What is Life Insurance?
A life insurance policy is a financial shield to safeguard your family’s future against any unfortunate circumstance, such as your sudden demise. To simplify it further, a fixed sum of money is paid on a monthly basis. This defined amount to be shelled out every month is termed as ‘premium’. During the tenure of the policy, if an untimely death occurs, the amount accumulated in the form of premiums is given to the beneficiary. The beneficiary is usually a family member nominated for the benefits of the policy.
In addition, there are several options available upon maturity of policy, wherein you can yield good amount of returns earned over the given period of time. There is a great variety of insurance policies available catering to different needs of an individual, be it security or investment.
Do you need life insurance?
Life is full of uncertainties and fairly unpredictable; a life insurance policy deals with prevention of the financial setback due to the sudden death of a family’s bread-winner. When it comes to business, life insurance also helps to safeguard its key employees as well as the entire business in case of a fiscal downfall. Some also use life insurance policy as an investment tool.
How does life insurance work?
We, by now, have understood what a life insurance policy is all about. However, there are three different types of insurance policies available, and they all work differently, serving different purposes. Let us try to know about them in detail.
- Term Life
Term insurance is the simplest form of life insurance. It pays benefits to the nominee or assignee upon death of the policy holder within the defined tenure. The tenure can be from one year to 30 years. However, in this case, the policy holder cannot claim benefits at the end of the tenure. Therefore, the amount paid in the form of premium is also relatively less. Term life insurance policies are convertible and can also be renewed.
- Whole Life
As the name suggests, this insurance policy does not come with any defined time period. It is continued for your whole life so long as the premiums are paid. Also, this policy comes with dual benefits of security and investments. It allows the insured to withdraw or borrow money from the policy at any point throughout his life. However, the rate of returns is comparatively less if it is considered as an investment option. It is advisable to take views of someone in the know about this domain before making any hasty investments.
- Universal Life
A Universal Life insurance policy comes with a short-term interest rate as opposed to the fixed long-term interest rate of a Whole Life insurance policy. However, the interest rate may fluctuate, but it is expected to not fall to the guaranteed rate of interest.