Life insurance, however unnecessary it may seem to Canadians, is vital. Life insurance, actually Death insurance, benefit payouts can mean the very existence of the family left behind should the bread winner die. Life insurance was designed to provide current financial stability or funding of future plans of the policyholder’s dependents.
Every insurance company has its own specially designed policies with the whistles and bells that are needed to market the product. However, there are four basic types of life insurance coverage.
WHOLE LIFE
Whole life insurance is the most basic type of coverage and provides a level benefit at a level rate of premiums and most policies have redeemable cash surrender value. Premiums are based on the age of the policy holder at the time of purchase and remain the same throughout the life of the policy and payouts are if and made when the policy holder dies.
ENDOWMENT
Endowment policies are designed to pay out an established amount at the end of a specified period. These plans are usually set up by the policy holder for a specific financial necessity to occur in the future. The anticipated wedding or college expenses for a child may warrant the purchase of an endowment policy.
UNIVERSAL LIFE
An insurance policy that combines renewable term life coverage and planned savings is called Universal life. This type of life insurance allows for a portion of the premiums to cover the basic term insurance coverage and the remainder of the premiums are placed into an investment program in order to gain interest and provide a substantial cash value upon surrender.
TERM INSURANCE
The fourth type of life insurance is Term or temporary life coverage. Term life insurance was created basically to help young married individuals who have a large amount of financial responsibility at an early age. As parents get older, their children grow up and the mortgage and other financial obligations are eliminated, the total financial needs of the family may not be as high. These policies are usually written in five-year increments, varying benefits but keeping the premiums the same.
a. Level Term
Term insurance that pays the same death benefit throughout the life of the policy is called Level Term Insurance. These policies are intended to provide the same amount of coverage to the policy holder at the same premium rate for a limited number of years.
b. Reducing Term
Reducing Term insurance is designed to pay a higher death benefit at the start of the coverage period reducing the amount payable each year until the end of the coverage period. Premium payments for reducing term insurance usually remain the same for the life of the policy.
c. Credit Life
When a major purchase is financed, a type of term insurance is made available that will pay off the purchase should the policy purchaser pass away. This type of coverage called credit life is payable only to the financing source and only upon the death of the policy holder.
d. Group Life
Many employers, fraternal organizations, credit unions, etc., make available to their employees or members life insurance that is payable only during that persons employment or membership. The insurance is forfeited should be person no longer be affiliated with that group.
