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LIFE INSURANCE
Life insurance is a financial product that provides a payout to the beneficiaries of the policyholder upon the policyholder’s death. The purpose of life insurance is to provide financial protection and support to the policyholder’s loved ones in the event of their passing. It is a contract between the policyholder and an insurance company, where the policyholder pays regular premiums in exchange for this coverage.
In Brief
Term life insurance: This kind of policy offers protection for a predetermined period of time, such as 10, 20, or 30 years. The beneficiaries of the policy receive the death benefit if the policyholder passes away within the term. There is no compensation if the policyholder survives the period.
Whole life insurance: Whole life insurance policies offer protection for the policyholder’s entire lifetime. These agreements for insurance frequently have an investment or savings component (cash value) that increases over time.
Endowment Policies: Endowment policies pair savings with insurance protection. When the insurance matures, they provide a one-time payment, or if the policyholder passes away during the term, they make a payment to the beneficiaries.
Unit-Linked Insurance Plans (ULIPs): ULIPs are investment-linked insurance plans that offer life insurance coverage while permitting policyholders to invest in a variety of investment funds.
Types of Life insurance
Key Features
Death Benefit: The death benefit is the amount of money the beneficiaries receive when the policyholder passes away. This money is typically tax-free and can be used to cover funeral expenses, pay off debts, replace lost income, or meet other financial needs.
Premiums: Policyholders pay regular premiums to maintain their life insurance coverage. The premium amount can vary based on factors such as the type of policy, the policyholder’s age, health, and coverage amount.
Underwriting: Insurance companies assess the risk associated with insuring an individual before issuing a policy. This process, called underwriting, involves evaluating the applicant’s health, lifestyle, and other factors to determine the premium rate and eligibility for coverage.
Beneficiaries: Policyholders designate one or more beneficiaries who will receive the death benefit when they pass away. Beneficiaries can be family members, friends, or organizations.
Cash Value: Permanent life insurance policies have a cash value component that grows over time. Policyholders can often access this cash value through withdrawals or loans while they are still alive.
Riders: Policyholders can add optional riders to their life insurance policies to customize coverage. Common riders include accidental death benefit riders, disability riders, and long-term care riders.
Life insurance is an essential financial tool for those who want to ensure their loved ones are financially protected in case of their untimely death. It can also be used for estate planning, business succession, and other financial planning purposes. When considering life insurance, it’s important to carefully evaluate your needs, budget, and the different types of policies available to determine what best suits your situation. It’s also advisable to consult with a financial advisor or insurance agent to make informed decisions about life insurance coverage.
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