Life insurance, as obvious as it sounds, is a type of insurance coverage whereby an insurance provider agrees to pay a fixed sum of money for the death of the insured or the termination of the specified terms to the policy owner, in return for a certain sum paid by the insured: at regular intervals (i.e. installments) or in lump sum. As such, life insurance is also called life assurance.
The assured sum will be settled to the insured in lump sum or installments on the maturity of the insurance policy or through annuity.
Life insurance is classified into three types as follows:
- Whole Life Assurance: The sum assured will be paid to the policyholder when a certain event happens to the insured, that is death.
- Term Life Assurance: When the term life assurance matures, the sum assured is paid in lump sum to the policy owner.
- Annuity: The sum assured is paid monthly in installments when the policy reaches maturity.
Whole Life Insurance
Often called the “straight life” or “permanent life” is an insurance that guarantees coverage throughout the insured’s lifetime provided that the insured has paid the amount due until policy due date. Whole life insurance is a cash value type of insurance to be paid to the beneficiary in the event of death. The other term can be used as savings whenever the insured needs money while alive.
Term Life Insurance
Term life insurance also referred to as “term assurance” is a type of insurance that provides coverage with a fixed payment rate for a limited time frame. When that time frame reaches its expiration, the previous premium rate coverage will not be guaranteed, and the policyholder must choose to waive the coverage or acquire coverage with different payment policies.
Insurance companies issue annuity to accept and grow the funds of the policyholders. In this type of life insurance, a stream of payments or income will be created upon annuitization and the money that the policyholder pay in can either be a number of payments or a lump sum. Generally, these contributions earn a tax-deferred rate of return.