General
Wondering how life insurance works? Well then keep reading to find out.
Life insurance… one of the great safety nets of modern life. For many life insurance is a way of saving funds for the future, establishing an inheritance for their heirs, and/or providing capital on which they can take out loans. Unless you know how it works, however, you can make some very bad choices in buying insurance.
Term Life
There are two basic approaches to how life insurance is set up. In term life a simple gamble is made: the purchaser gambles he or she will die within a set period of time. The company insuring them gambles they will not. The purchaser pays an ongoing rate for the amount of time indicated by the contract.
If they survive beyond that point the company keeps the money that has been paid, and the purchaser has to get a new contract to provide for their heirs. If the purchaser dies during the term of the contract, then the insurer has to pay a sum to the heirs — usually larger than the amount the purchaser paid in.
Like any form of gambling the house has set the odds so that they win in the long run. The insurance company is dealing with the idea that while all people die, most will not die within a very specific period of time…and they charge more the higher the odds are that the purchaser will die in any case.
Whole Life
Whole life insurance changes the terms of the bet somewhat. In whole life insurance, also called universal life insurance and permanent life insurance, the contract is generally expected to last for the entire life of the purchaser, so long as certain constraints are met and payments kept up. In this case the insurance company is making its profit on the length of time the purchaser lives. The payments are generally higher, because there is the certainty that there will be a payout.
The longer the purchaser lives, the more they pay into their plan. At a certain point the purchaser has paid in more than the cost of payout plus overhead will cost the company. That is where the profit comes in for the insurer.
There are advantages for the purchaser, also, though. Because of the structure there is not only guaranteed payout at the end. Because of that payout there is an assumed worth for the purchase. There is even the ability to attain equity value as you pay in, coming closer and closer to full payment of the payout. It serves as an investment. As property it can be used as security on a loan, and it is part of your estate.
How to choose?
Choosing is mainly a matter of doing your research and planning carefully based on your needs and expectations. In any case you want to check plans closely, confer with agents, and get quotes.
Quotes can be had in a number of ways, but the easiest is often to go through the internet. The results are fast, and let you assemble the most information at the lowest price in time, effort and expense. So check your online resources — for plans, companies, agents, and quotes. To get some free life insurance quotes just use the form below.
