Life insurance may be divided into two basic classes, temporary and permanent or it can be divided into following subclasses - term, universal, whole life and endowment life insurance.
Here life insurance coverage is for a specified term of years for a specified premium. The policy does not accumulate cash value. Term is generally considered pure insurance, where the premium buys protection in the event of death and nothing else.
The three key factors to be considered in term insurance are face amount death, premium to be paid , and length of coverage. Various insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant. The term can be for one or more than one years.
A policy holder insures his life for a specified term. If he dies before that specified term is up, his named beneficiary receives a payout. If he does not die before the term is up, he receives nothing.
Permanent life insurance is life insurance that remains in force until the policy matures and unless the owner fails to pay the premium when due. The policy cannot be canceled by the insurer apart from fraud in the application, and that termination must occur within a period of time defined by law. Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time. The four basic types of permanent insurance are whole life, universal life, limited pay and endowment.
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