DIFFERENT TYPES OF LIFE INSURANCE EXPLAINED (TERM & PERMANENT)
Different Types Of Life Insurance Explained
Many of us automatically presume that we will live a long, healthy and happy existence, and planning for the possibility of our death is not something we ever think about. If you have any dependents, it is very important to consider how they would cope financially if you died unexpectedly. You need to make sure that you leave any dependents in a financially secure position, which will hopeful enable them to stay in their present home and pay important bills without any additional worry.
Life insurance is a personal insurance plan taken out by an individual against their own life, which ensures that funds are made available to their spouse and/or family in the event of their death – it could also be used to protect a mortgage, estate or business. It involves the payment of regular premiums to the insurance company and, in the unfortunate event of death, will pay out either a lump sum or a regular income to the “trustee” or next of kin.
It is not only the long-term financial requirements of your family that need considering, such as, household bills, education fees, etc., it is also the short-term requirements, such as funeral costs, that need to be considered. There are obviously many life insurance policies available to suit your individual requirements and that is why it is important to “shop around” until you find the right one. You can easily obtain quotes online to give you an idea of the monthly premiums -, but do always ask questions about life insurance & read the small print first.
Although there are a lot of life policies with different levels of coverage and benefits available, the different types of life insurance explained below are some of common ones available:
Term Life Insurance
Term life is like renting the insurance. You purchase life insurance for a set amount of time. You pay premiums for the the term (10, 20 or 30 years etc.) and once the term is up the death benefit is gone. Term life insurance is broken down into different types:
- Level Term: Your premium and death benefit stays even for the length of the term.
- Annual Renewable Term: The death benefit remains stays the same, but here the policy renews annually – almost always increase in premium each year.
- Decreasing Term: The death benefit decreases each year while the cost remains the same. The policy ends when the death benefit equals zero.
Advantages vs Disadvantages Of Term Life Insurance: Term life policies are less costly than the whole, universal, or variable life insurance. The disadvantages is they end and do not build up any cash value.
Mortgage Life Insurance
AKA mortgage protection insurance – it can repay your mortgage in the event you die before your loan is paid off. This gives peace of mind to your family, who won’t have to continue paying the mortgage without your income – so they can stay in the home.
Whole Life Insurance
Whole life insurance offers a savings component, called ‘cash value’, and offers death benefit protection to age 100 or beyond, assuming premiums are paid. After death, whole life can help your family replace a a loss of income, help pay the mortgage, educational costs – or pass money on to your children or grandchilden.
Advantages vs Disadvantages Of Whole Life Insurance: Your premiums and death benefit are fixed and can last your lifetime. You can also withdraw cash or take out a loan and you have a guaranteed rate of return. The disadvantage is whole life is more expensive than term.
Universal Life Insurance
Universal life insurance offers a death benefit with a cash benefit. Instead of selecting a term all premium going to the death benefit, part of your premium goes into a cash account. This cash account earns interest and accumulates tax-deferred.
Advantages vs Disadvantages Of Universal Life Insurance: Universal life insurance provides flexibility in in some cases you could actually stop paying premium -s as long as the cash value can cover the cost of insurance. Also you may also be able to increase or decrease the death benefit. You can usually borrow against the policy in the form of a loan. The disadvantage is these benefits have a cost, universal life is more expensive than term.
Different Types Of Life Insurance Explained - The Bottom Line
We hope this article on different types of life insurance explained was informative. Selecting a policy/policies that suits your requirements is of course very important, and could save everyone concerned from a great deal of additional upset and unnecessary financial worry.
It is, however, equally as important to be sensible about the level of coverage that you take out and make sure that you don’t adopt exceptionally high premiums that may begin to cripple you financially in the future – this may result in you surrendering your policy/policies and suddenly finding yourself in a position where you are not covered at all!