A life insurance policy is fundamentally a pledge to safeguard your loved ones financially in the event of your passing. A policy’s ability to fulfil that promise is determined by a few crucial characteristics:
• The death benefit is the sum of money that the insurer will pay out in the event that the covered individual passes away. Usually, this bonus is exempt from income taxes.
• The beneficiaries: The individual(s) or individuals who receive the death benefit. One person can receive it completely (such as a surviving spouse), or it might be distributed proportionally among a few individuals (such as a husband receiving 50% and two adult children receiving 25% each). By the way, you can opt to give all or a portion of your death benefit to an organisation, such a nonprofit purpose, instead of a blood family or even a specific individual.
The duration for which the insurer agrees to provide a death benefit is known as the policy length or term. A term policy defines it as a certain period of time, such as 10, 20, or 30 years. A permanent insurance lasts for the duration of the insured’s life; for whole life, it continues as long as premiums are paid; and for universal life, it continues as long as it is adequately financed to cover monthly outlays.
• The premium – The regular monthly or annual payments required to maintain the coverage.
• The cash value is the investment portion of the insurance that may be withdrawn as cash or used as collateral for loans. 1, 2 Term life insurance has no financial value.