A type of insurance which covers the life of a person is known as Life Insurance. It is a contract between an insured person and an insurance company which may either be a government agency or a private company.
According to this agreement, the insurance company agrees to pay a specific sum of money after the death of the person who is being insured. In return the person who purchases life insurance plan pays a premium at regular intervals of time.
In most cases, money is paid if insured events take place. By insured events it is meant that the death of the person who purchased the insurance is because of the events that have been specified in the contract. The most common type of insured event that is specified in a contract is serious illness.
Life insurance policies can be of different types. On the basis of the needs and requirements, a person can purchase the plan that appears to be the most feasible.
A term life insurance plan is the most commonly used life plan that is opted for by many people. Also known as a temporary life policy, this plan covers the life of the insured person for a specified period of time. This period may be 5 years, 10 years or even 20 years. During the term of the policy, if the person insured dies, the insurance company pays the sum of money to people who have been named as beneficiaries in the contract. On the other hand, if the term of the policy ends and the policy is not renewed, the beneficiaries are not paid any cash benefits.
A whole life insurance plan is the one which covers the insured person for his or her whole life. There is no fixed time for the policy to cease. When the person who holds the insurance policy dies, a specific sum of money is paid to the beneficiaries.
The premium for term life policy stays the same as the value of this policy is divided over many years. In this life insurance plan, cash benefits accrue over a period of time and are paid in lump sum.
Universal life insurance plan is the one which covers a person till his or her death. In universal insurance plans, the insurance amount is divided into death benefit and accrued cash. In this case, cash can be withdrawn as soon as cash value gets accumulated and so cash is not paid in a lump sum.
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