Life Insurance

 

Life insurance pays money to an individual, business, charity, or trust (beneficiary) when the insured dies . Funds are usually provided in a lump sum. In The United States, life insurance death proceeds often are received income-tax free. When paid, funds may avoid probate expenses and typical delays in transfer. This makes life insurance testamentary in nature. Many states also will exclude life insurance death proceeds and and even their cash values from the claims of certain creditors.

Newer types of life insurance do more than just pay when you die. They often will advance all of a portion of the death benefit in the event of terminal or chronic illness, and certain classes of life insurance include a cash value - available if withdrawn or surrendered. A life insurance policy's cash value is usually available to provide collateral for loans from the carrier as well.

Two kinds of life insurance are term insurance and permanent insurance. Permanent life insurance is designed to offer a death benefit for the person's entire lifetime. Term life insurance, while initially charging a much lower premium,exists for a set period of time and then expires.The comparison is that of buying a home over time using mortgage payments, versus renting. The renter pays lower payments during the lease term, but in the end, the renter owns nothing.

There are a several kinds of permanent life insurance: whole life, limited pay life, single premium life, 65-life, and endowment contracts. But ever since its introduction in the 1980's, today's most popular permanent life insurance is universal life. There are traditional universal life insurance (UL), variable universal life insurance (VUL), guaranteed universal life insurance (GUL), and indexed universal life insurance. GUL is sometimes referred to as "term till you die".

Earlier types of permanent life insurance can become "paid up" by a certain age or premium duration. When a policy is paid up, no more premiums are required to maintain coverage.

Whole life is also known as ordinary life or straight life. Some companies that sell participating policies (those that may receive dividends) may also market combination policies that mix permanent life insurance with term insurance. Any dividends paid back may be applied to purchase paid-up additional insurance. This process can reduce or may eventually eliminate the term portion.