Life Insurance Policies: A Complete Overview

Types of Life Insurance
Life insurance coverage is available in different forms to cater to a varying need of individuals. Life insurance policies are categorized into two broad groups: term life insurance policies and permanent life insurance policies.

The best term life insurance policies are the basic types of life insurance coverage which the average person knows about. These policies require paying a fixed amount as premium over a specified period of time and if the insured passes away during this time frame the face value sum is paid in a lump or as per other arrangements to one’s beneficiaries. Permanent life insurance policies involve the cash value of funds as well as the death benefit which is given to one’s beneficiaries. Generally, because of the permanent nature and extra cash value component of permanent life insurance policies, they are known to cost more than term life insurance policies.

Common types of life insurance coverage include the following.  Whole life insurance: whole life insurance coverage is a form of permanent life insurance that is valid throughout the lifetime of the insured. With this form of coverage, the insured is required to pay an agreed premium throughout their lifetime or until paid up.

Although a whole life insurance policy is associated with a fixed premium, the cost of these policies is known to more expensive during the early years to cover costs that may arise in the future. Whole life insurance policies offer both a way of saving money on the side and providing a death benefit for one’s beneficiaries. Whole life insurance is a form of permanent life insurance.

Universal life insurance: this is a form of permanent life insurance with a maturity date as well as a cash value and a death benefit. With this form of life insurance, one can build a death benefit for their beneficiaries as well as save money over a specific period. It is, however, noteworthy that, when this form of insurance expires, one gets the cash value as a lump sum and their life insurance coverage is stopped.

Indexed universal life insurance is another form of whole life insurance that allows one to grow the cash value of their premiums faster through available investment options.

Term life insurance policies include level term life insurance where the same premium is paid the entire duration of the policy and non-level life insurance where the premium decreases over time or death benefit increases over time.

Apart from the basic term and whole life insurance policies, other special types of life insurance policies are available. These forms of life insurance coverage include group life insurance, final expense life insurance, and joint and survivorship life insurance: these policies are aimed at specific groups of individuals.

Life Insurance Objectives

The major reason why persons buy life insurance coverage is to supplement the finances of their loved ones in the event of their death. The death benefit is the financial backing which is provided to the beneficiaries of the insured based on the terms of the coverage.

Term life insurance policies are often bought for short term financial security of loved ones. One could buy a term life insurance coverage for a specific period to strategically having money for specific purposes. These purposes could include college or providing enough income for a family until the children are adults.  When life insurance coverage is bought because of these purposes, specific premiums are agreed on for the duration of the coverage.

Life insurance coverage can also be bought to fund a new business or buy out the business should one’s business partner die. Irrespective of the purpose life insurance coverage serves, the terms and conditions that apply to the different forms of life insurance are tailored to the purpose and determine one’s access to the associated benefits.

Life Insurance Underwriting - Approval Process
Before insurance policies are offered to a client, insurance companies carry out the process of underwriting to determine the eligibility of the buyer for particular products. In other words, the underwriting process is carried out by insurance companies to determine the best product and rate to offer a particular client. During this process, the insurance companies usually gather specific information about the client which will guide the decision of the most appropriate rate to offer.

Underwriting is a process that applies to life insurance products as well as other insurance and financial products. If a person seeks a mortgage from a bank, for example, the underwriting process will guide the bank on whether to grant the mortgage to the client or deny the application.

Insurance companies require certain bits of information to determine whether a person is eligible for a particular insurance product. The underwriting process thus involves gathering information on the finances as well as the medical history of the applicant. The underwriters would also require information on the travel plans of the applicant as well as their driving records. The occupation and hobbies of the applicant will also be accessed.

The basic documents which the average underwriter would require when applying for life insurance would be a paramedical exam report, a health questionnaire, the motor vehicle report, their prescription medical history as well as their medical information bureau report.

More documents may be required from applicants for extended life insurance as well as applicants that have attained a certain age. These requirements include cognitive testing as well as a financial questionnaire and credit report. An inspection report may also be required.

The underwriting process would determine the rating class of the individual as per the guidelines of the organization. Applicants within a rating class are eligible for similar products and may pay similar premiums.

With a variety of cheap life insurance coverage available, it is important for one to properly understand what each coverage offers before subscribing to it.