Life insurance is a contract between an insurer and a person. During the term of the policy, the insured accumulates cash value that is tax-deferred throughout the insured’s lifetime. Upon death, the cash value is available for withdrawal, or a person can cancel the policy and receive the cash value minus a surrender charge.
Many insurers have a suicide clause that nullifies a life insurance policy if the insured commits suicide within the specified time. This can be a two-year period in most states. Also, misrepresentations on an insurance application can result in the policy being invalidated. Depending on the state, an insurer may also contest a life insurance claim, requesting additional information.
The sale of life insurance began in the United States in the 1760s, with Presbyterian Synods and Episcopal priests forming a corporation to provide for the needs of the poor. By the mid-seventeenth century, more than two dozen life insurance companies were founded. The plight of sailors and soldiers on the Little Big Horn led to the formation of the Army Mutual Aid Association and Navy Mutual Aid Association.
While the primary purpose of life insurance is to provide a financial benefit to a beneficiary upon a person’s death, it has many other benefits as well. It can replace lost income, fund a business buyout, or pay for a child’s education. Depending on the type of policy purchased, the death benefit may cover funeral expenses or other expenses. Life insurance can also cover a debt or mortgage and will ensure that the family will have financial stability in the future.
Life insurance has two main types of beneficiaries: primary and contingent. The primary beneficiary is the individual or entity that owns the policy, while the contingent beneficiary receives the policy proceeds when the primary beneficiary dies. Life insurance premiums can vary depending on the age and health of the insured person. Once a person dies, the beneficiary can submit a claim.
Whole life insurance is another type of life insurance that provides coverage for an individual’s entire life. It often costs more than term life products and offers slightly lower benefits. However, some people prefer to choose this type of insurance because of certain features. For example, some people prefer to pay a lower premium, or they value the tax-deferred savings potential of whole life.
Life insurance premiums can be confusing, but there are resources to help you navigate the process of choosing the best plan for you. For example, American Income Life Insurance Company can help you choose the best policy for your circumstances. Aside from offering affordable policies, they also offer detailed information about each plan. A policy may not cover the cost of funeral goods and services, so you should be sure to check out the details before buying it. The proceeds can be used for whatever purpose the beneficiary desires.
Variable life insurance is similar to term insurance, but allows the policyholder to set the premium amount and adjust the level of coverage. The only major difference is that it doesn’t provide a guaranteed minimum cash value. Because of the flexibility, these types of life insurance allow for more market risk and higher long-term returns.