In the event of an untimely death, it is important to protect your loved ones from overwhelming financial burdens. When protecting your family, most experts agree that purchasing life insurance is one of life’s most important investments. Acquiring life insurance ensures that your family can maintain their quality of life, pay off outstanding debts such as a mortgage, and set money aside for your children’s education future.
Term Life Insurance and Whole Life Insurance are the two main types of life insurance. Before you purchase life insurance, you should understand the differences between both types of insurance.
Term Life Insurance
Term life insurance is the most affordable type of life insurance, especially for young people. Term life Insurance provides death benefit coverage for the specified term of the policy. For instance, if a policy holder dies before the term limit is up, the beneficiary will receive the death benefit. If the term period ends while the policy holder is still living, no benefits will be paid and no money will be returned. Policy term limits can range from one to thirty years. If you want to renew the policy after the term limit is up, you will likely have to pay a higher premium because you will be older and possibly have developed a health condition.
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Whole Life Insurance
Whole Life Insurance is a type of permanent life insurance. Whole life insurance consists of a fixed premium rate that remains the same for the life of the policy holder. Benefits are paid out after the death of the policy holder. The premiums are paid once each year and remain fixed during the coverage period. Whole Life has a savings component which accrues cash value over the length of the policy. Premium payments involve paying more than what is needed to cover the costs of insurance coverage. The extra money is placed in a cash value account. The policyholder has no input at to where the money is invested. The amount of money received depends on investment earnings, interest, and the fees associated with the insurance company’s expenses. The rate of return on a whole life insurance policy is low compared to other life insurance policy investments.
Each type of policy has its own pros and cons depending on one’s personal circumstance. The most important benefit of both policies is that the policy holder chooses who receives the death benefit. When purchasing life insurance, one should always compare the costs and benefits of the different types of policies before making a purchase decision.
Life insurance can pay for funeral expenses, outstanding credit card debt, loans, a mortgage, children’s future education. Understanding the fundamentals of life insurance will help ensure your family’s future remains safe and secure.