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life insurance - Investment & Finance Definition
contract that pays the insured’s beneficiaries a specified amount of money,
called a death benefit, upon the
insured’s death. In return, the insured pays the life insurance company monthly
or yearly premiums.
There are many types
of life insurance. Permanent insurance policies remain in effect throughout
the life of the insured as long as premiums continue to be paid. These policies
increase in value over time, allow the insured to borrow against the policy,
and offer financial flexibility to use the cash value to pay the policy’s
premium, if the policy holder is short on cash. Types of permanent policies are
whole life, variable life, and universal life.
Term life insurance policies are cost-effective alternatives to permanent insurance
policies. Term policies cover the insured for only a specified amount of time,
which is usually one year. When that term is up, a new policy has to be
obtained, but the insurer isn’t obligated to issue the policy if the person’s
health condition worsens.