Life insurance is a contract with an insurance company where you make payments over a period of time. In return, the insurance company provides money to your family after you die.
Life insurance is a way to ensure the financial security of your family after your death. Like all other types of insurance, it is a financial tool used to minimize a specific risk—the risk that your family will be left in poverty if you die and are unable to provide for them.
- Insured—the person who takes out the insurance policy
- Death Benefit—the amount of money the insurance company will pay in the event of the insured’s untimely death
- Designated Beneficiary—the person who will benefit from the life insurance payout, normally the insured’s spouse or children
- Premium—the amount of money that the insured pays monthly to secure a life insurance policy
Many different forms of life insurance are available. In general, these can be divided into four categories:
|Whole Life (Permanent)||Universal Life||Variable Life||Term Life|
|Coverage Period||Life of Insured||Life of Insured||Life of Insured||Specified Period, Max 30 Years|
|Guaranteed Death Benefit?||Yes||Yes||Yes||Yes, If Insured Passes During Policy Term|
|Secondary Benefit?||Interest-Earning Cash Account, Tax Deferred||Interest-Earning Cash Account, Tax Deferred||Investment Account; May Include Bond, Money Market, or Equity Funds||No|
|Secondary Benefit Amount||Fixed Interest Rate Guaranteed||Changeable Based on Premiums, Interest Rate Not Guaranteed||Investment Account Value is Variable Due to Market Changes, Rate of Return Not Guaranteed||N/A|
|Flexibility||Fixed Premiums and Benefits||Flexible Premiums, Death Benefit, and Cash Investment at Insured’s Discretion||Flexible Premiums, Death Benefits, and Investment Contributions at Insured’s Discretion||Fixed Premium, Benefits, and Term. Some Policies May Be Extended or Renewed.|
|Cost||Most Expensive||Less Expensive than Variable Life||Less Expensive than Whole Life||Least Expensive|
- 41% of the U.S. population doesn’t have life insurance.
- 93% of Americans say that life insurance is something most people need.
- Life insurers pay out $1.5 billion every day.