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Life Insurance – Benefits And What You Need To Know

Definition Of Life Insurance

Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a specified beneficiary a sum of money (the benefit) in exchange for a premium,(the amount of money that an individual or business must pay for an insurance policy) upon the death of an insured person (often the policy holder).

Life Insurance Benefits

A key reason to purchase life insurance is to provide immediate cash to help the survivors pay their monthly bills.Life insurance provides a large sum benefit to those that are financially dependent on you in the event of your death or terminal illness. This benefit can be used to cover your loved ones ongoing living expenses and any outstanding debt that you may still have.This payment means that your loved ones can maintain their current way of life and not endure financial stress.

Yet another advantage of life insurance is that the proceeds can be used to equal out an inheritance. For example, if you have two children and your goal is to leave your home to one child, it would make sense to purchase life insurance in the amount of the home’s value and name your other child as the beneficiary. This way, each of your children will receive an inheritance of relatively equal value.

Business Uses for Life Insurance

Life insurance is excellent for many business purposes. It is oftentimes offered as an employee benefit by employers. In this case, employees are required to name a beneficiary of their choice to receive the tax-free proceeds.

If you are a business owner, one recommended strategy is to use a plan in a buy / sell agreement. These agreements involve the partners or owners of a company purchasing life insurance on each others’ lives. In the event that one of the owners or partners die, the surviving owner will receive the ownership shares and the deceased partner’s family will receive the life insurance proceeds instead of the stock.

Types of Life Insurance

What type of life insurance is best for you? That depends on a variety of factors, including how long you want the policy to last, how much you want to pay for life insurance and whether you want to be able to withdraw money from the policy later.

Term Insurance

Term insurance provides you with insurance protection for only a fixed period of time. It pays the sum assured only upon the death of the insured or if the insured becomes totally and permanently disabled (if this benefit is provided) during this period.

Whole Life Insurance

Whole life insurance provides life-long protection for your dependants. It pays out the death benefit upon the death of the insured.

Direct Purchase Insurance (DPI)

Direct Purchase Insurance (DPI) is a class of simple term and whole life insurance products that you can buy directly from the customer service centres or websites (if available) of life insurance companies. As DPI are sold without financial advice, no commission is charged and you pay lower premiums than comparable life insurance products.

Endowment Insurance

Endowment policies are often marketed to help you meet a financial goal like paying for your children’s education, or to build up savings over a fixed policy term. But unlike savings deposits, the guaranteed cash values you get back may be less than the sum of the premiums paid.

Investment-Linked Insurance Policies

Investment-linked insurance policies (ILPs) have both life insurance and investment components. Your premiums are used to pay for units in investment–linked fund(s) of your choice. Some of the units you buy are then sold to pay for insurance and other charges, while the rest remain invested.


An annuity is a type of insurance policy which guarantees fixed payments at regular intervals (usually monthly), for as long as the policy holder lives or for a fixed period of time.

Participating Policies

Participating policies are insurance policies which provide both guaranteed and non-guaranteed benefits. The sum assured is a guaranteed benefit and is paid when the policy matures or upon the death of the insured. Participating policyholders are allowed to participate or share in the profits of the insurance company’s participating fund. This is paid in the form of bonuses or cash dividends. Bonuses and cash dividends are non-guaranteed benefits.

All of this is a lot of information. If you’re overwhelmed or you’re not sure where to go next, it’s simple,Insurance companies are available in sufficiently large numbers, pick one and get a quote from them.

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