Choosing a life insurance policy that fits your needs can be overwhelming and confusing. Companies offer a myriad of possible options that you should understand before making the investment. Life insurance is especially important if you have dependents who will require more financial security if something happens to you. That is, if someone in your family relies on your salary in order to get by, you should consider purchasing life Insurance.
The most inexpensive life insurance to buy when you are young is term insurance. This insurance will only cover you if you die during a certain period of years (the term of the policy). For example, if you buy a 10-year, $200,000 policy, it will only pay the amount if you die within those ten years. After that term, the insurance policy is over and you will need to purchase a new one. Because younger people live longer, this is a relatively inexpensive option. The cost increases, however, as you age because you are more likely to die as you get older. If you are young and plan on having life insurance for the rest of your life, and you know that your family has a long life expectancy, term insurance is probably not the best choice for you.
Term policies vary from one company to the next. Some policies will lock in a rate for the entire term, where others will go up each year, or require a medical exam at different periods of the term to show good health. If any negative health conditions are found, you can be dropped from the policy, or the cost may significantly increase. Some insurance companies will allow you to automatically renew for another term, while other businesses have more stringent guidelines, such as passing a full physical, before getting another policy.
If you want an insurance policy that will cover you for your entire life, permanent insurance is the best option. This is a very expensive option for young couples, but it offers many advantages. The insurance company cannot cancel or change the monthly dues for this type of policy. You also have tax advantages with permanent insurance, and have the option for cash withdrawals later in life if your situation changes. The way that this works is that you pay a monthly amount that is higher than your risk of dying, and the excess money is invested. If the investments are successful, you will earn dividends that you can add to your policy reserves or you can eventually take cash amounts out of your account. The returns are not taxable unless you withdraw the funds from your insurance policy.
Within the permanent insurance category, two available options are whole life Insurance, and universal insurance. The first offers fixed amounts for the duration of your life, and the premiums are very high compared to Term Insurance. This is especially true if you compare rates from when you are young and healthy to what they cost you when you are older. Insurance companies make the most profits in the first few years of these policies because the premiums paid are higher than the risk of death. Some of these amounts are used to pay commissions and others are stored in cash reserves. You can choose to cash out your entire policy or at some point you can borrow money against the policy if you need quick cash.
In contrast to whole life insurance, universal insurance offers more flexibility. This policy combines benefits of both term and whole life. You have the option to vary your coverage and premium payments from year to year, whereas with whole life the amounts are fixed. Insurance companies also provide more information about where your premium payments are distributed. That is, which percent is invested, how much goes towards company costs, etc. Within this category, you have many other options, such as choosing a policy that also acts as a mutual fund.
The best part of choosing a life insurance policy is that you can easily find one that will fit your budget and needs. If you want to provide your loved ones with financial income when you die and/or to cover your burial expenses, you should get life insurance. Just like everything else that you purchase, you should take your time to find the best rates.
