Life Insurance Plans | Image Resource : pinimg.com
A life insurance policy plan is basically a contract made between a person and an insurance company. The person is entitled to pay premium payments and in exchange to that, the insurance company provides a specific amount known as a death benefit, to beneficiaries upon the insured’s death. An insurance company delivers lump-sum money to the person’s family in case of an unfortunate death of the recipient. However, it is important to note that contacts which include death benefit plans in all types of life insurance are generally income tax-free.
There are multiple varieties of life insurance policies. The most common Life Insurance Plans are discussed below.
Term life insurance
Term life insurance is a type of an insurance plan that aims in providing financial protection to a person for a specific period of time, such as 10 to 20 years. The premium payment amount stays the same for the maximum coverage period that a person selects. In case the policy reaches its maturity, it can still be continued for coverage but this happens usually at a considerably higher premium payment rate. Term life insurance is usually less expensive than permanent life insurance and is also a pure protection life insurance plan.
Continuing the coverage of Term Life Insurance plan, can be used to replace lost potential income during working years. This can also provide a security net for a person’s beneficiaries. Also, it can help to ensure that the family’s financial goals can still be met—goals like paying off a loan, keeping a business running, and paying for education.
Although Term life insurance can be used to replace lost potential income, life insurance benefits are paid at one time in a lump sum amount and not in regular payments like paychecks.
Universal Life Insurance | Image Resource : contentres.com
Universal life insurance
Universal life insurance is permanent life insurance that targets to provide to a person, lifetime of coverage. Universal life insurance policies are flexible and manageable. It allows a person to raise or lower their premium payment or coverage amounts throughout their lifetime. Universal life insurance on an average has higher premium payments than Term life insurance since it provides lifetime coverage to the recipient.
Universal life insurance is generally used in order to have a flexible estate planning strategy to preserve wealth to be transferred to beneficiaries. This type of insurance can also be used in long term income replacement, where the need ranges beyond working years. Few Universal life insurance policies focus on providing both death benefit coverage, building cash value and in providing guaranteed death benefit coverage.
Whole life insurance
Whole life insurance is a permanent life insurance that focuses on to provide lifetime coverage to a person. Since this insurance policy too provides lifetime coverage period, it usually has higher premium payments.Here, the Policy premium payments are fixed and have a cash value. This functions as a savings component and may accumulate tax-deferred in the duration of time.
Similar to Universal Life Insurance Plans, Whole life insurance can also be used as an estate planning tool to help preserve the wealth that a person plans to transfer to their beneficiaries.