Life Insurance Explained
The Purchase of a Lifetime
Life insurance is probably the most important insurance policy you’ll
purchase over the course of your lifetime. It is an essential part of your
financial planning; your policy will literally have to replace your wages.
The right policy helps ensure that your loved ones won’t be burdened
with debt when you’re no longer there to care for them yourself. But,
before you can buy life insurance, you’ll have to decide what kind of
life plan will be right for your family. The trick is finding a policy that
meets at a cost you can live with..
First Steps for Finding Coverage
- Decide how much coverage your family needs. And don't forget that your
family will also have protection in form of plans such as Social Security.
what you’ll be able to afford to pay.
- Decide exactly which kind of
policy suits you. Then, comparison shop to compile a list of plans that match
up to your requirements. By comparing
the Net Payment and Surrender Cost indexes of each policy that makes it onto
list, you’ll dramatically increase your chances of finding a comprehensive
but bargain-price life insurance plan.
Which Type of Life Insurance Is Right For Me?
Regardless of alternate titles or new sales presentations, there are only
four basic kinds of life insurance plans. Every policy you’ll encounter
will contain one or more elements of the four categories below.
Term Life: Your term life insurance would offer you protection for
a pre-set term of one year or more. Traditionally sold as terms of 5, 10 or
20 years, your monthly premium will remain level throughout the life of your
term policy. You will only be eligible for benefits during that term of years.
Some term life policies are renewable for an additional term or more, but your
premium will be higher each time you renew.
It’s important to remember that even though a term life policy will
provide the largest cash benefit for your premium dollar, unlike whole life
plans, term policies do not have cash value accounts.
Fortunately, there are term life policies available that can be converted
(rolled over) into whole life policies. That means that you’d be able
to trade-in your term life plan for a whole life or endowment insurance plan
before a pre-set conversion period expired.
Whole Life: Your whole life plan would offer you benefits for life.
You’d pay the same monthly premium for as long as you lived. Your premium
will be larger than it would be for a similar amount of term life protection,
but it will be lower than the premium of a renewed term life plan.
In general, your whole life plan will combine the framework of a term life
plan and an investment component. First, there will be a mortality charge,
meaning your actual insurance coverage. Second, there will be a reserve; your
reserve is an investment component that will earn interest over time.
Universal Life: Your universal life plan would offer you a variation
of the standard whole life plan. There will be an insurance part of your policy
that is separate from an investment portion. The investment portion of your
universal life plan will be invested in money market accounts and your policy’s
cash value portion will be set up into an accumulation fund.
Unlike whole life, the cash value of your universal life plan will grow at
a variable rate. Ordinarily, there will be a minimum guaranteed interest rate
applied to the policy. It won’t matter if your insurance company’s
investments go badly, you’ll be guaranteed a minimum return on your plan.
If, on the other hand, your insurance company makes good investments, you’ll
benefit from an increased return on your plan’s cash value portion.
Cash Value Life: You may have heard this kind of life plan called
permanent insurance. It’s designed to provide you with protection for
life. Cash value life insurance offers you an assortment of options. Your premiums
will be flexible in certain cases and fixed in others. Your benefit may remain
level, or it may increase. Your cash value plan will accumulate value over
time. In most cases, the premium of your cash value plan will be higher than
those of a term life policy.
What’s My Next Step?
Now that you know the health insurance basics, you can begin to shop around.
Get as much info as you can off the web. Get in touch with an assortment of
independent insurance agents. Rates and coverage options can vary widely form
company to company and state to state and you’ll want to be sure you’re
getting a plan that's right for your family’s needs.