Definition
Individual life insurance refers to a type of life insurance policy that provides coverage for a single individual. Unlike group life insurance, which covers multiple lives under a single contract, individual life insurance offers customized coverage specifically designed to meet the unique needs of the policyholder. The policy specifies a death benefit that is paid out to the beneficiary upon the insured individual’s death.
Examples
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Term Life Insurance: A policy that provides coverage for a specified period, such as 10, 20, or 30 years. If the insured dies during the term, the beneficiary receives the death benefit.
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Whole Life Insurance: A policy that provides coverage for the insured’s entire lifetime, with a death benefit paid to the beneficiary upon the insured’s death, as well as a cash value component that grows over time.
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Universal Life Insurance: A flexible policy that allows the policyholder to adjust the death benefit and premium payments, with a cash value component that earns interest.
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Variable Life Insurance: A policy that combines life insurance with investment options, allowing the policyholder to invest the cash value in various investment sub-accounts.
Frequently Asked Questions (FAQs)
Q1: What is the main benefit of individual life insurance?
- A1: The primary benefit is the personalized coverage and flexibility in choosing policy features that meet the specific financial needs and goals of the individual.
Q2: Can I convert a term life insurance policy to a whole life policy?
- A2: Many term life insurance policies offer a conversion option, allowing you to convert to a whole life policy without undergoing additional medical examinations.
Q3: How are premiums determined for individual life insurance?
- A3: Premiums are typically based on factors such as the insured’s age, health status, lifestyle, and the type and amount of coverage.
Q4: Is the death benefit of individual life insurance taxable?
- A4: Generally, the death benefit paid to the beneficiary is not subject to federal income tax.
Q5: How can I use the cash value component of a whole life or universal life policy?
- A5: The cash value can be borrowed against, used to pay premiums, or withdrawn, depending on the policy terms and conditions.
Related Terms
- Group Life Insurance: Insurance that covers multiple individuals under a single policy, typically offered by employers or organizations.
- Beneficiary: The person or entity designated to receive the death benefit from a life insurance policy.
- Premium: The amount paid periodically by the policyholder to keep the insurance policy in force.
- Death Benefit: The amount paid to the beneficiary upon the death of the insured individual.
- Cash Value: A component of permanent life insurance policies that accumulates over time and can be accessed by the policyholder.
Online Resources
- Investopedia Life Insurance Guide
- National Association of Insurance Commissioners (NAIC)
- Insurance Information Institute (III)
Suggested Books for Further Studies
- “Life Insurance: A Consumer’s Handbook” by Alan Lavine and Gail Liberman
- “The New Life Insurance Investment Advisor” by Ben Baldwin
- “The Truth About Money” by Ric Edelman
- “Questions and Answers on Life Insurance” by Anthony Steuer
Fundamentals of Individual Life Insurance: Insurance Basics Quiz
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