Whether you have a family, a business, or others who depend on you, you already know how important it is to have some financial protection for them. Life insurance is a smart choice – but that doesn’t mean that it is simple. If you want to understand how life insurance works, the first thing you need to learn about are the many different types of life insurance. This blog is going back to the basics – giving you the information you need to make the right decision regarding that financial protection for your loved ones.
There are three basic types of life insurance – term life insurance, whole life insurance and universal life insurance.
Term life insurance is the most affordable life insurance product available. It is based on your wants and future goals. The length of the policy is chosen by you, usually from 10-30 years, and over the course of your policy your premiums remain the same. The amount of the policy is also determined by you, based on your budget and what you can afford each month. When the policy ends, you can choose to renew it or let it end.
Whole life insurance is more expensive than term life insurance but this is because it covers you for your entire life, rather than a pre-determined period of time – you are always protected. That doesn’t mean however that you are locked in – whole life insurance is flexible, and you can change the policy if needed as time passes. Your premiums do not change over the course of the policy, and as you pay into the policy, that money gains value which you can cash out or borrow against in the future.
Universal life insurance is a type of life insurance that many individuals use as an investment tool as it carries tax incentives. As you contribute to your policy through monthly premiums, that money grows and gains in value, while also keeping you protected. Additionally, universal life insurance is protected from creditors and probate, meaning no stress for your loved ones in the future.
The type of life insurance you choose will depend on your personal circumstances and both short and long term personal and financial goals. Once you determine the type of life insurance you need, next you will have to consider the type and length of the policy.
Now that you know how life insurance works, your next step is to look at getting some quotes. When it comes to getting quotes on life insurance it is important to strike the right balance between cost and benefits. The best thing to do is to speak with an insurance advisor – speaking with an insurance agent who works for an MGA and not for a specific insurance company will enable you to learn what all insurance companies are able to offer.
Once you have decided on and purchased a policy, as long as you pay your monthly premiums, you are protected for the length of the policy. If necessary, you will need to renew the policy or depending on the policy, change it as your needs change. In the event of your death, your loved ones (those listed as beneficiaries) will receive the money held within the policy.
The answer is…it’s not that simple. Your life is constantly changing and that means the amount and type of insurance that you need are going to change with you. Each type of insurance solves very different problems. You will need more term than permanent in the earlier years of your life and more permanent than term (if any) later on in your life.
Term insurance is an extremely effective tool to protect your family from a premature death. It provides affordable protection to cover a temporary, usually large need or covers you for a specific time period. Your potential to earn income is what your family’s plans are based on, and if you’re no longer here, your family’s plans will come to a screeching halt.
Permanent insurance is also an essential tool to your planning, it provides you with guaranteed coverage for your entire life. It’s also great because you know exactly how much you’ll pay into the policy and is one of the most effective ways of paying for expenses at death.
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