Personal and family peace of mind is based on financial security that allows us to solve the problems that arise in the event of any unexpected event. Knowing that the family will have this financial support justifies why you should take out life insurance. We will review what life insurance is and the different types of life insurance available, highlighting the convenience of each of them and the importance of taking out insurance in a timely manner.
What is the insurance of life?
Life insurance or life policy is a savings and protection product for loved ones, relatives, or close friends, in the event of the death of the insured. They allow the payment of a premium that is stipulated at the time of establishing the policy, in the event of the death of the insured, or evidence of a state of total or permanent disability that puts the survivors in danger or economic risk.
In life insurance, the sum insured is set between the parties at the time of the contract, which is made freely and voluntarily between the policyholder and the insurer.
Why take out life insurance?
An extensive debate can arise on why taking out life insurance is convenient. This policy represents a guarantee of peace of mind when facing difficult situations, such as the death of a family member or his or her disability, as this is the insured person. Among the benefits of contracting a life policy, the following stand out:
- Compensation translates into protection and cares for the family.
- It allows covering the debts of the insured, preventing them from being a burden for the surviving group; mainly, funeral expenses, inheritance taxes, etc.
- It allows covering family expenses, such as food, clothing, rent, mortgage, etc.
- It guarantees the future of the survivors, allowing them to cover academic expenses.
- It represents an important economic aid in the absence of the insured.
What are the types of life insurance that are quoted in the market?
There are basically three types of life insurance, very well explained in this infographic on life insurance. All three cover the needs of the insured person and their family group or beneficiary, but with certain differences, namely:
- Ordinary life insurance is the most common. The policy can be contracted at any time and raises the payment of an annual premium. The compensation is canceled when the death of the insured occurs.
- Endowment insurance guarantees an economic benefit for the beneficiaries of the policy and is not subject to the death of the insured. In some cases, it implies the payment of money if the insured survives the term of coverage of the policy. It may vary in each case.
- Temporary insurance is when a life policy is contracted for a certain period of time. It can be renewed or extended in time according to what is required. The premium is determined based on the age and chances of death of the insured. They cover the risk of death before the end of the contract.
There are several types of life insurance. Basically, there are four modalities, which are: risk insurance or death insurance, savings insurance or survival or retirement insurance, mixed insurance, and annuity insurance. Each of these types of life insurance has its own characteristics. Let’s see what each one consists of.
Risk or death insurance
Risk or death insurance is a type of life insurance in which the contracted capital is paid immediately after the death of the insured if it occurs before the end of the term of the insurance. If the insured person survives this period, the insurance is canceled, leaving the premiums paid in favor of the insurance company.
There are two types of risk insurance: temporary insurance and whole life insurance.
Term insurance covers the risk of premature death before the contract ends. In this type of insurance, the risk component prevails over other variables. Its duration is one year, tacitly renewable up to a certain number of periods. Its cost is usually not very high and allows high coverage to be contracted.
Temporary insurance is usually contracted to protect mortgage obligations, guarantee debt cancellation, or as additional protection for the family.
whole life insurance
For its part, whole life insurance extends its coverage throughout the life of the insured permanently, without a term. The compensation is paid immediately after the death of the insured, whatever the moment this occurs.
Sometimes the option of restitution of the insured capital is added if he has outlived a certain age, terminating the contract. In this case, it would be mixed life and death insurance.
In terms of whole life insurance, there are two modalities:
- Whole life insurance with lifetime premiums, in which the premiums are paid throughout the life of the insured, thus having continuous coverage
- Whole life insurance with temporary premiums, in which payment is made only for a few years or until the death of the insured.
Savings insurance or for cases of supervenience or retirement are intended to obtain capital at the end of the agreed term. The purpose of these insurances is an investment in the medium or long term to complement retirement benefits or to accumulate capital to face future situations.
Mixed insurance combines risk insurance and savings insurance in the same contract so that the insured person is covered in the event of death (in which case the beneficiaries will receive compensation) and is assured of a benefit if he or she survives the stipulated age.
In annuity insurance, through the contribution of a single capital or the payment of a premium for a certain period of time, the insured is guaranteed a life annuity (payment of certain amounts while he/she lives, the amount of which may be fixed or variable) or an annuity temporary (for a certain period of time).