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Tuesday, March 31, 2009

What is Life Insurance?

Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums.

Life Insurance is insurance for you and your family's peace of mind. Life insurance is a policy that people buy from a life insurance company, which can be the basis of protection and financial stability after one's death. Its function is to help beneficiaries financially after the owner of the policy dies.

It can also be a form of savings in the long run if you purchase a plan, which offers the option of contributing regularly. Additionally, a little known function of life insurance is that it can be tied in with a person's pension plan. A person can make contributions to a pension that is funded by a life insurance company. These are considered private pension arrangements.

In addition, you should also make a list of what you feel needs to be protected in your family's way of life. With a life insurance policy in place, you can:
• provide security for your family
• protect your home mortgage
• take care of your estate planning needs
• look at other retirement savings/income vehicles

Two Basic Types of Insurance

Basically, there are two kinds of insurance: the Term and Whole Life, Life Insurance.

Term and whole life, life insurance policies are similar to leasing or buying a motor
cycle car, or buying, or renting a house.

If you rent a house you have full use of the house for as long as pay the rent amount. But you can't sell a rented dwelling. You turn it in and that’s that. You buy something else or you rent another house. You don’t get any money back. Term life insurance is similar to this. You pay your monthly premiums, you never get cash back, loan value, or sell ability of the policy and your premiums can increase over time.

Whole life policies are similar to buying a house or a piece of property, as in they become an asset. Eventually they build up some capital that can be cashed in on, loaned on, or used in a life settlement transaction, etc. Whole life insurance covers the policyholder for his or her whole life. There is no fixed end date for the policy, as there is with term life insurance. When the policy holder dies, the face value of the policy, known as a death benefit, is paid to the person or persons named in the life insurance policy (the beneficiary or beneficiaries).
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