Life insurance is a type of insurance that pays monetary proceeds to the beneficiaries in the event of the insurance-takers demise. The policy is valid as long as the premiums are paid on time as long as the policy is in effect or as long as they are applicable. Initially, these policies were designed for the principle breadwinner of a family, so that in the event of the death of such a person, the rest of the family would not be harmed monetarily from the loss of income that the breadwinner earned. But more recently, life insurance policies are taken by members other than breadwinners, including for children. Broadly speaking, there are two types of life insurance plans – Term plans, and investment-insurance plans, also known as whole/variable plans.
Whole and Variable Life-insurance Plans
These are also called Unit Linked Insurance Plans in some Commonwealth countries. In these plans, insurance is just one part of a complete investment product. The other part is a investment scheme in which the part of premium paid is invested in the different types of securities. A part of the premium pays for the insurance cover, whereas the rest of the premium is invested. This investment allows for the invested capital to build up over time.
Term Insurance Plans
This can be called the purest form of life insurance. Under term plans, you only pay for insurance, and nothing else. This means that unlike variable or whole insurance, you do not get a payout at the end of the plan. This leads many people to believe that term insurance is an inferior product – but the reality is different. The payout at the end of variable insurance plans is just your own investment being returned to you. The advantage of term insurance plans is in its lower premiums.
The premium for someone depends on many factors – but primarily it depends on the age of the person. Premiums are lower for younger people, and more for older one. The reason is not far to seek, and is completely dependent on the mortality rate at any age. If you want insurance, it is a good idea to get insurance when you are still young, and can lock in the company at lower rates – though the premiums will increase with age, they will not increase as much as when you take the policy when you are older.