Life insurance is the provider of protection against death and disability. Due to its coverage, it is a very widespread insurance product, since it represents a great help for relatives and close friends when the death or disability of the policy holder occurs, especially when it depends directly on their income or is linked to a loan. of any type.
At the time of contracting a life policy, as when signing any other insurance, it is important to be clear about what types of life insurance exist, what their coverage is, who should contract it and where.
What is life insurance?
Life insurance is part of the insurance designed for people and consists of the payment of a previously stipulated premium to be able to receive in the event of death or disability an amount that makes up for the lack of insured income.
The amount of the premium that the insured faces depends on the risk and the amount that he wishes to receive in the event of disability or that his beneficiaries receive in the event of his death. In addition, this final indemnity of the policy can be received in a single payment or as an income, as desired by the insured or his beneficiaries.
What is life insurance for?
The main purpose of life insurance is to serve as a substitute for the economic resources that you generate. The type of insurance and the value that you contract will come from the ones you need, from the relatives in charge, from whether or not you have a mortgage, from the risks that you want to cover -education of your children, payment of debts, funeral expenses- or What stage of your life you are in. It is not the same to be single and without family responsibilities that have debts and children that depend on you.
What is each type of life insurance good for?
There are three types of life insurance:
Death insurance, also called risk life insurance. Within which whole life insurance and temporary life insurance are collected.
Life insurance, called savings life.
Mixed life insurance, which unites the two previous modalities.
The choice between life savings or risk life insurance will depend on your preferences. The first of them is contracted to obtain a return on the premiums paid, while with the second the beneficiary receives the stipulated capital when the policyholder dies. We tell you the particularities of each one.
risk life insurance
Life insurance in case of death is called Life Risk, and the function of its coverage is that the beneficiary of the policy receives the capital stipulated in it when the policyholder dies. Therefore, contrary to others, such as private medical insurance, in the case of Life Risk insurance, the policyholder and the beneficiary are not the same person.
This policy can be contracted in two modalities: whole life or temporary.
Whole life insurance: consists of the payment of the capital designated in the policy just after the death of the insured, regardless of when it occurs. In addition, within it you can choose between lifetime or temporary premiums. With the former the payment is made during the life of the insured, while with the temporary premiums the payment is made during an agreed number of years or until his death if it comes before the expiration of the policy.
Temporary life insurance: they cover the risk of death during a specific period of time and stipulated in the policy. This type is the one that is contracted for the amortization of loans. For example, if the insured dies and had an outstanding mortgage, the insurance covers the outstanding amounts. The obligation acquired by the insurer comes to an end at the time the contract expires and the company does not have to make any disbursement to the beneficiary if death does not occur during the contract period.
life insurance savings
Savings life insurance is also called in case of life, and with its contracting the beneficiary, which in this case is usually the policyholder himself, will receive the capital if he lives when the expiration date of the policy arrives. It consists of paying premiums that grant the insured a return, an investment that, although it offers low interest rates compared to other savings products, presents a reduced risk. However, their tax advantage is that they are not taxed on the profit obtained, but only on its collection.
These policies can be contracted as Unit Link, Insured Pension Plans (PPA) or Individual Systematic Savings Plans (PIAS) and are usually subscribed to supplement retirement income, although this is not their only function.
Mixed life insurance
On the other hand, some insurance companies offer mixed life insurance, which guarantees the payment of a capital to the beneficiaries of the policy in the event of the death of the insured. They can also pay it to the policyholder in the event that when the insurance expires, they are still alive. At present, the majority of savings life insurance contracts are of this modality, since they incorporate capital due to death or disability into the pure characteristics of a savings policy.
Who should take out life insurance?
There is a certain tendency to contract this type of policy when one is already of advanced age, although the importance of contracting life insurance and its benefits are not only focused on that range, in fact if you contract it when you are young you have advantages. Protecting family members and the insured himself from what may happen to him are just some of the reasons why it is convenient to take out life insurance, but it is also done to cover the mortgage. Therefore, we can say that it is worth taking out life insurance even if you are relatively young.
Mortgage life insurance
Banking entities usually offer better conditions on their mortgages if you take out life insurance. For this reason, some companies with which insurance of this type is contracted are banking entities. However, you do not have the obligation to contract it with the bank, but you can look for the insurer you want. Life insurance with death coverage that is contracted when acquiring a loan of this type fulfills an economic mission. And it is that the banks need someone to respond to the mortgage payment if something happens to the owner. In addition, in this way you make sure that you do not leave your relatives the weight of a mortgage.
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