Life insurance facts for kids

Life insurance is a special agreement where you pay a company a small amount of money regularly, and in return, they promise to give a larger sum of money to your family or loved ones if you pass away. This money can help your family pay for things like bills, housing, and other costs after you are gone.

To get life insurance, a person usually needs to be healthy. The amount of insurance someone needs depends on their family's situation. For example, if they have a spouse, children, or other people who depend on their income, they might need more insurance. Things like family size, how much money they earn, and their savings are all considered when deciding how much life insurance to get.

Life insurance comes in different kinds, each with its own rules and benefits.

What Are the Main Types of Life Insurance?

There are several types of life insurance policies, each designed for different needs. Here are some of the most common ones:

Term Life Insurance

Term life insurance is like renting insurance for a specific period, or "term." This term could be 10, 20, or 30 years. If the person passes away during that term, their family receives the money. If they live past the term, the insurance coverage ends, and no money is paid out unless they renew the policy. It's often the simplest and most affordable type of life insurance.

Whole Life Insurance

Whole life insurance is designed to last for a person's entire life, as long as they keep paying the premiums. Unlike term life, it doesn't expire. A special feature of whole life insurance is that it can build up "cash value" over time. This cash value is like a savings part of the policy that you can borrow against or even withdraw from later.

Universal Life Insurance

Universal life insurance is a more flexible type of permanent insurance. It also lasts for a person's whole life and can build cash value. The main difference is that it allows for more flexibility with payments and the amount of coverage. You might be able to change how much you pay into the policy or how much coverage you have, depending on your needs.

Other Types of Life Insurance

Some other types of life insurance are more complex and often involve investments. These include:

• Indexed Universal Life Insurance: This type of universal life insurance links its cash value growth to a stock market index, like the S&P 500.
• Variable Life Insurance: This policy allows you to invest the cash value in different accounts, similar to mutual funds.
• Variable Universal Life Insurance: This combines the flexibility of universal life with the investment options of variable life.
• Final Expense Insurance: This is a smaller life insurance policy designed to cover specific costs like funeral expenses when someone passes away.
• Group Life Insurance: This type of insurance is often offered by employers or organizations to a group of people, like all their employees. It's usually a basic amount of coverage and can be a good benefit.

Images for kids

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  Life insurance certificate issued by the Yorkshire Fire & Life Insurance Company to Samuel Holt, Liverpool, England, 1851. On display at the British Museum in London

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  Amicable Society for a Perpetual Assurance Office, established in 1706, was the first life insurance company in the world.

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  Life insurance premiums written in 2005

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  Chart of a life insurance

See also

In Spanish: Seguro de vida para niños