What is life insurance?

Key Components of Life Insurance

• Policyholder: The person who owns the life insurance policy and pays the premiums.


• Insured: The person whose life is covered by the insurance policy. In many cases, the policyholder and the insured are the same person.


• Beneficiary: The person or entity designated to receive the death benefit upon the insured's death.


• Premium: The amount paid by the policyholder to the insurance company, typically on a monthly or annual basis, to maintain the life insurance coverage.


• Death Benefit: The sum of money paid to the beneficiary upon the death of the insured person.


• Policy Term: The duration of the life insurance coverage. This can be a specific period (term life insurance) or for the insured's entire life (permanent life insurance).


• Cash Value: A feature of some permanent life insurance policies that accumulates a savings component, which the policyholder can borrow against or withdraw.

Types of Life Insurance

• Term Life Insurance: Provides coverage for a specified term, such as 10, 20, or 30 years. If the insured dies within the term, the beneficiary receives the death benefit. Term life insurance typically has lower premiums compared to permanent life insurance.


• Whole Life Insurance: A type of permanent life insurance that provides coverage for the insured's entire life, as long as premiums are paid. It includes a cash value component that grows over time.


• Universal Life Insurance: Another type of permanent life insurance that offers more flexibility in premium payments and death benefits. It also includes a cash value component that earns interest.


• Variable Life Insurance: A type of permanent life insurance that allows the policyholder to invest the cash value in various investment options, such as stocks and bonds. The death benefit and cash value can fluctuate based on investment performance.

Benefits of Life Insurance

• Financial Security: Life insurance provides financial support to beneficiaries, helping cover expenses such as funeral costs, debts, and living expenses.


• Income Replacement: The death benefit can replace the income of the deceased, ensuring that dependents can maintain their standard of living.


• Estate Planning: Life insurance can be used as a tool for estate planning, helping to cover estate taxes and ensuring that assets are distributed according to the policyholder's wishes.


• Debt Repayment: The death benefit can be used to pay off outstanding debts, such as mortgages, car loans, and credit card balances, relieving the financial burden on the beneficiaries.


• Business Continuity: For business owners, life insurance can provide funds to ensure the continuity of the business, cover business debts, or facilitate the transfer of ownership.

Considerations When Choosing Life Insurance

• Coverage Amount: Determine the amount of coverage needed based on factors such as income, debts, and future financial needs of the beneficiaries.


• Policy Term: Consider the length of coverage needed. Term life insurance is suitable for those who need coverage for a specific period, while permanent life insurance provides lifelong coverage.


• Premiums: Evaluate the affordability of premiums and how they fit into your budget. Term life insurance generally has lower premiums, while permanent life insurance offers additional benefits at a higher cost.


• Policy Features: Review the features of different policies, such as the cash value component in permanent life insurance, and consider how they align with your financial goals.


• Riders: Consider optional riders that can be added to the policy for additional benefits, such as accelerated death benefits, waiver of premium, or accidental death coverage.