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American Insurance Life - How Does American Life Insurance Work?

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Insurance is bought to hedge against risk. It is also bought by individuals to protect their families against the possibility of not having the funds needed in an emmergency. In the United States, insurance takes many different forms. This includes car insurance that insures individuals against the risk of accidents and health insurance that insures people against the risk of illness. However, of all the forms of American insurance, life insurance is certainly one of the most popular.

Simply stated, life insurance is an insurance policy that pays out when someone dies. Typically, a person will purchase a life insurance policy from an insurance company that will insure the life of either that person or a family member. In the event of that person’s death, the insurance company will pay out a predetermined amount of money to a beneficiary specified by the policy.

Life insurance is different from other forms of insurance because it is purchased for the benefit of the beneficiary and not the person actually insured by the policy. Usually, this beneficiary will be a dependant of that insured person such as a spouse or child.

When someone dies, that person’s dependants are at risk of being put into dire economic circumstances. For example, the person insured by the policy may be the major wage earner for his or her family. If that person perishes, the money paid out by the policy may be used to help make up for the sudden gap in that family’s income.

Other individuals purchase life insurance policies simply to pay for funeral and burial expenses. These expenses can be very significant for a family on a fixed income. The policy is purchased with the hope that it will prevent the family from going into debt to pay for these expenses.

The cost of these life insurance policies varies from person to person. The reasoning is that certain people have a higher likelihood of dying sooner than others. All the factors that change the statistical likelihood of when a person will die are factored into the price charged for the policy.

A person’s age is one common factor. A 23 year old, for example, will pay far less for life insurance than a person who is 63 years old. Similarly, specific behaviors can affect a person’s likelihood of dying sooner rather than later. Smokers, who have a high likelihood of developing lung cancer, can expect to pay much more for life insurance than non-smokers. People with very risky careers such as miners will also have to pay more for insurance policies than people with less dangerous careers.

Of the different kinds of American insurance, life insurance policies come in the highest number of different variations. Two of the most common of these variations are whole life insurance and term life insurance.

Whole life insurance gets its name from the fact that a whole life insurance policy is good for the insured person’s entire life span. Whole life insurance is also different from other forms of life insurance due to the fact that it involves an investment component. This investment, for example, could be made in shares of stock or bonds. Over time, the insurance policy will begin to build cash value. This value can then be borrowed against by the policy owner for any significant expenses he or she may need to pay for.

The other most popular form of life insurance in the United States is term life insurance. Term life insurance is very popular in part because it is very cheap in comparison to other kinds of life insurance. This difference in price is due to the fact that fact that term life insurance policies only cover a specific span of time. Depending on the policy, this term could last for one year, seven years, or ten years.

However, insurance companies increase the price of term life insurance each time a new policy is purchased for a new term. This is done by the insurance company to hedge against the growing risk that the policy will pay out. As someone grows older, that person is more likely to die with each passing year. In most cases, the cost of each proceeding term life insurance policy will increase accordingly.

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