Life insurance is a financial product that provides financial protection to your loved ones in the event of your death. It can help to cover expenses such as funeral costs, outstanding debts, and the cost of living for your dependents.
Compound interest is the interest that accumulates on both the principal amount of a loan or deposit and the accumulated interest from previous periods. It’s called compound interest because the interest is compounded, or added, to the principal amount, and the interest is then calculated on the principal and the accumulated interest from previous periods.
When life insurance is combined with compound interest, it can provide even more financial security for your loved ones. Here’s how it works:
- You purchase a life insurance policy and pay a premium to the insurance company. The premium is the amount you pay to the insurance company for coverage.
- A portion of your premium is invested in a variety of financial instruments, such as stocks, bonds, and mutual funds. These investments have the potential to earn returns over time.
- The investment portion of your premium earns compound interest over time. As the investments earn returns, the interest is added to the principal amount and compounds over time.