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Principal Types of Life Insurance

Todays Date: July 18, 2018

The concepts of life insurance are not new. It is a concept that is practiced worldwide and dates back to many decades ago. It is continuously gaining momentum among people of all walks of life. This is cutting across people who are employed and non-employed, the rich and the poor, and the young and the old alike.  There are two types of life insurance all over the world. These are term and whole life insurance. As they appear, the two types of life insurance may appear straightforward in meaning and description, but that is not the case.

They are further subdivided into other categories. These categories include the conventional whole life, variable and variable general life insurances. It is estimated that approximately 6.4 million personal life insurance covers were term while nearly 7.1 million others were whole life. Personal life insurance covers are so different from the group life insurances in so many aspects. This article focuses its attention of individuals’ life policies.

Term Insurances

These are the most basic types of life insurance policies. The policy is only paid upon the occurrence of death within the term of the cover. The cover is usually extend between a periods of one to 30 years depending on the firm issuing the policy or policy duration taken by the insured. A number of term policies provide fewer benefits. Most often there are none at all.  The term life insurance covers are subdivided into two: – the level and decreasing term.

The first type of cover means there is no alteration to the death benefit throughout the entire duration of the life policy. The latter on the other hand implies that the death benefits decline as the number of years of policy increases. The increments are usually calculated yearly over the period in which the policy is taken. It is estimated that nearly all term life insurance covers in United States in 2003 were purchased to level term.  This figure constituted to about 97 per cent.

Whole life or permanent Insurances

This is the most preferred types of life insurance by many people not only in United States but around the globe as well. It is termed as permanent because the benefits are paid upon death irrespective of the time the death occurs. Permanent life insurance is mainly classified into three. These are conventional whole life, general life and variable general life covers.

There are wide major distinctions between these three types of insurances. Prior to 1970s and 80s, the traditional or conventional life insurance was the only form of insurance available to permanent insurance or whole life insurance policy seeker. General and variable general life insurance which is sometimes referred to as universal and variable universal life insurance was only introduced to the market by insurance firms in 1970s and 1980s.

The death benefit and premium paid under the conventional whole life are designed to remain constant throughout the term of the cover. The cost of obtaining a traditional whole life insurance is linearly related to the age. This implies that, as age increases the cost of obtaining whole life also increases overtime. The reason behind this is to discourage people from purchasing insurance covers when they are old.

It is assumed that as ones age maturity increases, the risk of death occurring also increases and nearly all insurance companies would like to avoid insuring such risks. The high cost of traditional whole life insurance is also used to supplement the level premium which aids to meet the cost of the cover in older individuals.

The law nevertheless stipulates that the higher pay must be reimbursed to the insured or holder of the policy in cash value should he or she opt to terminate the policy. The cash value is not an additional benefit associated with the policy; rather it serves only as an alternative.

Conclusion

If you are considering taking whatever kind of life insurance, ensure that you talk to insurer first to understand the basics and finer details about the cover which is appropriate for you. Despite the fact that the rules governing the insurance are similar, there may be certain slight variation among different types universal life insurance policy companies. It is always good to find out what these variations are and how they can impact on the anticipated policy.

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