What is Life Insurance and What are Its Types

Hi guys! After reading our this article you will be able to know what is What is Life Insurance and What are Its Types

What is life Insurance?

Life insurance is an agreement between a life insurance company and a policy-holder. In return to the payments made by the policy-holder the company promises to pay money to the family of the policy-holder after his/her death. The selection of a good insurance is very important for the financial security of family after the death of the person. It was started to secure the income of families but now a days it has become the reason of wealth preservation.

There are different kinds of life insurance policies. We will tell you about these one by one in this article.
1. Term Life Insurance:

Term life insurance is for the temporary period of time as indicated by its name. It has no or minimum cash value. Its period of time is about 10-30 years. When the budget is low and protection for money is needed for short period of time then it is a very good option.

2. Whole Life Insurance:

Permanent insurance policy is known as whole life insurance. It is the kind of life insurance that is most common. It has many benefits like its cash value is high that would be beneficial for the survivors after the death of the person and it has fixed premium flexibility. One part of premium goes in the insurance policy portion and another part goes in the cash value of the policy that will become investment. The tax is not applied to the interest received by the investments provided it in not withdrawn. Two important benefits of this policy are; flexibility of payments and protection of permanent life insurance.

3. Universal Life Insurance:

The most flexible kind of insurance is the Universal life insurance. It is the variant of whole life insurance policy. It is also permanent kind of policy having cash value which depends upon the rates of interest decided by company. The only difference between whole life insurance and universal life is that amount of protection level and cash value can be changed during the agreement according to the needs of policy-holder. Interest rates are changed after regular interval of time that cause the increase of cash value.

4. Variable Life Insurance:

This kind of policy is mixture of increasing cash value from whole life insurance policy and regular protection of money according to the amount of investment. In this policy there are two different accounts; the separate account and the general account. The separate account store funds from investments according to the rules of the company whereas the general account is from company that is responsible for the policies. It is called variable because the amount after death and cash value is variable.

5. Variable Universal Life Insurance:

Variable Universal life insurance is the mixture of variable life insurance and universal life insurance. Cash value, payment after death and investment are flexible according to policy-holder requirements. This kind of policy is regulated by the commissioner of state insurance and Securities and Exchange Commission so there is a factor of risk that cash value and payment after death may decrease. But company promises that a certain minimum amount will be given to the family of the policy-holder after the death.