Life Insurance Companies
Life insurance companies are the entities that underwrite and guarantee the life insurance policy as long as the contract is fulfilled in terms of the required payments.
Life insurance is the agreement between an individual and an insurance company. The individual agrees to pay a certain premium each month to the insurance company and in return, the insurance company agrees to pay your beneficiary a certain sum of money upon the insured’s death.
Life insurance companies offer several kinds of life insurance that serve different purposes and the type chosen by the individual depends on the purpose the life insurance has to serve. Most life insurance companies handle all types of life insurance while a few specialize in certain types of life insurance.
Whole life insurance remains in effect for the duration of the insured’s life but the premiums are payable for a certain number of years such as 20. It pays a death benefit to the designated beneficiary and also offers a low risk tax deferred cash accumulation. It also has a fixed premium that will not increase during the insured’s lifetime as long as payments are current. The insured is allowed to withdraw from the policy during their lifetime as well as receive dividends from the policy or apply those dividends to the premium payments. The cash value is the return on the premium paid that life insurance companies invests. The cash value is tax deferred until it is withdrawn.
Variable life insurance pays a death benefit to the designated beneficiary and also offers low risk, tax free, and cash accumulation. The cash account is generated from the premiums that are invested in accounts similar to mutual funds. The cash account will fluctuate as the investing component may fluctuate and cause the account to increase or decrease over time. Life insurance companies allow borrowing from the policy during the insured’s lifetime. The death benefit can also vary in relation to the cash value account and the cash available.
Universal life insurance is based on cash value. The policy is established with the insurer where premium payments are credited to the cash value of the policy above the cost of the insurance. If no premium payment is made, the cost of the premium is drawn from the cash value account. Life insurance companies allow the universal life policy holder to take loans against the value of the policy. When a loan is active, the cash account is not accruing interest. That will impact the overall expected growth of the policy.
Universal Term Life is the most basic of life insurance offered by life insurance companies. It is simply a policy that provides protection for accidental death or debilitating injuries for a specified period of time. If at the end of the life of the policy there is no claim made against the policy, the policy will be worthless upon expiration. Term life insurance is typically the cheapest to buy during the insured’s younger years when the risk of death is low. The cost of the policy will increase with advancing age and increased risk potential.