Life insurance is an agreement between an insurer or an insurance company and an individual, where upon the demise of an insured individual, an agreed amount of money is to be paid by the insurer to the named beneficiary. Depending on the agreement, payment can also be made for other events such as critical illness or terminal illness. Generally Life Insurance is used to provide funds to cover funeral costs and payments towards mortgage or loan repayments of survivors.
To obtain life insurance policy coverage, an individual needs to have an income that meets the requirements of the Insured Party. This income is a base sum which determines the premium amount and the number of years for which the policy is in force. The Insured Party can be a family member or a friend. The premium amount will be determined by an indirect effect of age and/or health at the time the policy is issued.
A policyholder creates a variety of beneficiaries by selecting a life insurance policy that is suitable for his or her needs. In order for the beneficiary to receive payments, two or more policies may be owned by the same person and each policy will be called a secondary insurance policy. The primary policy will be the one that provides funds for the benefit of the beneficiaries. A key feature of life insurance works by the creation of a series of exceptions that allow some of the expenses to be paid from the proceeds of the policy itself. These are known as suspension periods. The duration of these suspensions can vary and depends on the beneficiaries’ ages, the premiums and the duration of the policy in effect.
There are a variety of different types of policies that are offered by different Life Insurance companies. Each type differs slightly but offers different benefits depending upon the policyholder’s needs. Premiums are determined by the risk of the insured and the amount of coverage required by the policyholders. The premium amounts will change as the insured ages, as well as the risk factors.
Most life insurance policies will pay out once the policyholder has died. Other types of policies pay a bonus amount to the beneficiaries. This is usually based upon a percentage of the total cost of the policy. Policyholders can contribute towards the cost of these bonuses through income taxes or other means.
Choosing a life insurance plan is a very important decision. Many people have a difficult time choosing the right plan because they do not understand all of the options available. Life insurance plans are typically broken into two categories: indemnity plans and beneficiary-based plans. An indemnity plan pays a death benefit to named beneficiaries when the insured dies. A beneficiary-based life insurance plan does not have a death benefit and does not pay benefits until a named beneficiary is selected from the policy.
Whole life insurance plans pay out death benefits, regardless of whether the insured has made any payments on the policy. These plans also provide a cash value that is equal to the cash surrender value of the account. Premiums are typically less than those for term life insurance policies, and the cash value is tax deferred. Unlike term life insurance policies, there is no need to pay the premiums until the policy is in force. Any premiums over the death benefit that are not paid are forfeited to the beneficiary.
Most whole life insurance plans include a borrowable option that allows the policyholder to borrow against the policy at any point in time. If this borrowable option becomes unavailable, the policy then pays the premiums to the designated beneficiary. However, most policies pay out a terminal benefit that is the death benefit or the face value of the policy. This is the maximum amount that can be repaid by the insured in the event of his death. In order to determine the face value of the policy, the current fair market value of the covered entity is used. As premiums are paid up, this amount steadily increases until the insured dies.
