Insurance means you are protecting something in return to some rewards. In this way the most important thing for anyone should be the life as without life nothing is achievable. Insurance of life is utmost important as this is not for you but for your loved ones.
Life insurance is a guaranteed agreement between insured and the insurance company. The insured pays premium to the insurance company for a particular time mentioned in the policy and the insurer in return promises to return a lump sum amount during the death of the insured person or when the policy expires.
Many private and government companies are available in the market that give insurance. Life insurance requirements may vary from person to person depending upon the policy taken. There are mainly three types of life insurance i,e Term Insurance, Permanent Life Insurance and Whole life coverage insurance.
Term Life Insurance As the name suggests, term life insurance is the one that provides coverage for a specific term, typically 25 years. If the insured dies during this period and the policy is still active then it pays a cash lump amount which is tax-free to the beneficiary. But although if you still alive after that term duration then you will not have any cash in value and would not get any returns on the premiums you made in the past.
The premiums you pay in Term insurance do no go to any kind of investment unlike other types of policies and solely used to provide you insurance cover. This is actually the pure form of life insurance and is usually cheaper than the other types. There are many types of terms insurance policies available that one can go for. The main benefit of Terms insurance is that it is cheaper than the other two types of insurance which we will talk about below but does not have any cash in value.
Universal Type of Life Insurance This is also called permanent insurance policy that combines some features of term insurance policy with a money market type investment and thus pays a return on market rate. Generally what happens in Universal insurance is the excess of premium that you pay during the tenure is credited to the cash value of the policy. This cash value is then credited to you each month with interest.
Universal type insurance is different in terms of whole insurance and is generally called flexible premium paid insurance. In this you pay your premium in a fund and the insured company adds interest on that. Any kind of deductions like applicable fees is done from that account. The main benefit of this type of life insurance is that it is flexible, the cash value can be used for various purpose like education, and all the returning are tax-free.
Whole Life Coverage Insurance As the name suggests, Whole life insurance provides you life time coverage. The premiums paid are higher as compared to Term Life insurance as the coverage is for life time. Unlike Term insurance, policy premiums are fixed and carry cash in value even after the policy ends in Whole life insurance.
In this type of insurance a fixed amount of money is paid by the insurer company on your death and a part of the premium that was used by the insurer company for the investment will be paid to you as cash in value. The main benefit of the policy is that you pay the same amount every year throughout the policy and the cash value that adds on is tax deferred. The only drawback is that this is expensive then the Term insurance.
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