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Inside this Article
What Type
Of Life Insurance To Buy?
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You
know that you need life insurance.
However,
with the wide variety of insurance policies
available, you may find choosing the right one
difficult. It's really not as confusing as it
seems, however, once you understand the basic
types of life insurance policies.
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You Should
Consider Term Life Insurance If:
You need life insurance for a
specific period of time.
Term life insurance enables you to match the
length of the term policy to the length of the need. For example, if you
have young children and want to ensure that there will be funds to pay
for their college education, you might buy 20-year term life
insurance. Or if you want the insurance to repay a debt that
will be paid off in a specified time period, buy a term policy for that
period.
You need a large amount of life
insurance.
but have a limited budget. In general, this type of insurance
pays only if you die during the term of the policy So the rate
per thousand of death benefit is lower than for permanent forms of life
insurance. If you are still alive at the end of the term, coverage
stops unless the policy is renewed. Unlike permanent insurance,
you will not build equity in the form of cash savings. If
you think your financial needs may change, you may also want to look
into “convertible” term policies. These allow you to convert to permanent
insurance without a medical examination in exchange for higher
premiums.
Keep in mind that premiums are lowest when you are young and increase
upon renewal as you age. Some term insurance policies can be
renewed when the policy ends, but the premium will generally increase.
Some policies require a medical examination at renewal to qualify for
the lowest rates.
You Should Consider
Permanent Life Insurance If:
You need life insurance for as long as
you live
A permanent policy pays a death benefit whether you
die tomorrow or live to be 100.
You want to accumulate a savings
element that will grow on a tax-deferred basis and could be a source of
borrowed funds for a variety of purposes
The savings element can be used to pay premiums to
keep the life insurance in force if you can’t pay them
otherwise, or it can be used for any other purpose you choose.
You can
borrow these funds even if your credit is shaky. The death benefit is
collateral for the loan, and if you die before it’s repaid, the insurance
company collects what is due the company before determining what’s
goes to your beneficiary.
Keep in mind that premiums for permanent policies are
generally higher than for term insurance. However, the premium in
a permanent policy remains the same no matter how old you are, while
term can go up substantially every time you renew it.
There are a number of different types of permanent insurance policies,
such as whole (ordinary) life, universal life, variable life, and
variable/universal life.
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