What is life insurance types, how it works? do i need it?
Ask most people what life insurance is? and they’ll tell you it’s a type of insurance that pays for your family after you die. Just ask the basic policy features, the different types of policies available, how they works? and they’ll probably change the subject. Yes In life insurance, the insurance company pay a lump sum known as a death benefit. Death benefit given to the people you specify (usually your family) after your death in return for the premium you pay. And your family can use the money however they want. Let’s review the important topics before we delve further into the subject:
- Life insurance is a legally binding contract that pays the policyholder a death benefit when the insured dies.
- For a life insurance policy to remain in effect, the insured must pay at least one premium upfront or pay regular premiums over time.
- When the insured dies, the specified beneficiaries of the policy will receive the face value of the policy or the death benefit.
- Term life insurance policies expire after a certain period of time. Permanent life insurance policies remain active until the insured dies, stops paying premiums, or waives the policy.
- A life insurance policy is only as good as the financial strength of the company that issued it. If the company is insolvent on your death, your family may be broke or government guarantee funds may pay some of the claims.
Do i need life insurance? Who needs life insurance the most?
The purpose of life insurance is to provide financial assistance and support to people who are financially dependent on you after you die. Of course, if you survive a certain year, you can get that financial support for yourself.
for peoples that own a mortgaged home with someone (spouse, children, partner and …). But they are unable to make the mortgage payments after her die, needs life insurance. If you have young children who depend on you to feed, shelter, and dress them until they are old enough to do it themselves, you need life insurance.
If you have a really high net income and its assets will cover all your financial liabilities, you don’t need life insurance. You do not need life insurance if you have a modest net income but no dependents (for example, if your children are grown). So really, if you’re financially well off, you usually don’t need life insurance.
On the other hand, after many people who don’t understand the purpose of life insurance started asking: Why they should continue paying for the policy for years if it expires and eventually they get nothing? and the premiums they pay are like money falling into a black hole.
Some best life insurance companies such as Prudential life insurance company have produced a product that will satisfy them as well. They have also named it Whole Life Insurance. So the insurance industry said listen, you give us more money and we’ll invest for you so we can guarantee you get some money in the end. In other words, Whole Life insurance.
Is life insurance an investment?
Now another question is on the minds; with this types of insurance, I have to pay a certain premium every month. What if my situation is better and I want to pay more? Or when my situation is very bad for a while. can I borrow some of my savings and return it later? Despite these questions and requests, some companies such as New York life insurance company has issued universal life insurance. It gives you flexibility in payments and the opportunity to borrow money from your savings. Of course at a cost.
The problem with Permanent Life insurance is that the insurance industry doesn’t have to maximize the return on your investment. They just have to give you back what they’re guaranteed. so their approach tends to be pretty conservative. Also, they often charge high administrative fees (which they remove from your policy). So you will earn less on this investment than you should due to a conservative investment approach.
The thing is, most people normally don’t think about saving at all and invest in the future. So some investments ( Whole Life insurance ) are better than no investments at all. at least it’s a forced savings. Also, even if the returns are quite modest, they are at least guaranteed. Therefore, Whole Life insurance is meaningful for people who are extremely risk-tolerant and will not save or invest on their own. Otherwise, term life insurance makes more sense.
Life Insurance Types
Life insurance divided into 2 main types and under each type there are different subtypes:
Term Life Insurance Type
With this type of insurance, you can protect your family financially against the risk of death (or permanent disability) within 1 year. Life insurance coverage may also cover other situations (such as disability, unemployment, etc.). Full coverage life insurance is just like compulsory traffic insurance or motor insurance. If there is a risky event (loss of your life) during the time you pay the premium, the coverage is paid, otherwise the premiums you paid will be wasted. In return, you pay less premium compared to the Guarantee.
for example, you can get the coverage expectation of 100000 TL by paying a premium of 1000 TL for 1 year. How much premium you will pay against the coverage expectation may vary in different insurance companies. you can talk to insurance agencies, or you can use Life Insurance Calculation tools. You can inquire about Life Insurance Policy and Compensation Information from the e-government portal.
Different insurance companies offer Term life insurance under different names by adding different risks, but the nature of all of them is the same.
Term insurance, guarantees death benefit payment for a specified period of time. Unlike Term insurance, Permanent policies provide lifetime coverage. You can cancel your permanent life policy under certain conditions and you can get back the cash value of the premiums you paid (after some fees are deducted).
Permanent life insurance is a long-term insurance. it is generally based on 12 years. If you lose your life while paying regular premiums every month, the coverage given to your family or the person specified in the policy. but if you are still alive after 12 years, you can get back the premiums you paid. in short, If you want to be protected and get the money back at the end of the insurance period, this insurance is for you. You can be sure that your loved ones will fall into financial ruin in unexpected situations. and at the same time, if you are in good health at the end of the insurance period, you will get almost the same value (usually indexed to dollars) of the money you paid.
There are two types of Permanent life insurance, Whole Life Insurance and Universal Life Insurance,
Whole Life Insurance and Universal Life Insurance
In most life insurance companies such as Colonial Penn life insurance company, quotes, usually calculated in dollars to protect the value of money against inflation. For example, if you have life insurance with a coverage of $100000 for 12 years and you want to receive a premium at the end of the term, you need to pay 3500$ per year (a total of 40000 – 45000 dollars in 12 years). While you pay a premium, if you lose your life in the process, your family will compensated 100000$. If you survive, you will receive the entire 45000$ premium you paid yourself.
Pros and Cons
Life Insurance Pros
Life Insurance Cons