Karachi Fun

Life insurance is usually not a particularly popular subject to discuss. Images of pushy salesmen waving the policy that "you absolutely must have" instantly come into your mind. However, if purchased wisely, life insurance can be used to meet many different needs of the policy holders.

Life insurance is unique. No investment or asset can provide the purchaser with such extraordinary leverage and the ability to create liquidity when, in many cases, it is most needed. A young professional looking to create an estate in order to replace future income lost to the family in the event of a premature death cannot make a better purchase. But not everyone falls into this category.

Obviously, most people purchase life insurance solely for the ultimate payout upon the death of the insured in order to provide for their dependents. However, life insurance can also be used to pay death taxes and estate settlement costs, to shift wealth from one generation to another or to benefit selected charities. Certain types of life insurance also have an investment feature in which funds accumulate while the policy is in place and may be used to pay future premiums. In a business context, life insurance can be used to fund all or a portion of a buy-sell agreement between partners or co-shareholders.

Life insurance policies are typically divided into two major types: term insurance and permanent insurance. From these two basic policies, the insurance industry has developed a number of products using the same essential principals.

Term Life Insurance

Term insurance is a policy which will pay a death benefit only if the insured dies during the term of the policy. Simply stated, term insurance is "pure insurance." No benefits are paid if the insured lives beyond the term of the policy and there is no investment or cash value feature inherent in this type of policy. For this reason, term insurance policies will carry the lowest premiums in the earlier years of the policy. However, as an individual gets older, term insurance gets more expensive.

One of the biggest problems with term insurance is that once the policy expires, the individual will usually need to replace the insurance at a higher cost. For some individuals, insurability becomes an issue once a policy terminates if they are no longer in good health. As a result, insurance companies may offer "renewable" term policies. For a small additional premium, the insured is entitled to keep the policy in force at the end of the original term. Despite the fact that the insured is making a unilateral decision to extend the policy, evidence of good health is not required.

Some term insurance policies feature a convertibility option. At the request of the insured, the policy is changed from a straight term policy into a permanent whole life insurance policy. This feature will come at the cost of higher premiums than regular term life insurance and often expires after a certain number of years or once the insured reaches a predetermined age.