Life insurance is a contract between an individual and an insurance company. The individual, known as the policyholder, pays regular premiums to the insurance company, and in return, the insurance company promises to provide a death benefit to the designated beneficiaries upon the policyholder's death.
The purpose of life insurance is to provide financial protection to the policyholder's loved ones in the event of their death. The death benefit can be used to cover various expenses, such as funeral costs, outstanding debts, mortgage payments, education expenses, and income replacement for the family.
There are different types of life insurance policies available, including:
Term Life Insurance: This type of policy provides coverage for a specific period, typically 10, 20, or 30 years. If the policyholder dies within the term, the beneficiaries receive the death benefit. However, if the policyholder outlives the term, there is no payout.
Whole Life Insurance: This is a permanent life insurance policy that provides coverage for the entire lifetime of the policyholder. It combines a death benefit with a cash value component that grows over time. Premiums for whole life insurance are generally higher compared to term life insurance.
Universal Life Insurance: This is another type of permanent life insurance that offers flexibility in terms of premium payments and death benefit. It also has a cash value component that can grow over time. Policyholders can adjust their premium payments and death benefit amounts within certain limits.