Life insurance is a contract between you and an insurer where the insurer pays you or a beneficiary a sum of money in exchange for premium payments over your lifetime in the event that you die. Life insurance is a great way to protect your family or dependents from any financial burden as a result of your income. Life insurance helps cover things like mortgage and personal loans, you can Read about an essential pension maximization strategy in this post from Affordable Life USA before anything goes wrong.
Types of Life Insurance
In general, there are several types of life insurance that are catered to people based on their needs. The following points will summarize what the most common life insurance types are.
- Group Life Insurance: Group insurance is usually given through the place of employment and is the most common. It is available up to the age of 65 and as long as you are working you are covered. There are no medical assessment requirements and the insurance premiums are not personalized according to age, sex, or health but are based on averages of the whole group that your employer has chosen. Coverage of this insurance is very basic, usually up to three or four times your annual salary with the option to pay higher premiums for better coverage.
- Term Life Insurance: This type of insurance covers you only for a specific period and has an expiry date. This insurance is for people that need temporary expenses covered like mortgage, college for children, loan payoff, and business obligations. Term insurance can be purchased for different terms ranging from 1 to 20 years or to a certain age like 65. If you pass away within this timeframe, your beneficiaries will receive the death benefit. If the insurance coverage expires then you cannot claim premiums you already paid into. Usually, term insurances have lower premiums depending on the length of terms and sometimes maybe renewable to a higher premium when they expire. Some term insurance provides premiums up to 100 years old however do not have any cash values.
- Permanent Life Insurance: Permanent life insurance is divided into two distinct types, whole life and universal. Both of these types commonly have higher premiums that depend on interest rates and have cash values tied to them and no expiry terms.
- Whole Life: This type of insurance is a traditional permanent insurance policy that uses a long-term interest rate to provide coverage for your whole lifetime. Whole life insurance is more expensive, however, the death benefit is always guaranteed and on top of it, the insurance itself has a cash value.
- Universal Life Insurance: Some permanent insurance policies are interest-rate sensitive, this means that there is a risk that if interest rates drastically increase your premiums could also sky-rocket. Universal life insurance usually consists of two parts, regular life insurance, and an investment account. Your premiums will be split between the cost of your insurance and your investment account. You have the option to choose between what investments to purchase, benefit limits, and payout. Universal life insurance also has a cash value and it depends on how your investments have performed.
Tips When Shopping For Life Insurance:
Deciding to buy life insurance needs to be well thought out due to the complexity and longevity of the policies available for most people. It is always advisable to apply when healthy because life expectancy is a deciding factor depending on the offer you get from the insurance company. If you have a health complication this can raise your premiums significantly and shorten the lifespan of insurance. It is advisable to thoroughly compare life insurance policies and visit their website. Prices can fluctuate drastically depending on the insurer, thus it is important to do your research and explore all options. It is also important to not forget that most insurers offer a period in the initial stages where you can change your policy or reject it. Reviewing your life insurance plan every so often to make sure it is still the best option for your needs. Finally, it is also important to know the cancellation policy or opt-out clause because most insurers have high cancellation fees.
It is important to choose the best insurance policy that fits your needs and budget but not forget that your needs or budget could change over the years. It is important to look at an insurance policy especially when it is permanent as another savings account in which you are passing on your wealth to your children or spouse, thereby avoiding estate taxes depending on the jurisdiction.
I’m a 20-something stay-at-home mother and wife. I have an amazing husband, a beautiful daughter, two loving dogs, and a lazy cat. I wouldn’t change my life for anything! I love to read, listen to music, cook and blog!
Speak Your Mind