What Is a Life Policy?
May 15, 2013
What is a Life Policy? You may have heard the term but are not sure what it is. The definition of a life policy is ‘an insurance plan taken out on a person’s life, to protect them – financially – against death. Of course, no amount of money can make up for death. However, it can help a great deal after the loss of a loved one.
The benefits of this policy manifest themselves after the person’s death; they usually go to the person’s choice of beneficiaries.
What is a Life Policy?
A person usually takes out a life policy usually has dependents. Dependents are the people who will be affected financially by this person’s death. It is uncommon for a person to take out this policy if they have no dependents.
However, what attracts many to this life policy is that it can help with a person’s funeral expenses. It can also clear any outstanding debts that the deceased may have had in his lifetime. These include: credit card balances, loan repayments, etc. It is also known as life insurance or life assurance.
Although in most cases, people usually take out policies on themselves, it is also common for people to take out policies on someone else with a separate person or group of people as the beneficiaries. For example, a wife can take out a policy on her husband or vice versa with their children as the beneficiaries; and a married couple can take out a life policy on their child, with their grandchildren as the beneficiaries. There are two main types of life policies:
What is a Life Policy – Term Life
A term life policy is only active for a specific amount of time. Its premiums cost less making it more affordable to a wider range of people. It can also be extended after it expires, making it more likely for the beneficiaries of this policy to receive a payout; but if it is not extended and ends up expiring no payout will be received and the insured will lose their coverage. It is also harder for a person to get another life cover after their Term Life policy has expired, as their insurability is greatly affected by their age.
What is a Life Policy – Whole Life Policy
A whole life policy expires only after the insured’s death or if the insured reaches the age of 100. Its premiums cost more and tend to increase every few years. The owner of the policy is also given the option of investing in it, making it more valuable and increasing the potential amount of the eventual payout.
Although this policy has a huge advantage in that it guarantees a payout, it is much more expensive than a Term Life policy and it is harder to keep up with its premiums as time goes by. But if the owner of this policy decides to cash in early, they can do so. Some insurance companies might charge heavily for this though.
A life policy can be a good thing if chosen wisely; however, if you make the mistake of buying one for the wrong reasons you will live to regret it. To avoid this, it is advisable to do your own separate research on what life cover entails before you buy a policy.
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All info was correct at time of publishing