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Standard 9th August Month Unit test Question paper 2020|Ekam kasoti Paper

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There are two major types of life insurance—term and whole life. Whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. In 2016, about 4.3 million individual life insurance policies bought were term and about 6.4 million were whole life, according to the American Council of Life Insurers.

Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance sold to individuals.

Term

Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.
There are two basic types of term life insurance policies: level term and decreasing term.

Level term means that the death benefit stays the same throughout the duration of the policy.

Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.

In 2003, virtually all (97 percent) of the term life insurance bought was level term.

For more on the different types of term life insurance, click here.

Whole life/permanent

Whole life or permanent insurance pays a death benefit whenever you die—even if you live to 100! There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.

In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the company keeps the premium level by charging a premium that, in the early years, is higher than what’s needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.

By law, when these “overpayments” reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.

In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product—universal life insurance and variable universal life insurance.

For more on the different types of whole life/permanent insurance, click here.

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Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.

Term insurance is initially much less expensive when compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value. In other words, the only value is the guaranteed death benefit from the policy.

Understanding Term Insurance

There are various types of term insurance policies available. Many policies offer level premiums for the duration of the policy, such as ten, 20, or 30 years. These are often referred to as "level term" policies. A premium is a specific cost, which is typically monthly, that insurance companies charge policyholders to provide the benefits that come with the insurance policy.
The insurance company calculates the premiums based on the individual's health, age, and life expectancy. A medical exam that reviews the person's health and family medical history might be required depending on the policy chosen.

The premiums are fixed and paid for the length of the term. If the policyholder dies prior to the expiration of the policy, the insurance company will pay out the face value of the policy. If the term expires and the individual dies afterward, there would be no coverage or payout. However, policyholders can extend or renew the insurance, but the new monthly premium will be based on the person's age and health at the time of the renewal. As a result, the premiums could be higher for the renewed policy versus the original term policy that was initiated when the individual was younger.

Premiums can range depending on the age and the amount of payout. For example, a 30-year policy with a $250,000 payout can range from $15 per month for a person in their twenties to less than $60 per month for someone in their fifties. Of course, each insurance company might have different rates depending on the policyholder's health, history of smoking, and other factors.

KEY TAKEAWAYS

Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years.

If the insured dies during the time period specified in a term policy and the policy is active, a death benefit will be paid.

Many term policies offer level premiums for the duration of the policy.

Other term policies offer decreasing or increasing benefits over time as well as the option to convert from term to permanent insurance.

Types of Term Insurance

There are various types of term insurance besides the level term policies we've outlined so far. Each policy has its pros and cons, depending on the needs of the policyholder.

Convertible Term

Convertible term life insurance allows a term insurance policy, which has a limited number of years before expiring, to convert into whole life or permanent insurance. The major benefit of convertible insurance is that the policyholder doesn't have to submit to a medical exam, nor are any health conditions considered when the term policy converts to permanent insurance.

Increasing Term

Some policies allow you to increase the death benefit as time goes on. The premium increases as well, but it allows policyholders to pay lower premiums early on in life when they have a lot of bills and expenses. The increasing term prevents having to qualify for another policy at an older age to get the added benefit as would be the case with traditional term insurance.

Mortgage Term or Decreasing Term

A mortgage term or decreasing term policy is the opposite of the increasing term because the death benefit amount decreases over time. The goal is to match the decline of the term benefit to the reduction of the policyholder's outstanding mortgage. The idea behind this strategy is that you don't need as much life insurance if you have less mortgage debt. However, although the premiums are smaller than term insurance, the premium payments remain constant even as the benefit declines.

Annual Renewable

As each year passes, the term insurance is renewed but for a higher premium since the policyholder is a year older. The benefit to annual renewable term insurance is that the coverage is guaranteed to be approved each year. However, it may not be the most cost-effective for everyone due to the increased costs over time.

A guarantee on the premium and survivor benefit for a defined amount of years, depending on the company, age of the insured, and other factors.

No capability of accumulating cash inside the policy. You can't pay an extra premium to get extra benefit. You can’t transfer money from other accounts into the policy. The carrier will not pay dividends or apply interest to your account.

This product is ideal for covering yourself for a single need, for a specific amount of time. An example is indemnifying a mortgage or business loan.

The kicker is that if you outlive this time and still need coverage, the price of term insurance typically increases astronomically after the guarantee period.

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