What You Need To Know About Life Insurance (Part 2): Traditional Life Insurance

This is the second part of this series. If you missed Part 1, then please go here first:

What You Need To Know About Life Insurance (Part 1)

After reading the first part, I suppose that you now know if you belong to those who need life insurance or not. If you think that you need one; then please continue reading and know what are the different types of life insurance available for you.

Basically, There are 2 major classification of Life Insurance. The first one is called Traditional Life Insurance (TRAD) and other is called Variable Universal Life Insurance (VUL). In this article, we’ll be focusing on Traditional Life insurance.

What is Traditional Life Insurance?

Traditional Life insurance, as the name states, is the traditional kind of life insurance. This is specifically designed to provide a benefit, typically a lump sum payment(Face Amount), in the event that an unexpected situation occurs. To make it simple, it focuses more on PROTECTING” your love ones by providing financial support in case something happens to you.

Traditional Life Insurance is further divided into 2 types according to nature namely, Term and Permanent.

Term Life insurance as the name implies, provides Life insurance coverage for a specified term(length of coverage). 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.

Once the term ends, the insured receives nothing in return and should he or she wish to continue(renew) the plan, a new premium  amount(usually higher than before) is applied based on the new age and condition of the client.

This is the cheapest form of life insurance and is ideal if you do BTID (Buy Term Invest the Difference) or if you cannot yet afford a more expensive life insurance but wishes to be protected while looking for ways to increase your cash flow.

Term Life insurance is further classified into two:

Level term insurance where the death benefit remains constant over the term of coverage.

Decreasing term insurance where the death benefit starts at the set face amount and then decreases over the term of the coverage.

Permanent Life Insurance provides Life Insurance to the remaining lifetime (usually age 100) of the insured. This is more expensive to older people than to younger ones. A permanent insurance policy accumulates a cash value and acquired dividends up to its date of maturation. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.

Permanent Life insurance can be further classified into three:

Ordinary Whole life insurance where the insured is covered until death but needs to pay the premium throughout his lifetime.

Legend:

LB=Living Benefit, DB=Death Benefit, MB=Maturity Benefit, CV=Cash Value, AD=Acquired Dividends, FA=Face Amount

Limited Pay Whole Life insurance where the insured is covered until death but only needs to pay the premium for a specified period on his lifetime.

Legend:

LB=Living Benefit, DB=Death Benefit, MB=Maturity Benefit, CV=Cash Value, AD=Acquired Dividends, FA=Face Amount

Endowment, where a lump sum is paid at either the death of the insured or after a set term, called the policy’s maturity. Endowment allows for faster accumulation of funds, making it ideal for saving for future needs.

Legend:

DB=Death Benefit, MB=Maturity Benefit, AD=Acquired Dividends, FA=Face Amount

Basically, these are the common types of Traditional Life Insurance according to nature. Try to assess yourself and think thoroughly before you choose one. Please be advised as well that some Life Insurance companies may have different definition as well as terms and conditions than what was stated above (some may have their own rules and regulations).  Just remember, no matter what type of insurance you choose, what is important is that you keep yourself protected as soon as possible.

P.S. There are also “Riders” which are supplementary contracts that when attached to the basic policy, will provide additional benefits at minimal cost. e.g. Critical Illness Benefit(CIB), Accidental Death Benefit(ADB).

Well, that’s it for the second part. Subscribe to Skydive To Success via email and be notified for upcoming articles about Personal Finance, Entrepreneurship and Success.

“If I die, Why do I need money?” —“You don’t… but your family, your business, and your favorite charity might.”

Photo credit: media.lifehealthpro.comworldinsurencez.com


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Jeypi Kyu

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