Alyssa Lane
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. It provides financial security for loved ones by covering expenses like income replacement, debt repayment, and funeral costs. There are different types of life insurance, including term life insurance, which offers affordable coverage for a specific period, and permanent life insurance, which provides lifelong protection with a cash value component. Group life insurance is another type, where members exiting the group can often maintain their coverage by buying individual coverage.
| Characteristics | Values |
|---|---|
| Type of contract | A contract between an insurance policy holder and an insurer or assurer |
| Payment | The policyholder typically pays a premium, either regularly or as one lump sum |
| Payment recipient | The insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person |
| Payment triggers | Depending on the contract, other events such as terminal illness or critical illness can also trigger payment |
| Benefits | Benefits may include other expenses, such as funeral expenses |
| Types | Term life insurance offers affordable coverage for a specific period, while permanent life insurance provides lifelong protection with a cash value component |
| Group life insurance | Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage |
| Group life insurance and employers | If there is more than one policy from the same insurer providing coverage to employees, a combined test is used to determine whether it is carried by the employer |
What You'll Learn
Permanent life insurance
Life insurance is a contract between an insurance policyholder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Permanent life insurance is a type of life insurance that covers the remaining lifetime of the insured. It provides lifelong protection and has a cash value component. This means that the owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. The three basic types of permanent insurance are whole life, universal life, and endowment.
The benefits of permanent life insurance may include covering expenses such as funeral costs, income replacement, and debt repayment. Permanent life insurance premiums are determined by factors such as the policyholder's age, health, and lifestyle, with younger and healthier individuals paying lower rates. Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage.
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Group life insurance
Life insurance is a type of contract between an insurance policyholder and an insurer. The insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. The policyholder typically pays a premium, either regularly or as a lump sum. The benefits may include other expenses, such as funeral expenses, income replacement, and debt repayment.
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Term life insurance
Life insurance is a contract between a policyholder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Term life insurance is a type of life insurance that offers affordable coverage for a specific period, such as 10 or 20 years. It is a good option for those who want to ensure their loved ones are financially secure in the event of their death, as it can cover expenses like income replacement, debt repayment, and funeral costs.
The cost of term life insurance depends on various factors, including the policyholder's age, health, and lifestyle. Younger and healthier individuals can expect to pay lower rates. It is important to note that term life insurance policies do not cover the remaining lifetime of the insured, and the coverage ends once the specified period is over. If the insured person dies during the coverage period, the beneficiaries will receive the death benefit. However, if the insured person outlives the policy, no benefits will be paid out.
Group term life insurance is a type of term life insurance that is often provided by employers as a benefit to their employees. It is considered "carried" by the employer, and the cost may be excludable or included in the employee's income, depending on the specific circumstances. Group term life insurance allows employees to have peace of mind knowing that their loved ones will be taken care of financially in the event of their death.
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Whole life insurance
Life insurance is a contract between a policyholder and an insurance company, where the policyholder pays a premium and the insurance company promises to pay a designated beneficiary a sum of money upon the death of the insured person. Permanent life insurance is a type of life insurance that covers the remaining lifetime of the insured and accumulates a cash value.
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Universal life insurance
Compared to whole life insurance, universal life insurance has more options. Policyholders can raise or lower their premiums within certain limits, and it can be cheaper than whole life coverage. However, if investments underperform or policyholders underpay for too long, it could affect their death benefit or cause their policy to lapse.
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Frequently asked questions
Life insurance is a contract between an insurance policyholder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person.
Permanent life insurance covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturation, which the owner can access by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.
Group life insurance allows members exiting the group to maintain their coverage by buying individual coverage. The underwriting is carried out for the whole group instead of individuals.
Term life insurance offers affordable coverage for a specific period, like 10 or 20 years.
