Insurance Basics

One of the most important forms of investment that individuals with dependents can take is life insurance. This is an insurance product that is meant to provide for the policy holder’s dependents in the event of death. Should the policy holder pass on, then any dependents will be taken of. This means their education, living expenses and medical bills will be catered for by the insurance company. There are two main types of life insurance. These are term life insurance and whole life insurance.

Whole life insurance is a life insurance policy that extends for the entire life of the policy holder until they pass on or become invalidated by a terminal illness or permanent disability. Term life insurance on the other hand covers the policy holder for a certain period of time; usually a certain number of years. Policy holders usually get insured for up to 30 years. However, the most common term period is 10 to 20 years.

Unlike whole life insurance, term life insurance does not accumulate any cash value. This makes it a much cheaper form of insurance and a lot more affordable. More consumers are therefore able to sign up for this life insurance product compared to its counterpart. Beneficiaries of a term life insurance policy receive a payout of the face value of the insurance policy. For example, if a term life insurance policy had a face value of $500,000 for a term of 20 years, should the policy holder pass on any time during the 20 year period, the dependents will receive a lump sum amount of $500,000.

If the policy holder is still alive at the end of the term, the life insurance policy comes to an end and there are no benefits, no payouts or dividends. The policy terminates and the individual is no longer insured. The term life insurance rates vary depending on the duration of the cover, the age of the applicant and their health condition.

Term life insurance comes with three different features. There is what the insurance providers refer to as level. If a term life insurance has this feature, then it means that the premiums payable towards that policy will remain the same for the durations of the policy and will not alter. The face value of the insured amount will also remain the same. This is true even if the term period is thirty years. This is despite inflation and the rising cost of living.

Another component or feature of term life insurance is that it is convertible. This means that before the term life insurance expires, it can easily be converted into a whole life insurance cover. It the holder of the life insurance cover chooses to convert to whole life insurance cover, then they should expect the monthly premiums to go up substantially. Term life insurance has a third component to it which basically implies that it is renewable. Before the term life insurance expires, the holder of the policy can opt to renew the insurance cover for a further term, say 15 years. This will depend on their age as well as their medical condition. Usually, this attracts a hike the monthly premiums charged.