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How Life Insurance WorksLife insurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured's death. In return, the policy owner agrees to pay an agreed amount called a premium at regular intervals. There are three parties in a life insurance transaction; the insurer, the insured and the owner of the policy, although in some cases, the insured and the owner of the policy are the same person. Another person involved is the beneficiary. This is the person who will receive the policy proceeds upon the death of the insured. The beneficiary is not a party to the policy, but is designated by the owner, who may change the beneficiary unless the policy has an irrevocable beneficiary designation.There are different types of insurance and it is important that you know how Life Insurance works so that you may get only the coverage you desire and yet, the coverage you need. Term life insurance provides death protection for a stated time period. This is the simplest form of life insurance. These policies have adjustable premiums and may never be raised above the maximum premiums stated in the policy. Whole life insurance coverage is permanent coverage (for as long as you live) and is in effect for as long as you continue to make timely payments against the premiums. Premiums are level and payable for life so the younger you are when you purchase a whole life policy, the less expensive the annual premiums will be. The whole life policy also carries a cash value and, unlike term life insurance, some of the money you pay into your whole life policy is guaranteed as a cash value payout. Variable Universal life insurance products are only offered in the United States and have flexible premiums which provide life insurance protection with long-term investment growth potential. You can increase or decrease planned premium payments, skip premiums or make additional payment without limits. How Universal Life insurance works is important to understand as it is a new product. Out of each premium payment, a 5% expense charge is deducted. The balance is added to the policy's account value. Then, each month, the cost of insurance for all insurance benefits and expense charges are deducted from the account value. The account value earns interest that is credited monthly. The current interest rate is subject to change, but is guaranteed to be at least 4% per year. Premiums can be increased or decrease within policy limits and the amount of insurance may be increased, subject to evidence of insurability, or decreased subject to minimums. Withdraws can be made from the cash surrender value but policy loans reduce the cash surrender value and death benefit. Each withdraw must be at least $500.00 and no more than four withdraws per year are allowed. Funds withdrawn reduce the account value as well. There may be surrender charges at the time of surrender or withdraw from the account value. The cash surrender value is the account value less any surrender charges and any outstanding loans. For more details on coverage, costs, restrictions and renewability, contact a local insurance agent near you and, as with all insurance, make sure you know what coverage you have so that you're not paying for more coverage than you need. |
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