Life insurance is a contract between an individual (the policyholder) and an insurance company, where the insurance company agrees to pay a designated beneficiary a sum of money upon the death of the policyholder in exchange for regular premium payments.
There are several reasons why a person may need life insurance.
- If the policyholder has dependents, such as children or a spouse, life insurance can provide financial support to those dependents in the event of the policyholder’s death.
- The policy payout can help cover living expenses, mortgage payments, or other debts that the dependents may have.
- Life insurance can be used to cover funeral and burial expenses.
- Life insurance can also be used as an estate planning tool, providing a means to pass on assets to heirs or charitable organizations.
Term life insurance: This is a type of life insurance policy that provides coverage for a specified period of time, typically between 1 and 30 years. If the policyholder dies during the term, their beneficiaries receive a death benefit payout.
Whole life insurance: This type of policy provides coverage for the policyholder’s entire life, as long as premiums are paid. The policy builds cash value over time, which can be borrowed against or used to pay premiums.
Universal life insurance: This is a type of permanent life insurance that offers flexible premiums and a death benefit. The policyholder can also accumulate cash value over time, which can be used to pay premiums.
Variable life insurance: This type of policy allows the policyholder to invest the cash value of the policy in various investment options. The death benefit and cash value can fluctuate based on the performance of the investments.
Indexed universal life insurance: This type of policy allows the policyholder to accumulate cash value based on the performance of a stock market index, while also offering a minimum guaranteed interest rate.
Final expense insurance: This type of policy is designed to cover the costs of a funeral and other end-of-life expenses. The death benefit is typically much smaller than other types of life insurance policies.