Life Insurance Basics
Life Insurance is a strange term because it covers one’s family after the policy holder dies. It’s called “life” because it protects your family from sudden income loss or provides them with a financial gift from you after you pass away. It is a tax-free benefit worth buying since you can work with the insurance company to come up with a plan you can afford to pay. On the part of the policy holder, he never benefits from his Life Insurance plan unless he sells or cashes in on his policy – a process which is very complicated and diminishes the value since he would have to pay commission to the agent who brokers the sale.
There are 2 main types of Life Insurance plans: the Permanent and the Term. The Permanent covers your entire life. Even if you suffer from a medical condition, the premium does not increase so you are protected from additional medical expenses. The Term Life Insurance covers a limited time period usually 1 to 20 years. After the period expires, the insurance policy is no longer valid and the beneficiaries or policy holder do not receive anything. Term Life Insurance is common with parents of young children or adults with an elderly dependent on their income like a sickly parent. You would want to insure their protection if you happen to pass away before they do.
Life Insurance Basics
The cost of Life Insurance is wide open for those interested. There is no perfect plan that will fit everyone. You will have to customize a plan that will fit the needs of your beneficiaries. Insurance companies expect a certain amount of diligence from their customers and so are mostly willing to discuss terms and work out a cost-friendly premium.
According to the National Association of Insurance Commissioners, women ages 35 up to retirement age have a 30% chance of getting injured or unable to report for work for a limited period. Men have a 20% chance of something happening to cause them to stop earning. This makes Life Insurance critical because it will ensure against loss of income. In addition, majority of finance experts say that Life Insurance is most important when you have dependents. Under this assumption, there are a few guidelines to take note of:
- As much as possible, buy Life Insurance when you are healthy and young because the rates are lower but don’t buy until you have people dependent on your income. Also, if you are a smoker, you will probably be charged a higher premium based simply on your smoking habit
- Be honest with your personal details especially your medical history
- Your coverage should be good enough to cover your needs
- Never be pressured by an insurance agent to close a deal. Read the terms and compare with other quotes. Keep in mind that approximately 80% of your premium paid on the first year goes to pay the insurance broker’s commission and being in a very competitive market, these brokers tend to be very aggressive and push for Permanent or Whole Life Insurance rather than Term Life Insurance
A common misconception about Life Insurance is that it is an expendable commodity when it should be thought of as an investment. There are Whole Life Insurance plans that require you to pay for a number of years and once you are fully paid, you are given options to cash out, increase its value by upgrading the policy, or allow it to earn interest.