Economists regard life insurance as a cornerstone to sound financial planning. A life coverage plan is an important tool in many different situations and before acquiring one you should determine if you qualify to attain one and ask yourself if your death will leave anyone in a financial bind. Examples of situations where life insurance is important are:
- Replace income for dependents in case of death. An example is children dependents on parents and upon their death, they benefit from the insurance cover. Additionally, the surviving spouse can also benefit from the insurance especially for persons employed by the government or who have employer-sponsored benefits.
- Life insurance can help cover final expenses such as paying funeral and burial costs, administration costs, debts, and medical expenses that are not covered by health insurance.
- People with assets can take insurance policy and indicating their heirs and beneficiaries in case they pass on.
- Life insurance benefits pay for the state taxes and federal taxes hence the beneficiaries do not need to liquidate other assets to pay for the taxes or get a minimum inheritance.
- Individuals can make charitable contributions from their life coverage and the donation can be cash equivalent of the policy’s premiums.
- Other types of life insurance create a cash value that can be borrowed or withdrawn upon request by the owner. Cash value type policies enable one to make forced saving plans.
There are two major types of life insurance i.e. term life and whole life.
1.Term Life
This is the simplest form of life insurance that is only effective when death occurs during the specified period by the policy which is usually one to 30 years. They offer no other benefits and are of two types namely level term and decreasing term. Level term death benefits remain the same throughout the policy duration while decreasing term has death benefits reducing usually with one-year increments during the policy term. The main characteristics are temporary, no cash value, renewable and can be converted to permanent life coverage.
2.Whole Life/Permanent Life
Pays death benefit whenever the policyholder dies. Its main characteristics are permanent protection, more expensive, has cash value, level premiums, and permits loans. There are three major types as discussed below.
- The traditional whole life in which both the death benefits and premiums stay the same level throughout the policy term. As the owner ages, the cost per $1000 increases and gets higher when the person lives to the past 80 years.
- Universal life also known as adjustable life is more flexible. The cash value account earns money at a market interest rate and which is accumulated in the account of the policyholder.
- Variable life allows the money to be invested in stocks, bonds, and money market combined with death protection. Involves risk since if the investments do not romp through the cash value and death benefits decrease.
To qualify for a life insurance policy one has to undergo a medical exam and checking of things such as medical history, bobbies, credit rating, driving record, age, smoking habits, and prior health issues which increase the premiums on a policy. The amount of insurance required by an individual is determined through; human life approach which projects a person’s income throughout their remaining life expectancy and employing a discount rate the present value is determined and the needs approach which involves examining reoccurring unusual expenditure to determine the amount needed.
Conclusion
To locate the best life insurance policy, considering insurance that best fits your needs instead of rushing for an expensive life insurance plan. Unfortunately, fees charged for investment policies usually outweigh the benefits. Life insurance offers peace of mind and protection for your dependents in the event of death.
About The Author
Ashley Rosa
Ashley Rosa is a freelance writer and blogger. As writing is her passion that why she loves to write blogs related to the latest trends in technology and sometimes on health-tech as well. She is crazy about food.
