What is life insurance?

Life is precious! Although there are certain situations in life that we can't control but we can definitely minimize the risk and also cover certain expenses. It is not very uncommon for accidents to happen and it can happen anywhere. Life insurance is a financial instrument that provides benefits to your loved ones. We always purchase a life insurance for our own self and for the people we love and care for.

There are five different types of life insurance and each has its own advantage. Let us look at each one of them in detail.

• Term Life Policies: In term life insurance policies, you have to pay a premium for a certain period. It can be from five to thirty years. If you die within this period then the insurance is paid off to your beneficiary or beneficiaries as named on the policy. Term life insurance will not build cash value, but offers the lowest premiums in the early years of the policy. You can always renew the policy once the term is over but you will have to pay higher premiums owing to your older age.
• Return of premium: Return of premium life insurance is basically a new type of term life insurance policy that offers death benefit protection as well as a return of premium. In this policy, if you survive the term of the term life insurance, which can be 10, 20 or 30 years then your life insurance company will return the entire premium paid on your term life insurance policy. If you cancel the policy before the end of the term, you will be entitled to partial return of premium.
• Whole Life Policies: Whole life insurance policies cover the entire life span and you will have to pay a fixed premium for life unlike in term life insurance. Whole life insurance policies have a cash component. The cash value on the policy can grow based on the interest accrued, which will be added to it. The interest growth in a whole life insurance policy is tax deferred. You will have to pay income taxes only if you surrender the policy and the received amount is more than what you have paid so far.
• Universal Life Policies: A Universal life insurance policy will provide you with lifetime insurance protection. Universal life insurance is based on an assumption of the interest rate and the actual cost of insurance. This is the method of deciding the premiums of the policy.
• Survivorship Life (Joint and Survivor): The survivorship Life Insurance policy is also known as the Joint and Survivor Insurance. This insurance policy will insure the life of a husband and a wife. The death benefit will not go to the beneficiary until the death of the second person insured in the policy. You can purchase the survivorship life insurance policies as a whole life policy or a universal life policy.

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