Understand the Types Before You Purchase Life Insurance

How many people actually understand what life insurance is? It is a contract between a private individual (the policy owner or insured) and an insurance company that guarantees that, in exchange for an agreed upon amount (the premium) by the policy holder, the insurance company will pay an agreed upon amount of money (the benefit) in the event of the death of the insured. The insured may not necessarily have to be the policy holder. For instance, a spouse can buy a policy out and the spouse who took out the policy is the policy owner and the other is the policy insured. It is very common for businesses to take out a policy on employees. The firm owns the policy, but the officer of the company is the insured party.

Needless to say, the insured does not collect on the insurance, his beneficiaries do. Since it is a contract, insurance contracts very specifically spell out all of the limitations, exclusions and liabilities of each entity. Exclusions may apply, such as an exclusion concerning suicide.

The 3 kinds of life insurance are whole, term and universal life.

Whole life is a kind of life insurance that is meant to provide a payout no matter when the insured passes on, as compared to term life, which is for a specific, limited time. People who look at having a lifetime policy, and do not want their premiums to go up choose whole life. This kind of insurance also builds a cash balance. The guaranteed character of the death benefit makes whole life insurance fairly expensive.

Term life insurance, as the name implies, provides coverage for a specific term. The term of the insurance is spelled out in the policy and only covers the risk, it does not provide any accumulation of cash value as whole life does. Usually people buy term life for a stage when their family is vulnerable. Because of its limitations, term life possesses the lowest premiums.

Universal life insurance is based on a cash accumulation. To do this, the premium payments are higher than the cost and this difference is credited to a cash balance. The cash balance receives interest which in turn is used to pay the insurance and build further cash balances. The interest received is based on a stable standard, such as an interest rate index.

Life insurance premiums are higher the higher the risk the insurer perceives. Premiums on older people are higher than on younger since the risk of death is greater. Actuarial tables are used to decide the probability of death within a certain period for the different demographic groups.

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About BC:

Situated in the far northwest of Canada is the beautiful province of British Columbia. Like many of the western provinces, it grew as an result of the many trading posts of the fur trading business led by the Hudson Bay Company. This fur trade was the foundation

British Columbia has new appeal for the visitor todaythese days; instead of fur and gold, majestic mountains attract nature lovers from all over the world to the various parks and reserves. As an added bonus, British Columbia also envompasses the lovely plains lands of the Peace River District.

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This entry was posted on Friday, August 28th, 2009 at 6:42 am and is filed under Life Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.