Life insurance provides monetary protection for families or businesses in the event that the policy holder passes away. The policy holder is usually the main financial contributor of the family, or owner of a business. The family member or business the money is given to is called the beneficiary.
There are two types of life insurance policies.
The insurance company invests the premium, creating a cash value, which can create a larger death benefit for the beneficiary or as the policy matures can be used to make the premium payment.
The advantage of these policies is that the policy holder can borrow from the cash reserves tax-free. The disadvantage is that the premiums are higher and the investment could lose money.
Life insurance in the USA is regulated by each individual state and insurance sales persons are required to be licensed by the state. It is relatively easy to get insured.
The insurance company has forms to fill out covering medical history, family history, credit history, and they may require a physical examination. All of these items determine the premium amount.
A young, non-smoking, healthy man will pay a much lower premium than an older, smoking, overweight man. In some cases the insurance company will even decline coverage if the risk is too high.
Finally, life insurance, when paid out to the beneficiary is free from income tax.
