Life insurance is an insurance policy that pays out a specified sum of money to a designated beneficiary upon the death of the insured person. For example, a woman may purchase a $500,000 life insurance policy and designate her husband as the beneficiary - the person who receives the payout. If she dies during the term of the policy, the insurance company will pay her husband $500,000.
For families, the primary purpose of life insurance is to provide protection for those who depend on your paycheck. The payout helps to pay funeral expenses, pay outstanding debts, mortgage or rent payments, living expenses, education costs and more.
While most policy holders designate one or more people to receive the payout, some name charitable organizations, schools, museums, or other groups as the beneficiaries to receive the payout when they die.
---------- There are two main types of life insurance: TERM and WHOLE (also known as Permanent). ----------
Term is the simplest form of life insurance. You enter into a contract with an insurance company for a specified payout amount, period of time, and premium or cost, often paid annually or monthly. Term insurance can be purchased for periods of one to thirty years, with common lengths usually being 10, 20, or 30 years. If you don't die during the term, the policy simply expires and your beneficiary does not receive the payout. If you do die during the term - and your premiums are paid and your policy is current - your beneficiary receives the specified payout amount from the insurance company.
Whole (Permanent) life insurance will cover you for the duration of your life, as long as you continue to pay the premiums. The premiums are typically higher than Term Insurance premiums because part of the premium is invested by the insurance company. Whole life insurance policies have a "face value" as well as a "cash value". The face value is the amount your beneficiaries will receive when you die. The cash value is equal to the amount of the premiums you have paid plus any investment earnings. Since many investments involve some risk, it is possible that the cash value of your policy could decrease instead of increase over time.
Next week, we will share a few details you should know about life insurance.
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