What does life insurnce mean to you? For some it means security, knowing that their family or business is safe should they unexpectedly pass away. For others it conjures up images of pushy salesmen and confusion about what they are buying.
By learning about the different life insurance policies available you can make an informed decision that will give you peace of mind and satisfaction with your responsible decision.
There are three main types of policies. Here is a brief explanation of what they mean:
Whole life insurance is a permanent insurance. This means that the policy stays in effect for your ‘whole life’ as long as premiums (payments) are up to date.
The cost of whole life insurance premiums will usually be more than the cost of an equivalent amount of term insurance because the cost is averaged. While the cost of term insurance goes up with each renewal, whole life insurance never needs renewing. Instead of paying smaller premiums when you’re young and high premiums as you age, whole life premiums stay the same.
In some policies a savings option can be added which can be used to borrow against.
Universal life insurance is another form of permanent insurance. Like whole life the policy is in effect until you die. You never need to renew the policy (regardless of health) and the premiums will never go up.
Universal life also incorporates other financial services including a savings plan that can be made in addition to the policy. Otherwise the policy can be surrendered in exchange for the savings that have accumulated. Policy owners can often choose from many options including adding another person to the policy, managing their own investments or using the savings to cover the costs of premiums.
Universal life insurance is the most expensive option because of the amount of flexibility and options.
Term insurance is the least expensive life insurance policy option. Term insurance is selected for a certain period of time (term) such as; 1 year, 5 years, 10 years or 20 years.
Term insurance is a good choice for young families with dependants and high debts (such as a mortgage) that they will be no longer be responsible for in 15 to 20 years when the policy ends. Term insurance has no cash value – it cannot be borrowed against or cashed in. If the policy ends and the individual wants to renew the policy the cost of premiums will be higher.
Using term insurance to cover the basic financial requirements of an individual while also instituting a separate savings plan may reduce the need for insurance later in life.
Depending on the needs of an individual there are other options that can be purchased with certain insurance policies.
The additions to the life insurance policy are called ‘riders’. This includes adding a spouse, including disability income insurance, Accident and Sickness (A&S), Accidental Death and Dismemberment (AD&D) as well as customized choices for taking loans or cash payouts on certain policies.
Talk to an insurance broker who will explain the benefits of each feature and recommends only what best suits your needs. With a bit of understanding you can make the most responsible choice with your money and be confident your family or business is provided for.
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