Life insurance

Life insurance is a contract made between an individual and a life insurance company. It provides beneficiaries a lump sum payment known as a death benefit.

There are three types of policies associated with this form of coverage. They are term, universal and whole insurance. While term only covers a set period of time, the other two types of insurance are set for the policyholder’s lifetime. This is why whole and universal are often referred to as permanent insurance. In all three types of insurance, death benefits are usually tax-free.

This type of insurance provides financial protection for ten to twenty years. Premiums are fixed and guaranteed, but coverage can continue at a higher rate after the term expires. However, term is still less expensive than permanent.

Term is used to make up for lost income during a policyholder’s working years. It offers beneficiaries a safety net and helps ensure family goals like paying off the mortgage, keeping the family business running or even paying off a college education. When beneficiaries receive payment, it is in a lump sum rather than in small amounts like a regular paycheck.

This type of insurance offers lifetime coverage. It is also very flexible. Premium rates can be raised or lowered and coverage can be changed throughout a person’s lifetime. Since benefits are tax-deferred, they can be used as a savings plan to build wealth over time.

Although it does cost more than term, it is useful as a strategy for estate planning and preserving the family’s wealth. There are three main benefits to universal. First, it can transfer wealth to beneficiaries, provide long-term income replacement and cover the living needs that will still exist beyond a person’s working years.

Some policies are used to build cash value and provide death benefits. Other policies are used only to guarantee death benefit coverage. This type of insurance can offer lifetime coverage. Deciding on the best type of insurance depends on the policy holder’s personal needs and goals for the family.