How Some Life Insurance Policies Fail, Leaving Grieving Families in Financial Difficulties

Many people have life insurance, but let's face it: life insurance is expensive. Most people are unlikely to brag about their purchase to their friends like they would if they had just bought a new Corvette, but they made it nevertheless because they love their families and want them to continue living their current lifestyle in the event of a major breadwinner's sudden death. While this essay does not apply to people who have term insurance, those who have permanent life insurance, which is life insurance with a savings component, will find it extremely useful. life insurance agents job

To help you comprehend the issue, I'll give you a quick tutorial on life insurance before explaining how something that appears to be a safe bet can go so wrong. Term and permanent life insurance are the two fundamental types of life insurance. A person purchases term insurance by paying a set amount of money, known as a premium, for a set period of time, ranging from one year to 30 years. The insurance company is obligated to pay a set amount of money, termed a death benefit, to the insured person's beneficiary if the insured person dies during the defined period of time, as long as the insured person is paying the premium. If the person does not die within that time frame, the insurance company keeps both the money and the interest earned on it. While there are several types of term insurance available currently, such as "return of premium" term insurance, which refunds the insured's premium dollars at the end of the term (but not the money's earnings), the basic premise of term insurance is that a person is protected for a set length of time. They must purchase a new policy if they desire coverage beyond that time period. Term insurance isn't the topic of this article, so if you have it, you can stop reading now and rest comfortable that your family will be compensated in the case of your untimely death as long as you pay your premiums and the insurance company stays financially sound.

Permanent insurance is the other sort of insurance. Permanent insurance is similar to term insurance in that it offers a death benefit, but it also has a savings "sidecar" that gives the policy a monetary value. The policy premiums are paid, a portion is taken out to pay for the insurance, and the rest is put into the savings sidecar. There are three main types of permanent insurance, which differ depending on how the savings component is used. Whole life insurance is the first sort of permanent insurance. Whole Life Insurance's savings component is invested in the insurance company's general fund, where it earns interest. The amount of interest paid to a specific individual is determined by how much of the general fund's money belongs to that person. Some policies earn dividends if they are "participating" policies. Whole life policies, in general, do not pose a lapse risk because the amounts earned are guaranteed by the insurance carrier. A death benefit will be paid out as long as the insurance company is solvent. The only issues that a person with a Whole Life policy has are overpaying for insurance and the death benefit not keeping up with inflation.

Universal Life Insurance is the second type of permanent insurance. The savings sidecar of Universal Life Insurance is a separate account, as opposed to Whole Life Insurance, where the savings sidecar is invested in the insurance company's general fund. The fundamental benefit of universal life insurance is its adaptability. For example, if you work as a landscaper in the northeastern part of the country and have the winter months off, you could acquire a Universal Life policy, fund it significantly throughout the spring, summer, and fall when you're making a lot of money, and then not pay anything during the winter. Nothing needs to be done as long as the savings sidecar has a certain quantity of money (depending on insurance company formulas). You also don't need to purchase a new policy if you require additional coverage due to the birth of a child. You can enhance the death benefit on your current Universal Life Insurance policy and pay the extra premium as long as you are insurable. The money in a Universal Life Insurance policy's savings sidecar is usually placed in ten-year bonds. There is a guaranteed interest rate on the Universal Life policy, as well as a current rate. The money in the sidecar earns a little higher current rate, but the policy owner is only guaranteed the amount guaranteed. Keep this last thought in mind because once I discuss Variable Insurance in the next paragraph, I'll bring these two concepts together in the one after that, and that final concept is what's wrong.