Life Insurance: Important Information
Life is very short and everyone is going to die one day, but no one knows when or the incessant circumstances they will leave behind. There may be people left behind that depend on your income. Within this example the wise decision is to insure your income in case you should lose your life. Life insurance is financial protection that covers or replaces income lost due to death.
There are two basic types of life insurance: Term and whole life or more commonly known as cash value.
Term Life insurance is for a designated period of time and is for the most part the cheapest life insurance available. The draw back to term life insurance is that there is no savings plan incorporated into the policy. There are two forms of term life insurance, level term and decreasing term.
Level term is defined by benefits being paid stay the same throughout the duration of the life insurance policy. Decreasing term life insurance is where the death benefits drop during the life of the policy. Generally they drop in one year increments over the course of the policy.
This type of life insurance only pays if death occurs within the life of the policy. Term life insurance policies are anywhere from one year on up to 30 years.
Whole life/cash value is typically for life and is more expensive in order to fund savings plans. Life insurance paid means that even if you live to be 180 years old your benefits are paid as long as the premiums are met. There are three major types of whole life cash value insurance: traditional life, universal life, and variable universal life.
Traditional life insurance means that premiums and the death benefit payout stay the same throughout the policy. There is no gain in either one making them level. In this type the insurance company charges more in the first years of the policy so that they can invest the money to pay out later.
Universal life a person can increase the death benefit after the person has passed a physical/medical examination. Variable universal life insurance is a combination of the two variable life insurance, and universal life insurance.
There are the investment rewards and risks of variable and the ability to tweak your premiums and death benefits like in universal life insurance.
Cash value means that there is always some sort of savings or investment that will pay out.
Whole life insurance is expensive and risky. There are some policies that allow a person to invest the cash balance, but if they do not perform well the cash value and death benefits will decrease.
Life insurance is not an investment, when you die the insurance company keeps the cash value portion. You can not have your cake and eat it to. There is a common insurance myth that life insurance is a permanent situation and ever growing.
Within 20 to 30 years the children are grown and gone, the house mortgage is paid off, and your investments have grown. Remember life insurance is financial protection that covers or replaces income lost due to death. If the kids are gone, no house payment, and investments returns a person becomes basically self insured and there is no longer a need to protect your loved ones.
When purchasing buy low cost term life insurance and remember protect yourself as well as your family. Cover your spouse with life insurance, and what it would cost you if they happened to die.
Even the parent sitting at home saves money in daycare and other expenses. When it comes to children there is only a need for minimal burial policies.