A life insurance policy is a contract between an individual (the policyholder) and an insurance company. Under the terms of the contract, the insurance company agrees to pay a specified sum of money (the death benefit) to a designated beneficiary upon the death of the policyholder. In exchange, the policyholder agrees to pay premiums to the insurance company.
There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance provides coverage for a specified period of time, such as 10, 20, or 30 years. The death benefit is paid out only if the policyholder dies within the specified term. The premiums for term life insurance are generally lower than those for permanent life insurance.
Permanent life insurance, such as whole life and universal life insurance, provides coverage for the entire life of the policyholder. It also has an investment component called cash value, which grows over time and can be borrowed against or used to pay premiums. The premiums for permanent life insurance are generally higher than those for term life insurance because they provide coverage for the policyholder’s entire life.
Each life insurance policy has its own specific terms and conditions, including the death benefit amount, the length of coverage, and the premium payment schedule. It’s important to carefully review and understand the terms of a policy before purchasing it.
