If you have a family, taking out a life insurance policy is essential to ensure that their financial needs would be met in case something happens to you. But business partners may also take out policies on each other to ensure that business loans and related expenses would be paid in case of the untimely demise of one of them. Middle-aged couples may also take out policies to ensure that a mortgage is covered if one of them dies. Whatever your reasons for taking out a policy, to get the most out of this type of insurance, you should understand the basics of it.
While all life insurance policies pay a death benefit if the insured dies of any cause (except suicide), there are also types of insurance that have a savings component that allows you to put money away; this amount can be added to the death benefit or paid out to the beneficiaries separately.
The most basic type of life insurance is term insurance, which only pays out a death benefit to the beneficiaries. If the policy expires without being redeemed, the insurance company keeps the premiums. Term insurance is usually available only for set periods of time and you’ll have to look for a new policy after the plan expires. However, some insurers have a guaranteed renewal option, which allows you to continue coverage without a medical examination, although your premiums will also increase. If you are taking out a policy to ensure that a debt, such as a mortgage, will be paid in case of your death, then you can pick a decreasing term policy, in which death benefits decrease over the life of the policy although the premiums remain the same.
If you would like to use your insurance policy to generate additional income for your beneficiaries, then you should take out permanent insurance. This type of life insurance has a long-term savings component as well as higher premiums since you are paying the difference into a long-term cash account from which death benefits will be paid out to your heirs. Permanent insurance (which is also known as cash value insurance) has three major types: whole life, variable life and universal.
Whole life provides a fixed death benefit and level premiums. You can take out a loan against the cash value account or withdraw it, but if you fail to pay off the loan, the death benefits will be correspondingly affected. Depending on the policy and the amount of the premiums, your heirs may also receive an additional cash value or return on premium payout.
Variable insurance gives you the option to dictate where your cash account will be invested. However, returns are not guaranteed and there is a possibility that your account will fall to zero if your investment goes bad and the policy will be cancelled. Some variable policies, though, protect against this eventuality by guaranteeing a minimum death benefit.

Universal insurance provides you with the flexibility to increase and decrease your death benefits, as well as allowing you to pay premiums whenever you want and in whatever amount, as long as you maintain minimum payment levels. You may also have the option to organize the policy like a term plan, with premiums and death benefits that are fixed for life as long as you keep servicing the policy. You can also opt to include riders with your life insurance policy which can pay benefits early if you become terminally sick, waive premiums if you become totally disabled or pay for long-term care if you are no longer able to perform some activities of daily living.