Life insurance is basically a contract in which an insurance company or insurer agrees to cover an insured individual a certain sum of cash upon the insured individual’s death, whereupon the insurer promises to cover a designated beneficiary an agreed sum of money. Depending on the agreement, other events like critical illness or terminal disease may also trigger premium payment. In the United States, life insurance has been made a legal requirement for those who want to avail of medical coverage.
The term insurance derives from the word “insurance”, and its primary function is to provide financial protection to your dependents in case of your death. A contract usually includes a death benefit, which is the amount that the insurance will pay after your death, and a contingent benefit, which is the amount that the insurance will pay out after your death, depending on the terms and conditions of the contract. There are many different types of insurance policies, each of which comes with different premiums and benefits, so it is important to carefully evaluate each type before deciding what type is best suited for you. One type of insurance that most people are familiar with is Term Life Insurance. This form of insurance allows you to make payments only once, and the premiums remain constant until your death is assured.
You may wonder how Term Life Insurance differs from other forms of insurance, and the answer is simple – premium payment is completely based on your age at the time of your death. If you are young, the premium will be high, because the insured person will be in good health. The older you become, the lower your premium will be. Thus, pure protection is assured by this type of insurance, and your family will be financially protected if you die. It also provides your family with the opportunity to manage your estate, should you die unexpectedly.
There are two major categories of policies: Whole Life and Term Life. Whole Life Insurance is designed to cover your entire family in case you pass away. With this type of policy, your dependents receive a lump sum of cash, which is the same amount they would have received if you had kept paying your premiums for as long as possible. This ensures that they do not suffer a financial loss, even if you die prematurely. However, this type of policy usually has a high premium and is difficult to qualify for. Because it does not compensate for financial needs, only the standard death benefit is paid to your beneficiaries.
Term Life Insurance is a type of insurance that pays out a fixed amount of cash, usually for a fixed term. If you pass away within the period of the coverage, your beneficiaries will receive a predetermined sum of money, usually less than the face value of your policy. With Term Life Insurance, your dependents receive the same level of protection as you, but their protection is only for a specified period of time, called the “term.” If you were to pass away during the term of your policy, your dependents would receive no money at all. Because this type of insurance does not provide any type of immediate financial protection, it is very important to purchase it for the correct amount of time. The longer you have it, the larger the premium will be, which means the more expensive it will be.
Another type of insurance is non-qualified insurance, also called “non-permanent” insurance. Non-permanent life insurance policies do not provide any type of death benefit or investment options. In order to qualify for this type of policy, a beneficiary must have a college degree or a similar income that can be verified. If your beneficiaries cannot verify their income, the premiums will be much higher since the death benefit will not be worth the amount of the premium.
Finally, there are “tax-qualified” insurance policies. Tax qualified life insurance policies give the insured a death benefit equal to the death benefit of his/her parents and dependents when they die. Unlike non-tax qualified policies, if the insured dies during the term of the policy, none of the premiums will be paid. The insured will be taxed on the amount of the premiums however.
If you are a senior citizen that has dependents, then you should seriously consider purchasing an insurance policy in order to protect them from financial loss should you pass away. Do not wait until you are very old or very sick before you consider this option. An insurance policy will give your family the security of knowing that they will get enough money to survive, even if you die. With so many different options available, there is no reason why you should delay or not to make use of all of them.