What Is Life Insurance and How Does it Work?

They also need to see the results of a physical examination for the reason listed above; they need to know how high their risk will be of having to pay according to the terms of the policy. For example, insurance companies will study the results of the applicants’ blood tests to look specifically for things such as high cholesterol levels and high glucose levels. Those who have high cholesterol send a signal to the insurance company that heart disease may be in their future. Also, high glucose levels may lead the company to suspect diabetes in the applicant. These conditions raise a person’s risk of dying before their lifespan has been completed.

Supposing that the applicants have been found to be in relatively good health and they are not living particularly dangerous lifestyles, the insurance company may decide to write the applicant a policy. Applicants have the choice of two different types of life insurance, term or permanent.

Term life insurance is the least expensive form of insurance, because it is strictly a life insurance policy. This means that the applicant’s beneficiaries will receive the death benefits agreed to in the policy if the policyholder passes away within the term. Terms can be renewable for one year, five years, 10 years, 15 years, 20 years, 25 years or 30 years. If the policyholder does not pass away within the term, the beneficiaries do not receive anything.

Permanent life insurance lasts until the policyholder passes away; the policyholder does not need to renew the policy. Another feature for permanent life insurance is that it has a cash value. The cash value has the potential to accumulate and the policyholder has the opportunity to withdraw cash from the policy.

Life insurance is paid for by premiums that are set by the insurance company. They can be paid monthly if that is preferable for the policyholder. Term life insurance is so popular, because it can be so cheap to purchase a policy worth hundreds of thousands of dollars for under $20 per month. As long as the policyholders keep their policies active by paying the premiums, the beneficiaries will receive the benefits.