What You Need To Know About Different Types Of Life Insurance
Types of Life Insurance
A Life Insurance policy is a contract between two parties: The insurance company and the insured. It involves a transfer of risk to the life of the insured individual to the insurance company at a cost that is called the premium of the insurance policy. In this way, a life insurance provides a financial cushion to the dependents of the insured person. Under a life insurance policy, the policyholder nominates someone to get the assured sum in case of his death. On the occurrence of such an event, the insurer pays the insured amount to the nominated person mentioned in the insurance contract who may be a family member of the deceased. This amount is irrespective of the total that may have been paid for in the form of insurance premium by the insured.
Some common types of life insurance policies include:
1. Level Term insurance policy - A level term insurance policy provides a cover that remains level or keeps constant till the time period selected by the insured. The time period may range from 10, 15, and 20 to 30 years. Once the term period is selected, it cannot be changed by the insured. These policies can be easily converted into permanent policies. It is meant for people who need cover for a limited number of years or those with a short-term outlook.
2. Permanent insurance policy – A permanent life insurance policy is a form of whole life or endowment policy in which the payout is assured at the end of the policy. While the level term policy provides a cover for a limited time period, a permanent life insurance provides a cover for the entire life. People with regular fixed income prefer this policy.
3. Variable/Universal insurance policy – The VUL insurance works just like a mutual fund and builds cash value. The variability component is in the amount of premium to be paid. It can vary every time it is due. Those who cannot pay a fixed premium regularly prefer this policy.
4. Whole life insurance policy – This insurance policy pays a lump sum on death or in some cases, earlier, on diagnosis of a critical illness. It has a fixed premium payment failing which the policy can lapse. People with a long-term outlook prefer this policy.
The only criteria for consideration of a claim is that the insured must be under the cover at the time of the death and the cause of death must be covered by the policy. The covered events can include a natural death as well as fatal accidents. The legal contract may have some limitations as well. Insurance is an indemnity contract. The underlying objective of insurance is the minimization of losses rather than making a profit. Therefore a beneficiary may not get the assured sum in case the insuree commits suicide or in case of a fraud where the principle of Utmost Good Faith is violated. This is the reason why the insurance companies have to carefully scrutinize the claims received by them to ensure that the claim is genuine and there is no foul play involved in it.
Remember to always talk with a Financial Professional before making any decisions
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