Life insurance is insurance against the death of a particular individual. Essentially, the insurance guarantees that upon the accidental death of the person the insurance company will pay to a named beneficiary a set amount of money. Life insurance is sometimes sold under the name accidental death and dismemberment policies, which in addition to death payouts also allow for payouts in the event of the partial or complete disability of the insured. These insurance policies fall into several broad categories: term, whole, and universal. To learn more about related services and compare providers, visit one of the following directories on this web site:
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Term life insurance is generally the cheapest type of insurance for younger individuals. An insured purchases a policy and agrees to pay a premium for a certain number of years, normally 5, 10, 20, or 30 years. In exchange, in the event of death during the policy term the insurance company agrees to make a payment equal to the face value of the policy to the insured’s beneficiaries. In writing term insurance the insurer uses actuarial tables to determine the probability of the insured event (death) occurring during the policy term and calculates an appropriate premium to allow the insurer to pay claims and achieve an appropriate level of profit. Upon expiration of the policy if the triggering event (death) has not occurred, the premiums remain the profits of the insurer and the insurance lapses.
Whole life insurance is very different from term life insurance. In writing a whole insurance policy the goal of the insurer is not to predict if death will occur, but when it will occur. Whole life policies do not expire, so the payment of benefits by the insurer is a certainty only the timing of benefits is in question. Whole life policies are an investment vehicle whereby the insured pays into the policy and the insurance company invests the money for a long period of time in order to take the premiums and turn them into the final payoff of the policy. Any excess of the returns of the invested premiums over the benefit amount becomes the profits of the insurer. Unlike term policies, which continue to require premiums for years, most whole insurance policies eventually become "paid up", that is the policyholder reaches some predetermined maximum they can pay into the policy in premiums.
Universal life, is a hybrid between whole and term insurance, essentially the insured is responsible for paying premiums one way or another, but they receive credit for the dividends accruing to money they have previously paid into the policy. If the dividends are enough to offset their premiums in a given year, no payment is needed. If the dividends are insufficient to offset the premiums, a premium payment is required. Universal life insurance is prohibited by law in some states.
Life insurance amounts and types vary widely based on personal opinions, beliefs, and goals. Some individuals carry large amounts of insurance, while others carry small "burial" policies that are barely enough to see to one’s final affairs, and still others elect to carry no life insurance at all. It is noteworthy to remember that it is common for the family of a recently deceased person to assign all or part of that person’s life insurance proceeds to the funeral home or other facility coordinating services for that individual in payment for their services.
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