Life insurance has become a very important commodity nowadays. With the unexpected things in life and the volatility of the economy, you need some sort of safety net to provide you and your family with a level of protection that would allow you to maintain the same level of lifestyle.
Life insurance protects your family from those unexpected things you don’t want to happen, like serious illness, accidents, or death. While it can’t stop those things from happening, life insurance helps the surviving family members cope with the financial stress in the event of death. Simply put, life insurance can take care of the insured’s family after his or her death. More than that, there are other benefits life insurance has.
- It helps you pay financial obligations: From taxes to debts, life insurance can help you take care of that. When a person dies, chances are, he leaves debts that need to be settled behind. If it is a substantial amount, it will surely cause a big headache to the surviving family members. Having life insurance could help settle those unpaid debts and ease the financial burdens
- It helps you pay additional expenses: Accidents, terminal illnesses, or death can incur a lot of financial expenses – from the hospital bills to the funeral and burial expenses. Having adequate life insurance gives you the assurance that whatever happens, all final expenses will be paid for.
- It helps your family have a smooth transition: When a breadwinner dies, everything is affected, especially the finances. It could mean changing the whole lifestyle of the surviving family members. However, if there is life insurance, the death benefits that can be acquired from it could help the family as they adjust. It would give them the needed income while getting over the emotional stress.
- It helps you cover future family expenses: Life insurance is not only beneficial during death, but also even while the insured is alive. Life insurance can be used to pay for college education, used as a capital for business, or as payment when you purchase a house.
Term and Whole Life: What is the Difference?
From the plethora of insurance policies in the market, consumers can be confused in which policy is right for them. That might include you, if you are considering purchasing life insurance for yourself.
Basically, life insurance is divided into two categories – term and whole life insurance. The clue to their difference lies in their names. Plus, to further cater to the needs and demands of the public, insurance providers have introduced a new type of insurance policy – return of premium life insurance policy, which is a hybrid of term and whole life.
Term Life Insurance
This type of insurance is the most common type and most popular in the market nowadays. Perhaps, this is because it is the most straightforward and affordable life insurance upon initial purchase. Term life provides a certain kind of protection within a specific period of time and pays a benefit when the insured dies. So if you are thinking along the lines of paying off your mortgage or loan, you might want to consider this type of insurance.
Term life insurance is also divided into sub-groups:
- Renewable Term Life Policy is an option which you can renew every year. With every renewal, the premiums could either increase or decrease according to the level of coverage you have chosen.
- Guaranteed Term Life Policy is the opposite of the Renewable Term policy. This type offers the same premiums within a specific time period, around 5 to 30 years.
- Return of Premium Term Life Policy is a new type of term life insurance which pays your beneficiaries if or when you die within the term of the policy. A little downside is if you outlived your life insurance policy, you get the same amount of premium you have paid.
Permanent Life Insurance
Permanent Life Insurance, as opposed to Term Life Insurance, is a policy which provides lifelong cover. This type of policy also includes an investment element to it and is designed to last a lifetime. This accumulates cash and interests and is tailor made for you to keep on a long-term basis. As long as you pay the premiums regularly on time and no loans, withdrawals and surrenders have taken place you will be paid the full value of the amount.
Permanent life Insurance, just like the Term Life, has three main subcategories namely:
- Whole Life Insurance - gives you cover for your entire life. Whole Life Insurance has a high initial payment and could have higher premiums. This is because it has an investment component. Therefore, a Whole Life Insurance policy gives you cover while earning an interest over the period of time.
- Universal Life Insurance -allows you to add a preferred amount of money to the minimum price of the premium. The insurance company then invests it with returns that are put into the premiums or just left to accumulate.
- Variable Life Insurance -has variable coverage giving you more investment options, such as stocks. This works similarly like the Universal coverage because the returns of the investments are paid into the premium or allowed to accumulate. Your beneficiary then receives the value of the policy in addition to the investment returns account.
No matter which type of life insurance you choose, be sure that it complements your needs and within your budget range. A good life insurance policy is not how cheap or expensive it is but its ability to perform when you make your claims.