Life insurance is simply a contract in which an insurance holder or insurer agrees to pay an agreed amount of cash to an insurance beneficiary at the time of the insured person’s death. Depending on the contract, such events as critical illness or terminal illness may also trigger payout. Premiums are paid on a monthly basis to cover the risk that the insured will die prematurely. The benefit of the policy is to provide funds for survivors who are left without means of paying the mortgage or tuition fees for college, and for the children left behind.
In some cases whole life insurance policies can be renewed after the term has expired, though this renewal is only possible if the initial policy has been paid in full. Whole life insurance policies have two types: term and permanent. Term policies, which cover only a specified period, may be renewed for up to thirty years; while permanent life insurance policies, which cover the life of the insured for the designated duration, are renewable.
To determine the amount of cash a beneficiary will receive upon the insured’s death, there are several factors to consider. One factor is usually age; the greater the age of the recipient, the higher the payout will likely be. Another factor is gender; the older the recipient is, the greater the potential for more life insurance payout when the insured passes away. And, of course, the number of beneficiaries will determine the amount of premiums paid. In general, permanent life insurance policies have more beneficiaries than do term policies; but both types have different methods of awarding cash to beneficiaries.
Most whole life insurance policies provide no cash value to beneficiaries. Death benefits are paid only if the insured dies during the initial term of the policy, regardless of whether the insured lived for the full term or not. This is one of the most common and least expensive way to provide cash to beneficiaries. Death benefits are also paid only if the insured has an insurance settlement or investment account that is funded by an investment property bond. If this property is successfully invested and the account grows to a level exceeding the life insurance policy’s death benefit, then the excess money available from the investment account becomes available to the beneficiaries.
The other major type of permanent life insurance policy is the income replacement option. Income replacement allows a beneficiary to receive a certain amount of money if the insured dies during the policy’s term. This is meant to replace the deceased’s lost income and some benefit in the case of illness or death. Again, if the insured does not die during the term, then this type of life insurance does not provide any cash value to the beneficiary.
Most life insurance companies offer the income replacement option to their customers. Most of these companies also have an optional universal or survivorship policy. In a universal or survivorship policy, as opposed to an income replacement plan, if the insured dies during the lifetime of the policy, then the entire cash value of the policy will be paid to the beneficiary or beneficiaries. There are life insurance companies that offer all three kinds of coverage. These companies are called “non-forfeiture” or “self-insurance” companies.