When maintaining a financial obligation to a spouse, children, or other loved ones, purchasing life insurance becomes one of the most important life decisions one can make. Life insurance is an important purchase as it can help your family maintain their way of life without the stress of additional expenses. It can help a spouse pay off outstanding debt, a mortgage, or pay for children’s education.
Life insurance is an agreement between a client and the insurer where the insurer pays a contracted amount in the event of death or other insured event. An insured death may be a serious illness. The insured is required to pay a fee known as a premium that is paid on a set basis. In the United States, a lump sum is paid to the beneficiary(s) upon the insured’s death. Life insurance can pay for funeral expenses, “death” taxes, state “death” taxes, estate administration costs, as well as medical expenses not covered by health insurance.
There are a number of types of available life insurance. The two central forms of life insurance are known as term insurance and permanent life insurance. Within each insurance plan, there are a number of different policies available. For instance, if you could not work as the result of an accident or illness, you will still have daily expenses. Critical Illness Insurance and Disability Income Insurance are two choices that will provide assistance during recovery. Term Insurance is limited to the number of years you can keep the policy. It is the most simplistic life insurance policy. As well, this policy only pays if death occurs within the term of the policy. There are several types of term policies that include:
- Yearly Renewable Term Life Insurance: a one year term policy with an option to renew each year
- Decreasing Term Life Insurance: designed to pay off a mortgage upon the death of a homeowner
- Level Term Life Insurance: the insured chooses the period to keep the policy.
The second type of life insurance policy is known as Permanent Life Insurance. This type of insurance allows the insured to keep it for life. Also known as whole life insurance, permanent insurance pays a benefit at the time of death. Premiums are guaranteed to stay the same. The three major types of permanent life insurance include:
- Traditional Whole Life: referred to as cash values. This policy includes a guaranteed sum that will be returned if you choose to end your policy in the future. It also includes dividends.
- Universal Life: a savings plan combined with a term policy.
- Variable Universal Life: a combination of whole life insurance and other investments.
Because the future is unpredictable, purchasing life insurance is one of the best investments you can make. Whether you want security if you become seriously ill, or protect your loved ones if the worst happens, choosing a life insurance plan to meet your circumstances will ensure comfort and peace of mind.
