How to Choose Life Insurance
Way to Choose Life Insurance
None of us likes to think about our deaths. For many of us, the idea is so foreign that we almost think ourselves immortal. The most commonly held belief on our own mortality goes something along the lines on: “That’s so far in the future, I’ll have time to think about it later, maybe after I retire.”
The sad fact is that we are all mere mortals and that the future may be closer than we would like to believe. It pays to consider and plan for the future now.
What are the benefits of life insurance?
The amount paid out by life insurance is determined by factoring in a number of considerations, such as income, expenses, and current outstanding debts like mortgages and credit card debts. There are many online life insurance calculators to help you work out exactly how much cover you need. One such calculator is available here: Life Cover Calculator
Types of Life Insurance
Not all life insurance is created equal. There are different schemes to suit different lifestyles and needs. Life insurance falls into two categories: permanent and term. The premiums for permanent life insurance are usually higher than those for term life insurance.
Permanent Life Insurance
Permanent life insurance pays your beneficiaries a lump sum in the event of your death. This in no way negates the grief that they will feel at your passing, but it can help to ease a very difficult time.
The most common type is called the whole, or ordinary, life policy. This policy offers a death benefit as well as a savings account. The premium is based upon the benefit you will receive upon your death, as well as a savings element that grows depending on the dividends paid to you.
The universal life policy is similar to a whole life policy but is more flexible. One of the benefits of this type of policy is that you may increase the death benefit upon successfully passing a medical exam. The savings portion earns a market-related interest rate and can be used to pay a portion of the monthly premium should your economic situation demand. But, the policy may lapse in the savings are used up, so it is a good idea to keep an eye on your savings account to make sure that this does not happen.
The third type of policy is called variable life. This policy is unique in that the money in the savings vehicle can be invested in money markets. Whilst the reward of this type of policy may be higher, the risk is also much higher and poor investments could lead to a decrease in both your savings and your death benefit. When choosing this type of policy always check the terms and conditions and try to find a policy that guarantees a minimum level for your death benefit regardless of the outcome of your investments.
The final type of permanent life insurance is a combination of variable and universal life policies. These variable / universal life policies allow you to adjust your premiums and death benefits according to a universal policy as well has having the investment capabilities common in variable life policies. Once again, know the risks of this type of policy as they combine the risks of both the policies that it is based on.
Term Life Insurance
Unlike permanent life insurance, term life insurance is more of a financial safety net than death benefits. The policy is set only for a certain number of years, usually ten or twenty. For this period, your premium will not change. When the policy expires, there is usually an option to extend it, but the premiums will be much higher. This type of insurance can be used to cover loss of income if necessary, but it will be paid out all at once and will need to be budgeted carefully if it is being used for this purpose.
Choosing Life Insurance
So, how do you know which policy to go for? You have to determine exactly what you need to get out of the policy, but also how much you can afford to pay in premiums. Ask yourself: Do I want a policy that will pay during my lifetime, or only to my beneficiaries upon my death? Also, consider your current budget and work out what will give you the benefits you want for premiums you can afford. There are many insurance companies offering life cover, and they all have different benefit schedules and bonuses attached to their policies. Some of these may seem appealing, but could turn out to be pretty useless in the long run. It’s a good idea to discuss potential life insurance with a trusted adviser and/or your partner so that you can make a decision that will deliver the best outcome long term.