Understanding Life Insurance
Life insurance is an essential way to mitigate risk. People take out policies and pay premiums so that in the event of their death, there will be money for their affected families. For instance, a working mom might take out a policy for $25 a month that pays her children a lump sum of $300,000 if she passes away. This mom is mitigating risk — in this case of life insurance, personal financial risk.
Life insurance is seen as essential in the insurance industry. That is, if a person were to have just one insurance product in the personal portfolios, life insurance would be that policy. It’s because life insurance is meant to assist the people who depend on you for income. In short, if you aren’t there to bring home income, then life insurance would help the loved ones left behind financially fill that hole.
Different Types of Life Insurance
There are three types of life insurance: term, whole and universal. Each has characteristics that help people mitigate risk. Term life insurance is seen as a more affordable plan and probably the most popular among younger families. It provides financial stability for survivors for a number of years, the “term” of the policy. For instance, the working mom could buy a policy that provides a certain amount of money upon her death if it were to occur in say 10, 15, or 30 years. After the term ends, so does the policy, though they can be extended at a price.
Whole life insurance lasts throughout the entire life of the policyholder, as long as that policyholder pays the premium. They are more expensive but have added benefits. Short-term loans can be made against a whole life policy and they accrue tax-deferred.
Universal life insurance policies are like whole life plans, but they can be adjusted. The accrued funds are tax-deferred like their life insurance cousin, but an individual might decide to increase the death benefit or how they pay the premium or the amount of the premium. This flexibility makes universal coverage the most valued on the market.