Life Insurance - Definition and Types

Life insurance or assurance is a contract between an insurance policy holder and an insurer or assurer. In return for payment of premiums, insurance companies give beneficiaries a lump sum, known as death benefit after the insured dies.

Usually, life insurance is chosen based on the needs and goals of the owner. In principle, life insurance offers temporary protection, while long-term life insurance, such as overall and universal life, offers lifetime protection. It is important to note that death benefits from all types of life insurance are usually tax free.

Types of Life Insurance:

There are many types of life insurance. Some of these are discussed below.

Term life insurance:
The term life insurance must provide financial security for a certain period of time, for example 10 or 20 years. With classic risk insurance, the amount of premium payment remains the same for the insurance period you choose. After this period, policies can provide long-term coverage, usually with much higher premium payment. The term life insurance is usually cheaper than lasting life insurance.

Need For Coverage: Life insurance income can be used to replace the potential income lost during work years. This can be a safety net for your beneficiaries, and help you ensure that your family's financial goals are achieved - such as paying a mortgage, running a business, and paying tuition fees.

It is important to note that although the term life can be used as a substitute for potential loss of income, life insurance benefits are paid in lump sum instead of regular salary.

Universal life insurance:
Universal life insurance is a permanent life insurance that provides lifetime protection. Unlike comprehensive life insurance, universal life insurance policies are flexible and allow you to increase or decrease your premium or coverage throughout your life. In addition, Universal Life usually has a higher premium payment from time to time because of its expected life.

Need for Coverage: Universal life insurance is often used as part of flexible real planning to preserve assets that are passed on to recipients. Another common application is the replacement of long-term income when needs are more than one year of work. Some universal life insurance products aim to provide death benefits and monetary value, while others aim to provide guaranteed death benefits.

Whole life insurance:
A comprehensive life insurance policy is a type of permanent life insurance policy that is designed to ensure lifetime protection. Because of a lifetime of protection, life as a whole generally has a premium payment that is higher than the time period. Premium payments are usually fixed and lifetime, unlike the terms, have a monetary value that acts as a savings component and can result in deferred taxes from time to time.

Eligibility requirements: Lifetime can be used as a real estate planning tool to preserve the assets you want to convey to your beneficiaries.