Life Insurance Basics
Buying Life insurance often seems like a daunting and unnecessary task, but neither statement needs to be true. Buying Life Insurance can be simple, if given the right tools and the need for life insurance is a matter of financial responsibility.
Before diving into the process of purchasing, it's important to understand which type of insurance you may need. There are two types of life insurance, Term Life insurance (temporary) and Permanent life insurance (such as whole or universal). Both types of policies offer financial benefits for the policy holder or their beneficiary to protect against death or life-altering accidents. Which type of insurance to purchase is dependent upon the needs of the insured and the purpose for which you are seeking life insurance.
To better understand which type is best for you, let's take a look at the two types of insurance and what they offer:
TERM LIFE INSURANCE
Term life insurance is often the easiest and cheapest type of insurance to purchase. Term Life is an excellent source of added insurance, especially during the work years of life. The benefits of purchasing term life insurance are it's initial affordability and renewability.
Term Insurance can be purchased relatively cheap and is carried for a specified period of time (referred to as relevant term). This type of insurance is paid, dollar for dollar, there is no equity and no cash value to the holder. Upon death, the insurance would pay out to the beneficiary (person designated by insurance holder) the cash benefits. The cash is often used to cover debts incurred such as mortgage, loans, funerals and college tuition for dependents.
The fixed term of the insurance is set dependent upon your needs. You can set it for one year, with a renewable term. The downside is that each year you have to prove insurability and in general the cost of purchasing the insurance will increase. Once the policy has reached it's date of expiration, you can opt to renew the insurance, at an increased cost.
WHOLE LIFE INSURANCE or PERMANENT LIFE INSURANCE
Whole life insurance policies or permanent insurance carries less initial investment as compared to the cost of Term Life insurance rates. The policies are held over a longer period of time and often are paid out with death as long as the payments are made and current.
The downside to purchasing whole life insurance is the overall cost of the insurance vs. the benefits. In other words, will the amount you pay in premiums be worth the pay-out benefits when you need them? It's important to get an accurate idea of what the cost vs payout will be from an authorized insurance provider.
On the upside, whole life insurance increases in value and can often, if needed, be borrowed from by the insured prior to cashing in the policy. This benefit can often assist a family during tough financial times.
When deciding which type of life insurance policy suits you best, consider the purpose of the policy, the cost and the payout. An authorized insurance agent can often help you decide which policy will best meet the needs of you and your family.
The internet can be a wonderful tool to assist you in comparing rates on various types of insurance against various companies. This is a great first step to purchasing life insurance, but should not be the only step.
It's important to do your homework when shopping for life insurance. Like any other financial investment, knowing the pros and cons of each company can be beneficial in the long run to prevent surprises when trying to cash in the policy. You can check up on the rating of insurance companies through a variety of national life insurance rating policies and can be found on the web.