Life insurance

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Life insurance is an insurance policy that is paid to your survivors when you die. Life insurance is frequently purchased on the primary income provider of a family--particularly early in life when the insurance premiums are inexpensive and the financial hardship of a death would be extremely difficult. It is often common to buy insurance "until the kids get out of college".

Types of life insurance[edit]

Term life insurance[edit]

Term life insurance is the original form of life insurance. Other forms of insurance coupled with some type of investment option came later. Rome had a form of insurance in clubs that would pay for the deceased burial costs and provided a small monetary benefit for the heirs. In the 17th century, the modern term life insurance was established in the organization that eventually became Llyods of London.

Term life insurance is for a fixed period of time. For example, a 25 year old might buy a 20 year term insurance policy for $500,000 and pay $350 per year for that policy. If the individual dies before the term expires, his or her heirs will receive the $500,000. At the end of 20 years the "term" is complete and the insurance has no remaining value.

Term insurance is usually the least expensive form of life insurance when individuals want to insure against financial hardship from their death in their early to mid career. Term life insurance purchased later in life can be very expensive because the probability of dying within 20 years of age 50 are much greater than within 20 years of age 25.

Universal life insurance[edit]

Universal life insurance is also called whole life insurance. It doesn't expire and is really more of an investment/insurance instrument. Since everyone is going to die eventually, insurance companies can't insure someone for a long time at the low rates that term insurance provides. Whole life insurance gives individuals the ability to invest their money in a way that they can cash out later in life while still providing for a large payment to be made to their heirs if they die while they are young.