How Does Life Insurance Work??

How Does Life Insurance Work?

A life insurance policy refers to a contract one has with an insurance policy. The insurance company receives premium payments from its customers and provides a death benefit, which is a lump-sum payment, upon the death of the insured. The death benefit is given to the beneficiaries of the insured. 

In general, life insurance is selected based on the needs and desires of the owner. Term life insurance provides the insured with protection for a certain period. Permanent insurance, on the other hand, offers coverage for a lifetime. It is essential to note that death benefits are tax-free for all forms of life insurance. Read this article to learn more about how life insurance works and the different types.

How Does Term Life Insurance Work? 

Term life insurance is intended to offer financial protection for a certain period, such as one or two decades. According to traditional term insurance, the premium payment amount remains the same for the selected coverage period. After that period, policies may continue to offer coverage. However, the premium payment rate will probably be much higher. In general, term life insurance is less expensive in comparison to permanent life insurance. 

The purpose of term life insurance is to help replace any potential income that has been lost during the working years. The death benefit is intended to serve as a safety net for beneficiaries and can help make sure the financial goals of the family are still met. Some examples of such financial goals include paying for college and paying the mortgage. 

Keep in mind that life insurance benefits are generally paid as a lump sum rather than regular paychecks or payments.

How Does Universal Life Insurance Work? 

The purpose of universal life insurance is to provide coverage to the insured for a lifetime. Universal life insurance policies tend to be flexible. In general, they allow you to increase or decrease the premium payment or coverage amounts for your lifetime. Premium payments are generally higher for universal life insurance than term life insurance. 

How Does Whole Life Insurance Work? 

Whole life insurance is a form of permanent life insurance that is also intended to provide coverage for a lifetime. Due to the lifetime coverage period, whole life insurance tends to have a higher premium than term life insurance. The premium payments are fixed, and whole life insurance has a cash value. The cash value behaves as a saving component, which can accumulate. 

For more information about how life insurance works and the different types, don't hesitate to contact us.