What is life insurance?

Life Insurance is an agreement between a person and an insurance company in which the company agrees to pay the policy holder or beneficiary an agreed upon sum of money if they die or become seriously injured such as loss of a limb or other situation where they can’t live there life as normal.

Types of Policies

There are several types of Life insurance policies available. The three main types are Term, Whole and Universal. Term Life Insurance, sometimes referred to as death insurance because it pays the beneficiary upon the death of the policy holder.

Term Life Insurance

 Premiums for Term life is generally cheaper per the amount of coverage. The rates for term life get progressively higher as you age. This is because you age your need for life insurance should decrease as your children will grow and become independent and you will have less debts due to being closer to paying off your mortgage. Who should buy term life insurance? Term life is a good choice for young people who have a spouse or children who will need support in the event of the untimely death of the insured. Also if you have large debts such as a mortgage term would be a good fit for you.

Whole Life Insurance

Whole Life Insurance is a policy where the premiums are typically fixed for the life of the policy holder. You are guaranteed a fixed amount upon death. You can also get cash out of your policy while you are still alive after a number of years of coverage. The disadvantages of whole life is that the premium per amount of coverage is higher than for term life when you are young and need more insurance and the rate of return for cash value is typically lower than other investment options.

Universal Life Insurance

Universal Life Insurance is quite a bit more complex. It has flexible premium payments throughout the life of the policy. This can be an advantage or a detriment depending on how the performance of the cash account part of the policy. The cash account part earns interest which helps pay premiums. This can be good if interest rates are high as you will have lower premiums but if rates are low them your premiums may increase.