Life Insurance As A Smart Investment For Both The Young And Old
You probably have heard about life insurance from your parents or anybody else in your adolescent years. The things that come to mind when one hears about it are death, money, benefits, etc. But what does it mean technically?
Life insurance is an agreement between an insurance company and an insurer wherein the latter pays in premiums for an intended beneficiary. These premiums are in exchange for a large benefit, a lump sum payment provided by the insurance company, upon the death of the insured or after a set period. Most commonly, this benefit is called the “death benefit”. Through this, the insurer can financially protect his or her family in the event of an accident, serious illness, or death.
When one reaches adulthood and becomes employed, one becomes more aware of this terminology. People tend to be more conscious about their security and that of their family. So getting one may cross your mind. And you wonder: “What is the best type of insurance for me that suits my budget and fulfills my future needs?”
Types of Life Insurance
There are two principal types of insurance that companies provide: term life insurance and permanent life insurance.
• Term insurance
It is fit for applicants who are younger and in good health at the time they apply. Considered to be the most essential, term insurance pays only if death occurs while the policy is in place. The coverage of term life insurance varies in length of time, usually for ten years up to 30 years and in some cases even longer. Many life insurance providers also offer a one-year renewable term option.
As this is an affordable type, most of its term policies offer no other benefits. Provided that you survive throughout the set period, you can remain covered by re-qualifying for a new policy. This time, the premium of the new policy may be a bit higher. You can also opt to convert your coverage to a permanent life insurance.
2 Basic Types of Term Life Insurance
Level term – Throughout the policy, the death benefit does not change.
Decreasing term – The death benefit goes down over the course of the policy which stops when the interest reaches zero.
• Permanent insurance
As the term “permanent” suggests, this type of insurance does not have a time limit. You pay a death benefit even if you live up to 100 years or more. Moreover, it offers not only death benefit protection but also cash value component.
Cash value component is simply your “savings account.” As you continue to pay the premium, the cash value grows over the years.
Different Types of Permanent Life Insurance
Whole or ordinary coverage – This is the simplest and most common type of permanent life insurance. If you want to stick to a budget, this is for you since its premium stays the same throughout the lifetime of the policy. The cash is not taxed as well as the dividends, which can help the cash value to grow significantly.
Universal or adjustable coverage – Its flexibility makes this type different from the one above. You have the choice of increasing your death benefit if you pass the medical exam. Provided that you have money to cover the costs, you also may adjust your premium payments. It helps in situations where your economic status suddenly changes.
Variable coverage – In this policy, your cash value component can be invested in stocks and money market funds; thus, your benefit may grow exponentially or may be at risk. It depends on how your investments perform.
Variable-universal coverage – As its name implies, you will have the combined features of the universal coverage and variable coverage. You can both have your investments and alter your premiums and death benefit.
Let’s say you already have chosen the life insurance for you, after considering the years you may need it, the money you can spend, and of course your life situation. You might think it is the end of it. But you’re wrong. Life insurances come with “riders,” or an additional coverage. You must know about them and how they can benefit you. After figuring them out, it is only then you can choose the type of life insurance for you.
Here is a list of some riders that come along with your insurance policy:
• Term conversion coverage
• Critical illness coverage
• Accidental death and dismemberment coverage
• Child life coverage
• Spouse life coverage
• Waiver of premium coverage
• Return of premium coverage
What Makes Life Insurance a Smart Investment?
Various reasons exist as to why one gets life insurance. If you have your own family, its purpose is for the future of your kids should anything happen to you. If you are married but still have no children, it would be for your spouse’s protection. If you are single, well, here is when careful deliberation kicks in on why you should get one. It is where insurance agents face the most challenges in selling life insurance.
Read on to know why it is a smart investment both for the young and old.
For term life insurance:
• You pay little in premiums in exchange for a considerable benefit.
For permanent life insurance:
• You don’t pay taxes on interests, gains, or dividends.
• You can keep your coverage as long as you live, given premiums are being paid.
• You can use the money in your savings account for other financial needs, like sending your kids to school.
• In case of terminal or critical illness, you can have accelerated benefits.
After all, life decisions depend on you and your current situation. Just remember that everything is worth taking a risk, especially when it is your loved ones who will benefit from it.