Life insurance policy is one of many important things in life. Other things include health insurance and retirement benefits. A person can buy life insurance to protect them from financial risk. Life insurance is also called “contributory” life insurance. It provides cover for a person to age 65. It doesn’t matter what the person is in your family or friends, it could be a grandfather or a granddaughter.
In the United States market there are two basic types of it: term life insurance and permanent life insurance (whole life insurance. The latter is in turn divided into several categories, which would be the insurance traditional whole life, variable whole life, and universal life in 2003, there were 6.4 million individual term life insurance policies, while of the permanent type reached some 7.1 million policies.
And as you might imagine, individual insurance policies are different from insurance policies. That are sold in groups or for groups. Here’s an explanation of the two basic types of individual life insurance.
Term life insurance
This type of insurance is the simplest of the life insurance. The policy makes a payment when the insured person dies during the term of the policy. Which can range from 1 to 30 years. Most term insurance does not include other payment provisions.
There are two different ways to buy term life insurance: level term life insurance and declining term insurance.
- Level Term Life Insurance: means that the death benefits remain the same for the life of the policy.
- Decreasing term life insurance: implies that death benefits vary and decrease over the years of the policy, usually in one-year intervals until the final term of the policy.
In 2003, almost all term policies (97% of them) were level-type policies, that is, the benefits did not decrease over the time of the policy.
Permanent life insurance
Permanent life insurance pays benefits in the event of death. No matter how old the insured person lives, even if they live to be 100 years old. There are three basic types of this insurance and each of them has its variations.
Traditional permanent life insurance: the coverage of this , that is, the amount of benefits payable after the death of the insured, and the price or amount of the monthly premium remain level, that is, it will not change during the period that the policy is in force.
The cost of the policy is calculated depending on the amount insured: for every thousand dollars of coverage there will be an amount X to pay as a premium. The cost per thousand dollars of coverage increases with the age of the insured person. Obviously the coverage of a person over 80 years of age can become very expensive.
The insurance company may decide to charge a monthly or annual policy that varies each year. But this would be very difficult for most people to maintain. So they average the cost of the premiums and charge the same price from the beginning of the insurance. the coverage. Thus, the coverage premiums will be the same from the beginning to the end of the policy. The initial premiums will be more expensive than what is require to cover the cost of the policy. So the insurer will invest this excess amount so that it generates profits that will be use to supplement the premium payments. When the insure is older and the premiums would be more expensive than what is pay monthly.
By law, when these “overpayments” reach a certain amount, they must be make available to policyholders as cash, known as cash value. In the event the insure decides they does not want to continue with the original plan. This accumulate value is an alternative benefit, not an additional benefit of the policy. That is, the owner of the policy may perceive it as an option. But it is not add to the compensation value payable to their beneficiaries in the event of the death of the insure.
Variable life insurance and universal life insurance: In the 1970s and 1980s. These two additional types of permanent insurance were introduce to the market.
