Insurance was created to serve as a method of transferring risk. A life insurance policy is essentially a legally binding contract between you and an insurance company. It protects you and your loved ones in case you experience any sort of medical or other type of emergency.
Identification
The insurance company is the insurer that decides whether you are worth the risk of having to pay out a death benefit for at the time of your death. The death benefit is the amount of insurance the company will need to pay when you die. You pay premiums to your insurance company on a monthly, semiannual or annual basis to maintain your insurance rights. Depending on the kind of life insurance you have, your policy might last for between 10 to 20 years or even for your whole life (regardless of how long you live).
Types
There are three primary types of life insurance. The most basic life insurance form is term (or temporary) life insurance. Term life insurance carries a death benefit for only a specific amount of time (normally 10, 20 or 30 years). After this time, the cost of term life insurance skyrockets if you want to keep it. Universal and whole life insurance, on the other hand, have a cash-value component that is designed to last you for a much longer period of time than term life insurance. These types of life insurance, however, require higher premium fees. With universal life insurance, the cash value that you accumulate helps pay for the internal policy and insurance costs, as these fees increase incrementally every year based on the insurance rate the company declares every year (or based on an index, like the S&P 500). Whole life insurance is the most expensive type of life insurance. It guarantees you cash value, which increases based on a declared dividend your insurance company assigns every year.
Features
There are features you can add to your life insurance policy. Some insurance policy companies will waive your premium in the event that you become disabled. Others will cover other people under your policy and allow you to purchase more insurance without requiring you to re-qualify.
Considerations
You must qualify for life insurance. The qualification criteria are mostly based on your health. An insurance company will require certain criteria that will indicate a lower risk in covering you. Your life insurance company will thus ask you about your habits (including alcohol and tobacco use), and will access information about you from the Medical Information Bureau.
How to Purchase
You can buy a life insurance policy from an insurance agent or online. Depending on the amount of insurance that you want to buy, sometimes purchasing it online only requires that you send in an online form that gives the company enough information to decide whether to cover you. If you meet with a life insurance representative in person, you will have to fill out an application and go through a mini physical examination.
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