There are several different types of life insurance policies and it’s a great idea you get acquainted with several. They are described in detail here: Life insurance is the most cost-effective protection you can buy to provide for your loved ones if something should happen to you. It is very easy to apply for and it is extremely easy to purchase. The reason life insurance is so inexpensive is that it is essentially risk-free. If you die during the first 2 years after purchasing a $500,000 20 year term policy, your beneficiary will receive $500,000 from the insurance company. Taking the time to understand some of the most important concepts such as what is life insurance face value and more will go a long way in guiding you in the right direction in seeking the best coverage.
After the initial two years, if the insured person lives for another ten years, then the life insurance company is required by law to pay out the remaining $500,000 balance of the policy. That means that even if the insured person only lives for eight years, he or she will still receive $1,000,000 from the insurance company. In reality, of course, most of the time the insured person will outlive the benefits of the policy. But, that is not always the case. And, in those instances when it isn’t the case, the life insurance company is legally obligated to pay the remaining benefits to your beneficiary.
A close focus
But, there is a caveat. The life insurance company is not obligated to pay the remaining benefits until after the end of the 10-year waiting period. Life insurance is cheap because it is risk-free. You are guaranteed a payout no matter what. The premiums are very low because the insurance company assumes all the risk. Term life insurance is the most common type of life insurance purchased by people who are healthy and have no medical conditions which would prevent them from being able to work. You might also consider checking out what is life insurance face value and other related concepts.
It can be as little as two years or as long as forever. Generally, the shorter the term, the higher the premium. But, if you are concerned about outliving your life insurance policy, then a longer-term policy might be a better choice for you. A common misconception is that all life insurance policies payout for the same amount of time. That is not true. Some life insurance policies payout for a very short time, such as while you are still alive and working. Other life insurance policies pay out for a period of time much longer than the period you are paying for the insurance. For example, many whole life policies continue to pay out for a period of 20 years after you die. After that 20-year period, the policy continues to pay benefits for another 20 years. So, in actuality, your beneficiary will receive $1,000,000 40 years after your death.
What you need to know
For this reason, many people with whole life policies choose to name their beneficiaries as their children or their spouses. If either one of them should die before the insured person, then the entire $1,000,000 balance will be paid to the beneficiary without any questions or problems. Whole life insurance is extremely inexpensive because the insurance company assumes all the risk. But, there is a catch: The insurance company does not assume all the risk.
No matter what type of life insurance you have, if you stop paying your premiums, then the policy will lapse and all your hard-earned money will be lost. That is why it is important to make sure you understand the life insurance policies in a wider context of meaning. Remember that there are several types of policy provisions and how they apply to each type of policy. Here are the most common ones: The grace period: This is the period of time the life insurance company gives you before it considers your policy to be in default. It varies from company to company but, generally, the longer the grace period, the higher the premium. You need to be able to answer as question such as what is life insurance face value and others.
Nor do these guys consider you in default until 30 or 60 days after you fail to pay any of your monthly installments. If you stop making payments for an extended period of time (more than 30 or 60 days), then the insurance company can begin to question whether or not you are going to continue to pay. And, if that happens, the insurance company will raise your premiums to reflect the increased risk.
If you die during the grace period, the insurance company will not consider your policy to be in default and they will not increase your premiums. A quick online search could enlighten you on very important points about life insurance policies. However, if you are only 56 years old and you stop paying your premiums for more than three months, then, when you finally do die, your beneficiary will receive only a fraction of the benefits for which you have paid over the years. The loan provision: This is another provision that applies to whole life policies. After you have been paying your premiums for a number of years, the life insurance company will send you a paper “loan receipt.”
This tells you that, in fact, you do have a “loan” of money from the insurance company. You must pay back this “loan” with interest by making your future premium payments. If you ever stop making these premium payments, then the insurance company will consider your policy to be in default and they will immediately cancel it. They will send your unpaid loan balance back to you and they will also send any accrued but unused dividends back to you. The life insurance policies are rather diverse, but it is still possible to understand them.
Obviously, if you have children or other dependents, they will be harmed very severely by this provision. It is important to understand that, even though the life insurance company may allow you to make up missed payments with a “balloon payment,” this does not cure the problem.
The balloon payment only postpones the day your beneficiary will receive nothing. The loan provision can seriously harm or even destroy the finances of your loved ones. If you have children or other dependents, I would urge you to consider alternatives to whole life insurance. For example, you could purchase a universal life policy that will provide your beneficiaries with a cash value they can borrow against. Or, if you are in good health and you feel very secure in the future, you might want to consider a permanent policy that will continue to pay benefits for as long as you and your spouse are both alive and remain in good health. Life insurance policies are about giving you securing your future and gaining peace of mind as a result. Talk to experts and let them improve your level of understanding by answering questions such as what is life insurance face value and others.
