At times referred to as life assurance, life insurance is an insurance cover that provides for a lump sum of money to you as the insured upon your death. Like with other types of insurance, life insurance policy document stipulates the applicable premium you are obligated to pay. There are policies that provide for either regular premium payments or lump sum premium payment. The document also specifies the circumstances leading to death that your insurance company will be obligated to pay.
Likewise, the policy document contains limitations or exclusions relating to causes of death that your insurer will not be obligated to pay. Such causes of death as suicide, riots and civil commotions are in most cases excluded.
There are different types of life insurance policies sold by life insurance companies. They basically fall in two categories; protection and investment policies. While protection policies provide for lump sum payment in case of death of insured, investment policies provide you with an avenue through which you can accumulate funds to invest in a project. Below are four types of life insurance cover:
Term life insurance – This is the oldest of the 4 types of life insurance cover available. The policy does not provide for accumulation of funds through premium payment but rather provides for lump sum benefit payment upon the death of the insured as indicated in the policy document. This type of life insurance has three main features; the face amount, which is the lump sum payment a life insurance company is obligated to pay upon death of the insured, the premium, which is the cost that the insured has to bear and period of coverage, which is the term of the contract. Although the premium remains constant throughout the contract period, the insured foregoes any lump sum payment in case there is no death.
Permanent Life insurance – Of the popular 4 types of life insurance, permanent life insurance is very popular. Unlike term life insurance, permanent life insurance policy remains active until its maturity. It cannot be cancelled and may only be inactive when the policyholder fails to pay applicable premium. The premium paid accumulates, meaning that a policyholder can borrow or choose to surrender the policy and receive the surrender value of the policy. This type of life insurance is suitable for young and middle-aged persons because it can be very expensive for an older person.
Whole life insurance – Of all modern life insurance policies, this is one of the 4 types of life insurance cover that has become very popular. It is a variation of permanent life insurance. Its policy provides for higher premium than that applicable to term life insurance. It also provides for a value reserve, which the policyholder can access in form of loan. One of its main advantages is the guaranteed death payment.