How does life insurance work?
Well, you enter into acontract with a company. Your promise to them is that you will pay your premiums each month. Their promise to you is that, should you die, they will pay the face amount of the policy to your beneficiary(ies). Insurance is a transfer of risk from yourself to another for which you pay a fee.
As to the three types there is TERM, Whole Life and variations of whole life. For the last two, please check out the articles I have attached that explains how these policies work.
Chris C has it partly right. There is Annually Renewable Term and Level Term. The difference is that with ART, the premium does go up every year. With Level Term however, the premiums stay the same for the length of the term. Term is, usually, the best to go with, because premiums are less and coverage is more.
During this time, the person or couple
are working. They should be taught by their agent that they need to be investing for their retirement. Their agent should provide them with a complimentary financial analysis of their needs, when they first get the policy and every year after that.
Insurance IS a temporary part of your investments. The plan is to be covered until retirement and then the need is no longer there. After retirement, you should only need a small burial policy- 10-20k, at most. You should be self-insured at this point. Meaning you have enough in savings to cover all your daily needs as well as everything else and still have money left over.
BTW, when insurance companies sell you whole life andits derivatives, the insurance that is covering you is Annually Renewable Term. If term is good for the insurance companies when they cover you, do you not believe that it really is the best way to protect you and your family?
Mark S · 8 years ago