Introduction
It gets challenging since we do not know what the day will bring or what will change in a few hours. Injuries, diseases, along with other uncontrollable circumstances such as getting in a car crash, getting sick, or an earthquake destroying your home, can happen at any time, making your families financially unstable if they have to rely on you alone to feed them. Well life insurance policies are the answer of how can one’s family be protected financially in his/her absence. Here, we present you with everything you need to know about life insurance policies – what they are, key types, the advantages offered, and how to choose the right one for your family and you.
What is Life Insurance?
A life policy is an agreement with respect to the insured policyholder under which the insurance company undertakes to pay the policyholder a sum of money upon the occurrence of an event. The policyholder makes premium payments and in return receives a large payment – called the face amount – upon the policyholder’s death. A life insurance policy is designed and used mainly for the principal goal of providing for your family’s financial security in case of your death relieving them of the stress of trying to make ends meet.
In general, there can be categorized many types of life insurance policies – Term Life Insurance, Whole Life Insurance, Universal Life Insurance, Endowment Insurance, Investment Life Insurance and others.
1. Term Life Insurance
Term life insurance provides an insurance cover for a given period that may vary between 10 and 30 years. If the policyholder pass on within this term, his or her beneficiaries will be paid the face amount. However, if the policyholder is alive at the end of the term, the policy usually ends, and there is no pay out. Level term assurance is usually the cheapest and is suitable for people who require cover for a certain duration pending the times when the children are young, or the mortgage is existing.
2. Whole Life Insurance
Whole life insurance is a type of insurance that can be active all through the existence of the policyholder with the regular premiums to be paid. This kind of policy comes with a savings aspect called policy’s cash value that is fund built up and can be tapped for any reason such as to borrow or pay for the premiums. Term and whole life insurance policies differ in that whole life insurance costs more and gives an insured a fixed death benefit and fixed cash value.
3. Universal Life Insurance
Universal life insurance is one of the most enduring forms of life assurance which contains a death benefit clause in addition to a cash value component as in the whole life policy. Nevertheless, it is more possible with universal life insurance to change the face amount as well as the premium payment amount. The policy’s cash value is place into sub-accounts more akin to mutual funds enabling growth but with the risk of the funds’ fluctuating value.
4. Variable Life Insurance
The other type of permanent life insurance is the variable life insurance which also provides the death benefit, as well as cash value. Still in this category, the policyholder gets to decide on where to invest the cash value which is placed on several mutual funds. Variable life insurance has higher growth aspects compared to fixed, but what makes it so is prone for erosion in a declining market.
Advantages Of Life Insurance Products
1. Financial Protection for your Family Members
Exempt from this, the main advantage of any life insurance policy is in the ability of your loved ones to receive compensation in the unfortunate of your demise. It can be utilized for funeral purposes, to clear existing bills, and basically to replace the income you would have contributed for you family.
2. Estate Planning
While not always necessary, a life insurance can also be a valuable part of an estate planning strategy because it can pay estate taxes or act in place of a trust if needed or can be used as a method of transferring assets to heirs.
3. Tax Advantages
In many instances, the monies paid out in connection with life insurance policies for the benefit of the beneficiaries are received without any tax claw back, meaning a larger amount.
4. Cash Value Accumulation
Permanent life insurance such as whole life and the universal life policy have a cash account which accumulates under section 80 C of tax laws. It is contained in a cash value which the policyholder can borrow or surrender in order to generate another source of cash.
Picking the Appropriate Life Insurance Plan
When choosing a life insurance policy, consider the following factors:
1. Your Financial Needs: Calculate the frequency, amount of coverage you require to cater for you dependents’ necessary expenses, bills, and other dues.
2. Time Horizon: Check how many years you require life insurance. Most people only require the coverage for a particular time and this is why term life insurance may suit you best.
3. Budget: Determine the amount of cash you are willing to part with in form of premium. Remember also, that more inclusive policies like whole, universal, and variable life insurance policies cost more.
4. Health: Your health can determine whether you qualify for a life insurance policy, and the cost of the policy if qualified. In general, health risk scores makes premium rates more favourable to health-conscious persons.
5. Long-term Goals: When answering the question of whether or not a policy with cash value is right for them, prospective buyers should look at their goals and see if they will benefit from the policy’s long-term financial planning perspective in terms of wealth transfer and estate planning.
Conclusion
The buying of life insurance saves a lot of grief to the policy holder and also to the family of the policy holder. Having the possibility to predict some life’s unexpected twists with it, life insurance will become your ally that will save your family and guarantee its financial stability in case of necessity. Today many policies exist and serve different purpose; therefore, it is crucial to consider client’s necessities and his/her ability to pay for the particular type of life insurance plan that is most suitable in the given conditions. Always bear in mind that it is easier to get life insurance when you are young and in good health, you then get to freeze your rates as well cover your familiy.
