What basics do I need to understand about life insurance?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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The basic types of life insurance policies are term insurance policies and cash value policies, also known as permanent insurance. Term insurance is for a limited time and tends to have lower premiums. Term policies can be renewable or non-renewable. Shorter terms (1 year or 5 years) tend to have lower premiums than those policies with longer terms (10 years or 25 years). As with your personal life insurance, term policies are often used to cover a loan or mortgage. Cash value plans are often used for business agreements where the death of the insured person would trigger a need for cash and where the need is likely to be ongoing during the life of the insured person. The cash value of the policy can also be borrowed against for business needs at the loan rate specified in the policy.

In a personal policy, the owner (the one who controls such aspects as the beneficiary designation and the disposition of the policy) is usually the person who is insured. For business life insurance policies the ownership could be other individuals or the business itself depending on how the policy is being used in the business and what legal documents have been executed.

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