So exactly what is life insurance?
One of the best definitions that I came across was from Wikipedia. It defines life insurance “as a contract between and insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person.” en.wikipedia.org/wiki/Life_insurance. This basically means if you pass away the life insurance company has to pay the out the money to your beneficiary. A life insurance policy is a contract, so generally as long as you aren’t subject to one of the exclusions (typically there are 2 exclusions on life insurance policies; typically a two year suicide clause and a two year contestability clause if there wasn’t misrepresentation or concealment on your application) it will pay out. Also, there isn’t usually any time period if the policy was procured by fraud. Life insurance companies do not want the reputation that of not paying out claims, it’s bad for business. So, if you don’t commit suicide in the first 2 years or lie on your application you are good, the company will pay out the money.
Also, the great thing about life insurance policies is that they are unilateral contracts, meaning that you can cancel the policy any time you like (similar to auto insurance) or simply stop making the premium payments. However, the insurance company is required to pay the death benefit as long as you paid your premiums.
There are many types of life insurance but these are the most common:
Term Life Insurance-Term life insurance is life insurance that will last for a specific number of years. Most companies will allow you to choose a 10, 15, 20, 25, or 30 year term. The longer the term the more expensive the premium. At the end of the term the policy will either terminate or it can usually continue on, but a much higher cost than before.
Whole Life-Offers life insurance for your “whole” life. It doesn’t expire. It offers a savings component, called cash value, which can grow on a tax deferred basis. This is typically significantly more expensive then tem life insurance.
Universal Life Insurance (no-lapse guarantee)-Usually a lower cost than whole life insurance and has a guaranteed insurance premium to age in most cases up to age 121. (You can choose the age in which it is guaranteed to, advisable to do the longest, 111 or 121 years old, depending on the company. There is little or no cash value but the death benefit and premium are guaranteed not change for the rest of your life.
Variable Life-Like whole life and universal life, variable life insurance is a form of permanent insurance. However, it’s usually the most expensive type since your money is invested in the stock market rather than by the insurance company. This means if the market doesn’t perform well your cash value could fall to nothing and potentially terminating the policy.
Below are sample premiums for term life insurance & permanent life insurance:
A 40 year old male who is at the Preferred Plus rate class in class in Texas seeking a $500k policy.
Term Life: 10 year term=$25.11 a month 15 year term=$30.96 a month 20 year term= $36.36 a month and a 30 year term=$62.01 a month.
Permanent Life (using a no lapse guarantee universal life policy guaranteed to age 121): $233.67 a month
(Using rates as of October 2012 with American General Life (AIG). Your rates will depend on your evidence of insurability and the insurance company’s underwriting guidelines.)
When looking around to research and purchase life insurance use an experienced, knowledgeable agent who can shop multiple companies to find you the best rate for your situation. If you have any questions about life insurance or need a quote feel free to contact me.