What most people don’t understand?
But, if you do decide to purchase a whole life policy, then you must understand the consequences of the loan provision. What is an annuity?: An annuity is a type of contract which pays out a fixed sum of money each year for as long as you and/or your spouse are alive and both remain in good health. The amount of money each year is based on a formula contained in the contract. Annuities can be purchased as a single premium or they can be a part of a tax-deferred or tax-free rollover IRA. An immediate annuity: An immediate annuity is one where the first payments are made to you immediately.
Surprisingly, many people consider an immediate annuity to be “more secure” than a life insurance policy. This is absolutely not true. An immediate annuity could pay you a huge lump sum one day and then, nothing more. There is no guarantee whatsoever that the annuitant will live even one more year. On the other hand, a life insurance policy guarantees that your beneficiaries will receive the death benefit. But, as I have already pointed out, if you ever stop making your premium payments, your beneficiaries will be harmed by the loan provision of the whole life policy. A variable annuity: A variable annuity is similar to an immediate annuity except the payments are not fixed. Instead, the payments vary with the performance of some investment vehicle such as a stock index or a mutual fund.
A fixed annuity: A fixed annuity is similar to a variable annuity except the contract specifies the amount of the payments. And, often, the investment vehicle is specified. For example, a fixed annuity may pay a set amount each year for as long as the investor or his spouse is alive and both remain in good health. If either of these events do not occur, the contract automatically terminates.
For example, let’s say you and your spouse have a fixed annuity where the payments are $1,000 per month for as long as both of you are alive and both of you are in good health. Let’s also say you and your spouse are in your 40s and you know you both have a fairly good chance of outliving your contract. What will probably happen is that, one day your spouse will die and the other day you will die. But, since the contract has already been in effect for 10 years, the insurance company will only make payments to your surviving spouse for an additional two years. The life insurance policies come with their goodies, and you need to understand them for better decision-making. You may want to focus on what is life insurance face value and other important questions of concern.
Soon after those two years are up, the surviving spouse will receive nothing because you and your spouse have outlived the term of your contract. Also, let’s say you and your spouse are in your 30s and you have a very good chance of outliving your contract.
What will probably happen is that, one day you will die and the other day your surviving spouse will die. But, since the contract has already been in effect for eight years, the insurance company will only make payments to your surviving spouse for an additional two years. Soon after those two years are up, the surviving spouse will receive nothing because you and your spouse have outlived the term of your contract.
Here’s another scenario: Let’s say you purchase a whole life policy with a face value of $100,000. Further, let’s say you pay the initial premium of $6,250 every year for 10 years. Let’s say you and your spouse are both 40 and you know there is a 50% chance you will both outlive your 10-year policy. What will probably happen is that, one day you will die and the other day your surviving spouse will die. But, since the policy has been in effect for only seven years, the insurance company will only make payments to your surviving spouse for an additional two years. Soon after those two years are up, the surviving spouse will receive nothing because you and your spouse have outlived the term of your contract.
Now, let’s say you and your spouse are both 30 and you have a 99% chance of outliving your 10-year policy. What will probably happen is that, one day you will die and the other day your surviving spouse will die. But, since the policy has been in effect for nine years, the insurance company will only make payments to your surviving spouse for an additional two years.
Soon after those two years are up, the surviving spouse will receive nothing because you and your spouse have outlived the term of your contract. Here are some important things to remember about life insurance policies: Life Insurance Pays You Only for the Time You Are Alive and in Good Health! Let’s face it: No matter how much life insurance you buy, sooner or later you are going to die. Therefore, it makes sense to use your life insurance as a “bump-up” provision in case of emergencies.
But, if this is not what you use your life insurance for, you are making a very serious mistake. Think about it: If you are only alive and in good health for 10 years out of every 30 years you spend paying for your life insurance, you are really only getting half of the money you have paid. Let’s say you have a $1,000,000 life insurance policy. That means you have paid $30,000 per year for 30 years. Multiply that by the 10% you get (remember, most policies pay 20% of the first $100,000 and 10% of everything over and above that) and you will have paid a total of $300,000 for your life insurance. But, since you are only going to get $1,000,000 back that means you have only paid $2,700 per month or $27,000 per year for all those 30 years.
We have covered quite a lot regarding life insurance policies, but you can research further to understand other important areas and ideas.