Life Insurance Faqs

1. What is a life insurance policy ?

A life insurance policy is the document that signifies that there is a contract of life insurance between the insured and the insurer. This contract benefits the beneficiaries of the insured in the event of the death of the insured. The objective of this type of insurance is to protect your loved ones from the financial burdens that could arise from your untimely demise, if you are the principal earning member of the family.

2. Do I need life insurance ?

Yes, if you have people in your life who depend on you for financial support. Insuring your life is a crucial part of your financial planning if your family members are financially dependent on you, or if you owe significant debts. You may have to take into account loans, mortgages, children’s education, medical expenses, etc. Setting aside a small premium every month could save your family from financial hardships later.

3. What kind of life insurance should I purchase ?

Not all life insurance policies are the same, and it is important to read the fine print before you settle on one. It is wise to mull over a few policies before you decide the right life insurance policy for your needs. Life insurance policies could be of two types: term insurance or permanent insurance.

4. What is ‘term life insurance’ ?

Under a term insurance policy, the insurer will pay your dependents a predetermined amount in case you die during the term of the policy. Term insurance usually has lower premiums, but if you survive during the term of the policy, you will not receive any returns. Term insurance does not build up ‘cash value’, i.e., the cash amount that your insurer pays you on cancellation of the life insurance policy in certain cases.

Term life insurance is sometimes referred to as ‘temporary insurance’ because it covers you only for a specified time period. After that, you must renew your insurance policy.

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Life Insurance Types

Term life Insurance

A policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. This type of insurance policy contrasts with permanent life insurance, in which duration extends until the policy owner reaches 100 years of age (i.e. death).

Whole Life Insurance

A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component pays a stated amount upon death of the insured. The investment component accumulates a cash value that the policyholder can withdraw or borrow against.

Universal Life Insurance

A type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance) which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered as a policyholder's circumstances change. In addition, unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his or her accumulated savings to help pay premiums.

Variable Universal Life Insurance

A form of cash-value life insurance that offers both a death benefit and an investment feature. The premium amount for variable universal life insurance (VUL) is flexible and may be changed by the consumer as needed, though these changes can result in a change in the coverage amount. The investment feature usually includes "sub-accounts," which function very similar to mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of an increased rate of return over a normal universal life or permanent insurance policy.

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