What Is Life Insurance

  • Life insurance is a policy that covers the expenses caused by the death of the policyholder or so that he obtains a return on his money
  • There are 2 types of life insurance: savings life and risk life

Life insurance is the provider of protection against death and disability . Due to its coverage, it is a very widespread insurance product, since it represents a great help for family members and close friends when the death or disability of the policyholder occurs, especially when they depend directly on their income or are linked to a loan. of any type.

At the time of taking out a life policy, just like when taking out any other insurance, it is important to be clear about what types of life insurance exist, what their coverage is, who should take it out and where.

What is life insurance?

Life insurance is part of the insurance designed for individuals and consists of the payment of a previously stipulated premium in order to receive an amount in the event of death or disability that makes up for the insured’s lack of income .

The amount of the premium that the insured person faces depends on the risk and the amount that he wants to receive in the event of disability or that his beneficiaries receive in the event of his death. In addition, this final compensation of the policy can be received in a single payment or as an income, as desired by the insured or his beneficiaries.

What is life insurance for?

The main purpose of life insurance is to serve as a substitute for the economic resources that you generate. The type of insurance and the amount you take out will depend on your needs, your dependents, whether or not you have a mortgage, the risks you want to cover – your children’s education, payment of debts, burial expenses – or of the stage of your life in which you find yourself. Being single and without family responsibilities is not the same as having debts and children who depend on you.

What is each type of life insurance for?

There are three types of life insurance :

  • Insurance in case of death, also called risk life insurance. Within which whole life insurance and term life insurance are collected.
  • Insurance in case of life, called savings life.
  • Mixed life insurance, which unites the two previous modalities.

The choice between life savings or risk life insurance will depend on your preferences. The first of them is contracted to obtain a return on the premiums paid, while with the second the beneficiary receives the stipulated capital when the policyholder dies. We tell you the particularities of each one.

risk life insurance

Life insurance in case of death is called Life Risk, and the function of its coverage is that the beneficiary of the policy receives the capital stipulated in it when the policyholder dies. Therefore, unlike others, such as private medical insurance , in the case of Life Risk insurance, the policyholder and the beneficiary are not the same person.

This policy can be contracted in two modalities: whole life or temporary .

  • Whole life insurance : consists of the payment of the capital designated in the policy just after the death of the insured, regardless of when it occurs . In addition, within it you can choose between lifetime or temporary premiums. With the former, payment is made during the life of the insured, while with temporary premiums, payment is made over an agreed number of years or until his death if it occurs before the expiration of the policy.
  • Temporary life insurance : they cover the risk of death during a specific period of time and stipulated in the policy . This type is the one that is contracted for the repayment of loans. For example, if the insured person dies and had a pending mortgage, the insurance covers the pending amounts. The obligation acquired by the insurer comes to an end at the time of expiration of the contract and the company does not have to make any disbursement to the beneficiary if death does not occur during the term of the contract.

savings life insurance

Savings life insurance is also called in the case of life , and with its contracting the beneficiary, which in this case is usually the policyholder himself, will receive the capital if he lives when the expiration date of the policy arrives. It consists of paying premiums that grant the insured return , an investment that, although it offers low interest compared to other savings products, presents a reduced risk. However, its tax advantage is that it is not taxed on the return obtained, but only on its collection.

These policies can be contracted as Unit Link, Assured Pension Plans (PPA) or Individual Systematic Savings Plans (PIAS) and are usually signed to supplement retirement income, although this is not their only function.

mixed life insurance

On the other hand, some insurance companies offer mixed life insurance, which guarantees the payment of a capital to the beneficiaries of the policy in the event of the death of the insured. They can also be paid to the policyholder in the event that the insurance expires and they continue to live. At present, most of the contracted life savings insurances are of this modality, since they incorporate a capital for death or disability to the pure characteristics of a savings policy.

Who should take out life insurance?

There is a certain tendency to contract this type of policy when you are already old, although the importance of contracting life insurance and its benefits are not only focused on that range, in fact if you contract it when you are young you have advantages. Protecting family members and the insured himself from what may happen to him are just some of the reasons , but it is also done to cover the mortgage. Therefore, we can say that it is worth taking out life insurance even if you are relatively young.

Life insurance on mortgages

Banks usually offer better conditions on their mortgages if you take out life insurance. For this reason, some companies with which insurance of this type is contracted are banking entities. However, you do not have the obligation to contract it with the bank but you can look for the insurer you want. Life insurance with death coverage that is contracted when acquiring a loan of this type fulfills an economic mission. And it is that the banks need someone to respond to the mortgage payment if something happens to the owner. In addition, in this way you make sure not to leave your relatives the weight of a mortgage.

Take out life insurance

Choosing which life insurance to hire may seem like a difficult task, but if you are clear about what you want it for, you will save time. This policy can give you many benefits, especially the security that your loved ones will be protected in the event that something happens to you . When you go to contract it, take into account all the coverage and exclusions of the policy and be honest in the questionnaire that the insurer will carry out about your state of health so that it is correct and the insurer compensates you or your beneficiary in the event of an accident

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