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Understanding Life Insurance

Published Wednesday, October 8, 2008 by bloggerblognet83460 | E-mail this post

Life insurance has been around for many years and there is still a lot of confusion on how life insurance works and how the different life insurance policies work. In this article, I will be explaining how life insurance work and how the different life insurance policies work.

The idea of life insurance is based on pooling people's money together to give someone protection for their love ones against unforeseen deaths. There is a cost to belonging to this pool and it is called a premium. This premium is based on how much protection someone needs called the death benefit. The premium is also based on the age of the person and their health conditions. When a pool member dies, the death benefit is paid from the pool to the member's beneficiary. The beneficiary can be anyone that the pool member wishes. A life insurance company collects this premium each year from each pool member and keeps it until one of the pool member dies.

When you decide to become a pool member or have a life insurance policy, there are two different types of policies. The first type is called term insurance; this policy is based on paying the premium at a level cost for so many years. The term can be 10, 20 or 30 years base on your age at the time. This type of policy will pay the death benefit only and the premium will increase after the term.

The second type of policy is a permanent policy that has a death benefit and cash value account attached to it. The cash value account will grow based a fixed rate or a variable rate. The rate can be determined by the life insurance company or the stock market or interest rate market. The pool member can take out the cash value from the policy or cash out the policy. The premium can stay the same until someone is age one hundred. If someone reaches age one hundred, the death benefit will be paid out to the pool member. The most recent change for this type of policy is that the policy premium can be paid after age one hundred. The reason is that so many people are living beyond age one hundred.

In conclusion, the easiest way to understand the difference between the two policies is that buying term insurance is like renting a house and buying permanent life insurance is like buying a house. The question I am asks all the time is which life policy I should buy. I tell people that it is based on your situation.

Blogger BlogNet76247

Understanding Life Insurance

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Blogger BlogNet76247: Understanding Life Insurance

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