Most insurance companies will base their quote calculations on several factors. One of the most important factors is obviously the face value of the policy you want. Apart from that, the price is influenced by the policy holder’s age and life expectancy, the length of the insurance term, or whether the insurance is whole life or term based, and the insured’s medical history and current overall health. The medical factors can often make insurance rates and premiums increase drastically, so you should make sure that you know everything there is to know about your current and past health, as well as any history of illness in your family to avoid unpleasant surprises.

Most people will benefit from buying life insurance relatively early in their lives, while they are still able to earn and in good overall health, so that is definitely something you should give some thought to. The longer you wait, the greater are the chances that your health might take a turn for the worst and that you might contract an illness such as heart condition, high blood pressure, diabetes or even something terminal like cancer. All of those can be reasons for the insurance company to raise your annual premiums sky high or even completely decline to issue you a life insurance policy.

So what exactly is life insurance?

A simple explanation would be that life insurance is in it’s core a legal contract between the insured, or the policy holder and the insurer, or the issuer of the life insurance policy. The life insurance policy provider agrees to pay out a previously agreed upon amount of money, called the benefit in life insurance terminology to the previously designated person or persons, known as the life insurance beneficiaries in case of the insured person’s passing. The specific might depend on the actual contract, but most life insurance policies today will cover cases of accidental death, or physical disability that results in an inability to work and earn, but they can also cover medical events such as death from illness or even old age. The holder of the policy agrees to pay out a sum of money to the life insurance policy provider, and this sum is called a premium. Premiums can be payed out both regularly or for a predesignated period, or even as a one time payment, depending on the exact terms of the insurance policy.

What is the exact purpose of having a life insurance policy?

Obviously, the most important and central purpose of having a life insurance policy in place is to provide some level of financial security to your immediate family or other beneficiaries in the case of your death. As any form of insurance, its meant to protect your family from the added pressures of financial uncertainty in addition to the emotional pain from losing a loved one. It can also be used by your beneficiaries to settle your financial affairs in order, as well as to cover the costs of the burial and funeral ceremony.

On the other hand, it can also be extremely useful if you are looking to diversify and invest, and if you are interested in planning your estate and making it tax liquid. For you as the policy owner, the main benefit of life insurance is the peace of mind that comes with knowing that your money is both safe and invested in a way that will yield you annual profits, as well as knowing that in the case of your sudden death or terminal illness, your family will not have to deal with the financial hardships as well as the emotional pain.

Among many clear advantages and benefits of whole life insurance policy plans, those that stand out for most users are the fixed annual premium that can’t be increased for the duration of the policy, guaranteed payment of death benefits to the designated recipients regardless of the moment of death of the policy holder and guaranteed cash value that increases in time. There is also a downside however – you can’t really have too much wiggle room with the annual premium payments, and the rate or return might be slightly lower on annual when compared with other, more conventional means of savings, like saving accounts in banks. There are ways that you can compensate for this and even increase the face value of your death benefit, but it will also mean that you have to pay more premium.

Whole life may not be perfectly suited for everyone, but a large percentage of those interested in life insurance and investments will find that it works great for them, especially if they enjoy a stable source of income and have long term investment goals in mind. If you fit in this description, you are a great candidate for this kind of life coverage. Whole life is also a great choice for those relatively older, since their age won’t impact the annual premiums in any negative way, unlike the other popular format of life insurance, the term life insurance.  Whole life also has an added component of investment and asset growth that doesn’t come with the term life insurance, so any funds that you might invest into a whole life insurance policy will not only be guaranteed to your beneficiaries and immediate family, but they will also get the additional money that’s the result of the equity growth.

Also, it’s good to know that the whole life insurance policy can be liquefied early and it’s value used to take care of any urgent situation requiring cash, which isn’t the case with most other forms of life insurance. The best way to think about whole life insurance is to perceive it as both a safety net in case something happens to you, an savings investment and an inheritance fund for your children. The benefits of whole life insurance will always be available for immediate usage, and it’s also good to know that once your money is invested in a policy, it’s growth is completely tax sheltered and in a way deferred. This makes whole life insurance similar to other, more conventional forms of investment, such as stocks, bonds, and various other market instruments.

Very useful application of term life insurance is using it as a collateral for business loans. This is especially important for up and coming startups, as they often don’t have credit lines and assets set up yet. Having an insurance policy will serve as a great base to build your asset list on, and it can be used as the perfect collateral early on. You can really make your business grow by giving it a well timed cash injection, and to do that you need funding. The easiest way to obtain that is through a loan, and having life insurance with your business set up as the primary beneficiary is the easiest way to obtain it.

Insuring the Key personnel

Making sure that the key people in your business are insured, whether those are you and your partners or important team members can be crucial. Your business will benefit from the protection that having your key people insured with the role of the beneficiary being assumed by the business itself, or you can even name yourself as the primary beneficiary. This is particularly useful if you decide to cover your business partners under insurance, and it can help you to lessen the negative impact their sudden passing might have on your business.

Account receivable leveraging

In case you don’t really have any free assets to invest in buying a life insurance policy for your business because all your assets are tied up and invested in the business itself, you can go with leveraging the receivable on your companies accounts. Most insurance companies will accept this type of leverage as an asset that qualifies you for a loan in case your other funds, like real estate and liquid assets are not available at the moment.

Buy and sell agreement

In case of the passing of one of the business co-owners, their part of the company will usually be distributed to their family. Those family members will often lack the motivation required to help you grow the business. But if you have an buy & sell agreement and a corresponding life insurance policy in place, you can avoid this type of conflict altogether, since the remaining members can use the funds from that policy to buy the shares back.

There are several types of life insurance available today. For one, variable type can be compared to the universal life insurance plans, with one important difference – it also offers it’s holders a much wider choice of different investment options, like bonds and stocks. The recipients of this type of life insurance policy will receive the full face value of the policy, or the face policy plus the total worth of the policy holders investment portfolio. This type of life insurance is also meant to keep you insured and protected for the course of your entire life, and not just a predetermined time span. Premiums are fixed, which means that they will stay at the same level during the entire coverage period, and the part of your premiums is further invested by the insurance company, so the overall value of your policy increases over time. Universal life insurance plan will also let you be a bit more flexible with your investments, because it allows you to change the amount of your premium or even skip them completely for a short period of time, and this will not make your insurance policy void, only affect it’s value a bit. These policies are also regarded as a solid investment and they can even be liquidated if you are ever in dire need of money fast.

Term life insurance is quite different than the whole, or universal life insurance. It’s a fairly basic insurance product, and it offers only basic coverage in case of death, without any investment component of universal life insurance. It’s a very popular choice among many people, partially because it’s very easy to understand and acquire and it doesn’t cost as much as whole life insurance does. The drawback is that there’s no cash value to it, and it’s coverage is limited to a certain date – if you outlive your term life insurance policy, your beneficiaries will end up with nothing on their hands. Still, if you want to be protected, and can’t afford to pay expensive premiums of whole life insurance policies, the term life might be a great way to go. You can opt for a thirty year term right now, and extend it if need may be in the future, or switch to whole life insurance at later point of your life.