What types of life insurance are available?
There are two basic types of life insurance; term and whole life policies. Before getting too serious about purchasing life insurance you should understand the key differences between these types of policies.
Term life insurance is only good for a predetermined period of years and it pays a set amount if you die while the policy is in effect. If you die after the term expires, nothing is paid to your beneficiaries. Also, your premiums only pay for the coverage itself; term life insurance will not grow as an investment. There are many differences among term life insurance policies, depending on the coverage you enroll for. Some policies have fixed premiums, while others may increase in price over the course of the term. Some policies are renewable without a medical exam, while others cannot be renewed. Discuss the options thoroughly with a life insurance agent before purchasing a policy.
Whole life insurance is permanent in nature; it remains in effect for as long as you pay the premiums. While whole life policies are more expensive than term insurance policies, they serve an investment function because you generate returns on your premiums. These returns can be stored in reserve or borrowed against after a predetermined waiting period. Unless you fully withdraw funds from your reserves they are not taxable. Once your policy matures, you can cash it in for its surrender value. Despite its capacity to generate some revenue, whole life insurance should not be used solely as an investment tool, as more lucrative methods of investing are available.
Do I need life insurance?
Life insurance is certainly not for everybody, though it can play a role in a thorough estate plan. It is most useful to individuals with dependent children or spouses who will require additional support after you are deceased. If the property and assets you plan on leaving your dependents is insufficient to cover their needs, life insurance may be a worthy consideration. The proceeds from your life insurance policy can help your beneficiaries with long-term needs or immediate costs such as funeral and burial expenses.
When determining how substantial of a policy to purchase, you should examine the cumulative income of those who depend on you. Take into consideration income sources such as government benefits, the assets you plan on leaving them, and other family members.
