Explanation of the different types of life insurance
There are numerous companies in existence today that offer life insurance policies. Although the crux of the policy (ensuring the safe and sound life of an individual’s survivors as well as the individual) does not change, companies try to differentiate themselves from each other by making different classifications or bifurcations.
Generally speaking, life insurance is divided into two parts.
1. Term Life Insurance Policy – Anyone can opt for term life insurance. This type of policy is basically meant to cover a person’s short-term needs. For example, if the policy holder unfortunately has a serious accident, he can claim the insurance amount. But it also compensates the bereaved in the event of the death of a family member. All in all, it is a policy that helps cover the potential need for short-term life insurance.
Term life insurance is typically a renewable and convertible program. It goes from one to a hundred years. If it is a one-year program, the cost of your coverage increases after each year until the time it expires. Usually, the expiration is at the age of 75 years. Whereas if the policy is term at age 100 along with the cash value, it later becomes part of the ‘whole life’ insurance. It is very often noted that it is cheaper to purchase a whole life insurance policy than a non-cash value 100 Term policy.
2. Permanent Life Insurance: This is life insurance for the entire life of the individual. The value of this policy increases over time in the program. Terms like Par and Non-Par are widely used in this context. Whole life coverage earns dividends that are a partial return of the premium paid for the coverage and investment growth. The amount of dividends keeps changing from year to year. On the other hand, non-par whole life insurance policies do not offer dividends. Future cash values in these cases are not projected but insured or guaranteed.
o In addition to these whole life fast pay premium policies are also available. In these there is a fixed premium that one has to pay for leaving a short interval of time until the moment when it is paid in full. The death benefit on this policy is leveled and paid at the time the premium ceases.
o The whole life insurance policy can also be divided in terms of premium payable for 15 years, 20 years and 65 years of age. The terms and conditions in these cases remain more or less the same.
o Universal life insurance policy is intended for people who require life insurance, have a large marginal tax bracket, have large RRSP and pension contributions, pay good tax on investment income, want additional future income and have an investment perspective for at least 10 years. These policies are considered the most difficult of all insurance contracts.