Life insurance is a very important part of financial planning which also gives a great sense of security to the policyholder and their loved ones. In the event of a claim under any of the circumstances listed, from the time the client’s file is recovered to the point the claim payment is settled, the insurance company will receive detailed information about the policyholder. The insurer can’t refuse the claim before the death of the policyholder.
Types of Life Insurance
- Term Life Insurance
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
Term Life Insurance
- Basically, the Policyholder or the policyholder buys a certain amount of protection in the form of life insurance for a certain term, like 10 years, 20 years, or 30 years.
- If the policyholder upgrades with time and buys other policies, the premium will go up.
- A death benefit is paid only upon the premature death of the policyholder during the term of the policy.
- If a policyholder reaches the end of a term, the policy will fall without cash value.
Whole Life Insurance
- This security that lasts for whole life is known as whole life insurance.
- You can take off the cash value only when it is paid by the insurance company, i.e., from your policy fund.
- The premium on whole life insurance policies is noticeably more expensive than term life insurance policies are.
- This whole life insurance provides survivor benefits to the policyholder’s beneficiaries.
Universal Life Insurance
- Universal life insurance is a kind of continuing protection insurance that can be customized flexibly to pay a personal life benefit or only a savings part.[3]
- The Death Benefit will change or increase only when the Policy Owner increases the Premium Payment or the Coverage.
- The cash value produces interest, and the policyholder can decide to invest the cash value in various investment options.
Variable Life Insurance
- It is a permanent life insurance variety that combines the benefits of a death benefit and a segregated cash value with the death benefit itself being invested in various accounts like stocks, bonds, or mutual funds.
- The cash value can either rise or fall, in the event that a particular investment option performs well or badly.
- The policyholder has the ultimate discretion to manage the portfolio but there is still a risk factor if the investments do not yield the expected results which might lead to a financial loss instead of a gain.
Here are few terms you should know before dealing with life insurance
Coverage Amount
- The coverage amount is the death benefit amount that the policyholder’s beneficiaries are entitled to when the policyholder dies, and it must be in force at that moment to pay.
- The coverage amount is typically determined by the policyholder’s income, debts, and financial obligations.
- The policyholder may opt to increase or reduce the coverage amount by changing the insurance policy as their needs evolve from time to time.
Premium
- The premium is the amount the policyholder pays to the insurance company to secure and maintain their life insurance coverage.
- The premium is usually charged either on a monthly, a quarterly, a half-yearly, or an annual basis.
- The premium might fluctuate depending on the policyholder’s age, health, timetable coverage amount, and the type of policy.
- The policy term is when the life insurance coverage is on at a given time.
- Different from the whole life insurance policy, term life insurance policy term is defined and usually between 10 to 30 years.
- The policy term for whole life insurance is the policyholder’s entire life, meaning as long as they live the insurance will remain active.
- Death benefit is the sum of money that the policyholder’s beneficiaries will get in case the policyholder dies while the policy is enforced.
- Death benefit is tax-free and can be used for the payment of funeral expenses, debt settlement or the provision of the policyholder’s family, but it is not limited to them.
- The cash value is a reserve element associated with permanent life insurance products such as whole life, universal life, and variable life insurance.
- Identify as the way money grows over previously stipulated periods and the opportunity to lend funds or to pay premiums.
- The cash value is not fixed and may be subject to change because of the fluctuations in the value of investments in the case of variable life insurance.
- Riders are what the policyholders have the option to add to their insurance package to get more coverage or some benefits from the policy.
- Requested expenses include accidental death benefit, waiver of premium, and long-term care.
- Riders are available at an extra cost and may not be accessible with all types of policies.
- Exclusions are sets of circumstances or events which the life insurance policy won’t protect you against.
- Exclusions not covered in the insurance policy are suicide death, death through criminal activities, and death as a result of a pre-existing medical condition.
- On the other hand, it is recommended that the policy’s exclusions be read carefully before purchasing life insurance.
- Underwriting is the process of evaluation of insurance company to a policyholder’s risk and deciding on the premium and policy amount to be covered.
- The underwriting process consists of medical history, lifestyle choices, and financial information, as part of the evaluation.
- The underwriting process can be the reason for policyholder’s premium and coverage amount not being according to plan, so this is the time when you should share the actual information.
- The claim process is the point at which the policyholder’s beneficiaries can be paid out the death benefit when the policyholder dies while the policy is in force.
- As a usual step in the claims process, the death certificate is needed as well as a claim that must be proven to the insurance company.
- Besides, the insurer may need to gain access to other materials like an autopsy report and a police report to conclude the process.