What’s it and the way does it work?


While home insurance protects your home and auto insurance protects your vehicle, what about insurance that protects your family’s financial security. If you’re one of the many Americans who feel the need to purchase life insurance but feel overwhelmed with all of the options available in the market, read on for a comprehensive guide to getting the right policy for you.

What is life insurance?

Life insurance is a financial tool that involves an agreement between you and an insurance company. This agreement provides that in return for the payment of your premiums, in the event of death, the insurance company will pay your beneficiaries a lump sum, called death benefit.

What are the types of life insurance?

There are mainly two types of life insurance: term life insurance policies and permanent life insurance policies. The difference is that term insurance provides coverage for a fixed term, while permanent life insurance provides coverage for life.

Term life insurance: Term insurance is the most affordable and popular type of life insurance and provides coverage for a fixed term. Some policies also offer the option of renewing your coverage in one-year increments, with each renewal being at a higher rate, with a guaranteed renewal.

Permanent life insurance: On the other hand, permanent life insurance offers lifetime coverage and is more expensive because it lasts a lifetime and generally creates cash value. This cash surrender value can, however, be accumulated on a tax-deferred basis while allowing you to borrow against it or make a withdrawal.

Permanent life insurance comes in different varieties, namely:

– Whole life insurance: These policies offer a fixed death benefit and a cash value with a guaranteed rate of return. Most of them also pay dividends.

– Universal life insurance: These policies provide even more flexibility, allowing you to change your premium payment and the amount of your death benefit. They tend to involve investment sub-accounts that you can use as well.

– Funeral insurance: These are small whole life insurance policies with a minor death benefit, typically between $ 5,000 and $ 25,000, designed to cover only final expenses and funeral costs.

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