Life insurance is a contract between an individual and an insurance company in which the individual pays a premium, and in exchange, the insurance company promises to pay a designated sum of money to the individual’s beneficiaries upon the individual’s death. The purpose of life insurance is to provide financial protection to one’s loved ones in the event of one’s death, and to help cover expenses such as funeral costs, outstanding debts, and ongoing living expenses.
There are mainly two types of life insurance policies
1) term life insurance – Term life insurance is a type of life insurance policy that provides coverage for a specified period of time, usually 10, 20, or 30 years. It is often the most affordable type of life insurance, and it is designed to provide temporary protection for your loved ones in the event of your unexpected death.
When you purchase a term life insurance policy, you will typically choose a coverage amount and a term length. The coverage amount is the amount of money that will be paid out to your beneficiaries in the event of your death, and the term length is the length of time that the policy will be in effect.
If you die during the term of the policy, your beneficiaries will receive the death benefit specified in the policy. If you outlive the term of the policy, the coverage will end and you will not receive any benefits.
Term life insurance is often a good choice for people who have financial obligations that will end at a specific point in time, such as a mortgage or college tuition payments.
2)whole life insurance, – Whole life insurance is a type of permanent life insurance that provides coverage for the duration of your life, as long as you pay the premiums. It is often more expensive than term life insurance because it provides lifelong coverage and has a cash value component.
When you purchase a whole life insurance policy, a portion of your premium payments goes towards the death benefit, which is the amount that will be paid out to your beneficiaries upon your death. Another portion of your premium payments goes towards the cash value of the policy, which grows tax-deferred over time.
The cash value of a whole life insurance policy can be used in a number of ways, such as to pay premiums, borrow against the policy, or surrender the policy for its cash value. Keep in mind that borrowing against the policy can reduce the death benefit, and surrendering the policy can result in surrender charges and taxable income.
Whole life insurance is often a good choice for people who want lifelong coverage and a guaranteed death benefit. It can also be a good choice for people who want to accumulate savings over time through the cash value component of the policy.