Understanding Life Insurance

Life Insurance
There’s nothing else in life quite as exciting as buying Life Insurance and all insurance salesmen are out to help you…ok, so I’m joking a bit.

Actually, Life Insurance is an important financial planning tool and a popular way to provide financial security to your survivors. Let’s look at the Life Insurance basics:

There are 2 basic forms of Life Insurance: Term and Whole Life (sometimes called Permanent). Term insurance is usually the least expensive and pays only if death occurs during the term of the policy (hence the name). Rates vary with your age, health, sex, smoking status, and a bunch of other things. There are 2 subcategories: Level Term which means that the death benefit stays the same throughout the term, and Decreasing Term which means that the death benefit decreases with time (usually yearly).

Whole Life pays whenever you die as long as the policy is still in force. There are three basic forms of Whole Life: Traditional, Universal, and Variable Universal, along with variations within each type.

In Traditional Whole Life, both the death benefit and the premium stay the same for the life of the policy. Of course, the older that you get, the greater your chance of dying, so in order to keep the premium unchanged, in the early years of your policy, part of your premium is invested for you to pay for your increased chance of death in your later years. This invested amount is known as the Cash Value.

Read on for more information about understanding life insurance.