A GUIDE TO THE BASICS
Life insurance is not well understood by most people. The majority of people say they need it, but they actually do not have it for a number of reasons. Incorrect perceptions of affordability & value prevent people from buying life insurance. But what is life insurance really?
Life Insurance is simply a contract between you and your insurance company. As a result, it ensures that a non-taxable sum of money is paid to your surviving dependents or other beneficiaries at the time of your death. When you buy a life insurance policy, you are protecting your family & loved ones by providing them with the financial support they may need after your death. Besides covering mortgages and personal loans, such as a car loan, as well as covering your daily bills and paying for your children’s college education, it is also used to cover other bills and buy you a home.
Today, most modern life insurance policies provide living benefits such as Critical Illness coverage, which provides lump sum payments in case of cancer, heart attack, stroke, etc.
When purchasing life insurance, it’s important to know the different kinds, how they work, and how your beneficiaries can benefit from their purchase. You will have to pay life insurance premiums depending on the type of policy you choose, the death benefit amount, the riders you want included, and your health. A young and healthy person is more likely to have a lower insurance premium. It’s because your chances of dying are lower.
In general, there are two types of life insurance – Term Insurance & Whole of Life Insurance.
TERM INSURANCE
The most affordable and popular type of life insurance is term life insurance. These policies provide coverage for a particular period, usually between five and 35 years. This type of life insurance is sometimes called pure life insurance because there is no cash value at the end of the term, as opposed to whole life insurance or permanent insurance. In the event that you pass away within the policy term, your beneficiaries can file a claim, and they will receive the death benefit, tax-free. Depending on your age and health status, you may be able to renew your policy if you are still alive at the end of the term. Why should I choose it?
- If you need a plan to protect yourself or your family for a specific period of time.
- If you want to protect a loan or a mortgage.
- If you need a simple and effective plan to manage with no cash value.
WHOLE OF LIFE INSURANCE
Alternatively, Permanent or Whole Life insurance covers you for the rest of your life. Because there is an investment component included, the coverage lasts as long as premiums are paid and the coverage will last until your death. A portion of your premium is invested and grows over time but the death benefit is immediately payable from the beginning of your policy. As the policy is in effect, the value of the investment fund increases. Taking this type of policy means that you must understand that borrowing or withdrawing funds will affect your insurance coverage. Therefore, you should be cautious since the investment purpose is primarily to cover your insurance premiums after the end of your policy term as well as during your lifetime. Why should I choose it?
- You need to protect yourself or your family for the rest of your life.
- Your financial legacy is important to you.
- Consider adding additional protection options that fit your needs.
- You would like the flexibility to change your policy in the future.
- You like a protection policy that builds up a cash value over time.
So which one is right for you? A decision about whole life or term insurance should be made according to one’s individual needs. If you are deciding whether to purchase insurance, you should consider how long you wish to keep it in effect. Prior to making any decisions, consider first what your financial goals are.
CONCLUSION
Life insurance is the backbone of a solid financial plan. The decision to purchase life insurance is one of the most significant financial decisions you will make. It is worth considering all your choices in order to select the one that most closely fits your needs and those of your family.
To get the most out of life insurance benefits, you should work together with a financial advisor to make sure you have adequate coverage for future goals and life changes. As I always say, protect your future TODAY!
