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It's not always easy trying to figure out just what kind of life insurance you should purchase. With all the various types out there, it can be quite confusing at times. So the main idea here is to give you a brief overview of the various types of life insurance and take a little look at what the benefits are to each. Oh and we'll do this in a way so that when you’re done, you'll have a little bit of a better grasp when you start doing your shopping.
So let’s get right to it and start off with the basic types of life insurance.
- Term Life Insurance
- Whole Life Insurance
- Universal Life insurance
Now, in order to keep it simple, we want to make it clear that there are even more types of life insurance but they will usually fall into those 3 categories.
Term Life Insurance
This type of insurance is usually the least expensive and the simplest type of life insurance to understand. An insurance company sells you a policy that lasts for a certain period of time. Naturally, this is the term part.
In return, you pay a certain amount on a monthly basis to be insured. This is called the premium. Your premiums will vary depending on the amount of insurance you purchase. A good rule of thumb is to purchase an amount that would be 6 times your annual income. In the event of your death, this would give your surviving family members enough income to readjust their lives.
Now, when your policy's term is complete, your coverage and your payments are done. Don't worry though, most insurance companies will be contacting you long before your life insurance policy due date in order to sell you your next policy.
Here are just a few examples of why term life insurance is purchased:
- To cover the debts you have accrued such as your mortgage and credit cards and to also pay for funeral costs
- To make sure your surviving spouse can maintain a standard of living that he or she has been accustomed to
- To take care of any children that you may have until they become legal adults
For many people, term life insurance would be a good fit for your insurance needs. Now let's move on the next type of life insurance.
Whole Life Insurance
Now you start venturing into a type of life insurance that can be very confusing. One of the selling points to this type of life insurance is that it covers the insured parties for their life. Your premium also remains unchanged for the duration of the policy and the policy will usually have a guaranteed death benefit.
Another selling point is that this type of insurance builds up a cash value over time. This is due to the higher premiums that are paid compared to a simple term life insurance policy.
The insurance company invests part of your premium in various ways in order to give you some type of return. This is what is called the cash value of your policy.
Whole life insurance from many companies can provide you an option to receive dividends from your policy or give you the ability to apply them to your premium payments.
After a certain amount time, you may also have the right to withdraw part of your cash value. As stated earlier, if this is the type of policy you wish to pursue, please take the time to educate yourself further. What was covered here is just a basic overview.
Although many insurance agents will sell a whole life insurance policy as a way to invest, many financial analysts suggest that you might be able to do better by investing and controlling your own destiny.
Ok, let's move on to the last basic category of life insurance.
Universal Life Insurance
This is a newer form of life insurance that may insurance agents will tell you is even better than the traditional whole life type of policies. The reason for this is that unlike whole life, you now have the flexibility to have control over your premium investment.
Like whole life, this type of policy pays a death benefit to the beneficiary you name and offers you low risk tax deferred cash value options.
It offers separate accounts for you to invest in such as money markets, stocks and bond funds. And as stated earlier, you now have the ability to basically control your own destiny.
It allows you to make withdrawals or to borrow from the cash value of your policy during your lifetime.
But you also need to keep in mind that once you choose this type of life insurance policy, you will now have to spend the time in order for it to work. This will also mean that you'll have to become more knowledgeable in the various investment vehicles.
So now what?
You know that you need life insurance, so common sense should tell you to start becoming even more familiar with the offerings that are now available in the marketplace. Start doing your research long before you ever contact an insurance agent.
Shopping for life insurance is no different than shopping for any other type of major purchase. In fact, with the number of life insurance companies that now exist online, you can have multiple quotes sitting in front of you with just a couple of mouse clicks.
Once you finally decide on a company and a life insurance policy type, follow through on it. Sadly, many people seem to want to put this decision off.
If you already have a local insurance agent, don't be afraid to ask if you qualify for any discounts if you should also purchase life insurance. Remember, you're looking for the best type of coverage for the least amount of money. Since the life insurance marketplace is so highly competitive, you may find out that this is the most cost efficient route to take.
So give yourself and your family some peace of mind. Don't put the purchase of life insurance off any longer.