Your life is valuable. You matter to your wife, kids, parents, and other beneficiaries. However, death is invertible. When you are gone, you will leave behind people who depend on you.
So, people often ask; how can I provide for my family, when I am gone? You can save your money in the bank, or purchase physical and financial assets like stocks. Obtaining life insurance plans is another option.
About Life Insurance Plans
Let us compare two insurance covers: Auto insurance and Life insurance. When you purchase a brand new Toyota, you definitely need an insurance cover. A comprehensive car insurance buys or replaces your car if it suffers extensive damage due to an accident. If the car remains accident-free, the premiums (cash) you pay to the insurance firm become profit.
A life insurance cover works in a similar fashion, but the details are different. You first apply for a life insurance cover with an insurance company of your choice. Next, you will agree on the details of the policy, which is the contract made by the insurer and insured (you). The insurer can also be called the company, provider, or carrier.
The policy is just a set of rules that define the fees, costs, the term (duration), the death benefit (money paid in case of death), beneficiaries, and more.
You will be the ‘owner’ of the policy, and the beneficiaries can be more than one person. They will receive more money than what you paid as premiums.
For instance, for a life insurance plan with a death benefit of $1,000,000 for a term of 20 years, the insured may pay monthly premiums of about $110. That means, in case the insured passes away within 20 years, the beneficiaries receive a payout of $1,000,000.
Type of Life Insurance Plans
People are unique, and so are insurance plans. Your premiums will differ depending on your health status. Premiums are generally higher for someone who smokes, and so on. At the basic level, there are two main types of life insurance plans:
Term Insurance Policies
Term life insurance covers expire after a duration of 10, 15, 20, or 30 years. Some companies offer one-year-covers that expire after 12 months.
If the insured survives beyond the plan’s termination date, the life policy ends. They will not receive any money. On the other hand, if the death of the insured happens within the term, the company has to pay the beneficiaries the total death benefit.
Some insurance companies will not pay the death benefit when the death was caused by suicide within the first two years. There are several types of term insurances; the two main ones include decreasing term insurance and level term life insurance.
In some cases, the insurance company will not terminate the plan after it expires. The company may reduce the death benefit amount, or increase the premiums.
Whole life policies
Whole life policies are all types of life insurance plans that do not have a specific term, or they expire when the insured dies. They tend to be more expensive than term insurance policies. However, they have fixed premiums, assured cash value accumulations, and you can even borrow a loan from the insurer or bank on the life plan.