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Life Insurance 101

March 21st, 2011 at 10:41 am

Making sure your loved ones are taken care when you pass away is something that most people consider necessary. Having a life insurance policy in effect that will meet the needs of your family is the most important method of making that come about. But all life insurance policies are not the same, the varieties are almost limitless. You can tailor your policy in nearly any way you choose, including a way to get a return on your money while youíre still alive. Grasping the intricacies of life insurance isnít difficult; it just takes a bit of study to comprehend. Following is a primer on the subject, a sort of life insurance 101.

What Is Life Insurance?

Basically a life insurance policy is an agreement between two entities; you, the insured, and the provider, the insurance company. The purpose of the contract is to supply the insured with the monetary peace of mind that their designated beneficiaryís needs are met when theyíre no longer around to look after them. In return you consent to make periodic payments to the provider over the course of the contract. In the event you pass away the provider releases the agreed upon financial remuneration to the previously named beneficiaries.

Types of Life Insurance

There are two fundamental types of life insurance; term and whole life. Although they both accomplish the same purpose, to make sure your loved ones are provided for, they go about it in vastly different ways. Whichever you choose the peace of mind provided by life insurance coverage is well worth the cost.

Term Insurance

Term insurance covers the insured for a predetermined period of time. When that time is up, the coverage ends. If you want to be protected, you must either take out a policy with different terms than the one that just ended, with either the same company or a different one, or renew the old policy. One of the major advantages of term life insurance is the relatively low premiums, which make it a popular form of insurance for single people or those just beginning a family. Itís a reasonably inexpensive way to make sure their dependents will be provided for. Another advantage of term insurance is that the choices are limited, which makes deciding on the details of the policy much easier to make. The downside of term insurance is that the older you are the more your premiums will cost you, and if youíve suffered a medical problem that may continue to affect your health, you could be denied coverage.

Whole Life Insurance

A whole life insurance policy is different in a lot of ways. For one thing, a whole life policy generally remains in effect from the time you sign the papers until you either pass away or cash in the policy. The reason you have the option of receiving cash back is that the money you pay in premiums is invested and the value of the policy increases as the investments pay off. You can borrow against the value of the policy, or take all the cash out and terminate the policy. There is a caveat, however; because there is the opportunity to see a very good return on your investment your periodic premiums will be significantly higher than with term insurance, and of course, if you drop the policy entirely you wonít be protected. It can also be difficult to decide on the details of a whole life policy because there are so many options.

Combination Policies

It is possible to combine whole life insurance with term insurance resulting in a policy that is customized to meet your specific needs. Whichever option you choose it is a good idea to consult with an insurance agent and have them explain the details of their companyís life insurance plans. Once youíve determined the choice thatís right for your present situation youíll be able to relax knowing your loved ones will be provided for.

Guest post from Jessie Mars. Jessie