectancy that is nearly five years longer than males, according to the National Center for Health Statistics. This means that men generally pay more for life insurance than women.
Health
Your health has a major impact on your life insurance rates. The insurer will evaluate your past and current medical conditions to calculate your life expectancy.
Lifestyle
Your driving history, criminal record, and dangerous occupations and hobbies can all result in higher life insurance rates.
How To Get Life Insurance Quotes
According to the report, 15% of people think they can’t afford life insurance. At the same time, many consumers overestimate the cost. The only way to know what you will pay is to get life insurance quotes from a few companies. Quotes are free. An experienced life insurance agent will know what companies tend to give the best prices based on your age, health, and desired coverage amount.
Expect to be asked about your age, health, tobacco use, your family health history, driving record, and any dangerous occupations or hobbies. When you have a quote that you like, you can start a formal application. Once you have applied, some insurers may require a life insurance medical exam. These exams can take place at your home, work, or sometimes a local exam office.
The time it takes to process an application varies significantly among companies and policy types. Some insurers offer fast life insurance, including instant approval, to people who qualify, who are generally younger and without medical issues.
How To Select Beneficiary
A life insurance beneficiary is a person who can claim the death benefit after you pass away. You can name multiple beneficiaries and decide what percentage they each will receive when you die. As well as, you should add contingent beneficiaries who will receive the death benefit if your primary beneficiaries have died.
Not everyone will be named as beneficiaries. Some people name trusts. By creating a revocable living trust and naming it as the life insurance beneficiary, you can ensure that the money is used according to your wishes.
If you decide to name a trust the beneficiary of your policy, make sure to work with an attorney to structure the trust correctly. It is also wise to work with a financial planner so that trust is part of your larger financial plan. It is crucial to update and review your beneficiary selections regularly.
To update your beneficiaries, contact your life insurer and submit a change of beneficiary form. Making changes only on a will not affect life insurance.
How Does a Beneficiary Make a Claim?
Don’t assume a life insurance company will contact you. It is unlikely they know that your relative died. While some insurers are proactive in monitoring insured customers who have passed away, they will not discover a death immediately.
Death Certificate
To start the claim process you will need to submit a certified copy of the death certificate. The insurer will not send it back. Therefore, you may want to request a few certified copies if you need them for multiple purposes.
Contact the insurance company right away: While you may have a lot on your plate after a loved one passes away, later on, you will contact the insurer, and the sooner you can get the money.
Verify Requirements: Once all of the claim paperwork is done, make sure you have all supporting documentation attached. This can include a claim form and death certificate. Claims are typically paid within 30 days after the insurer receives the necessary documents.
You don’t need an original copy of the life insurance policy to make a claim. You only need to know the name of the insurance company and contact them to initiate the claim.
That is why it is important to let your beneficiaries know that you have a policy and tell them the name of the insurer. And insurers are contractually obligated to pay only the people listed on the policy.
FAQs
Is it compulsory to buy a life insurance policy?
If you know what life insurance meaning is, you must know that a life insurance plan may not seem necessary, but it sure is a smart choice in this uncertain time.
Is there any tax benefit with Life Insurance Plans?
Yes, as per the life insurance definition, you pay a certain amount as a premium regularly to the insurer.
How can you pay for your Life Insurance?
You can opt for either a one-time premium payment or regular premium payments which include monthly/quarterly/semi-annually.
How much do I have to pay per month for my life insurance?
Depending on many factors such as your chosen option of premium payment, add-on riders, age, and medical conditions, the premium amount you need to pay towards your insurance differs.
What is the age limit for life insurance?
Typically, most insurance plans can be bought by anyone over the age of 18; however, depending on the policy terms and conditions as well as the insurer, the maximum age limit may vary.
Can I cash my life insurance policy before death?
Yes, it is possible to cash out your life insurance by leveraging cash value withdrawals, opting for a loan against your policy, or surrendering your insurance plan.
Term Vs. Whole Life Insurance (Life Insurance Explained)