The Fundamentals of Life Insurance
Dated-11 Mar 2013
There are various types of life insurance, but the basics of each stay the same. Each one involves paying premiums to the insurance company, which in the event of death pays an amount to the person and/or people named in your policy, the beneficiaries. Your beneficiaries receive this money income tax free.
The value of a life insurance policy should be the amount of funds that your heirs would need upon your death. This value will be different for everyone based on their goals. For some, they might want to be able to pay their mortgage, pay student loans for children or meet the needs of their spouse for a lifetime. A baseline multiplier that is often used to calculate life insurance value is ten to fifteen times your annual income.
The two main categories of life insurance are term life insurance and permanent life. Term life insurance is for a particular period of time, usually 5, 10, 15, 20 or sometimes 30 years where the premium is usually set for the duration of the term. Often term life insurance is purchased by people who are young and in good health because it is inexpensive and can be a good value. Yet, while term life insurance has lower premiums than permanent life insurance, it builds no cash value and is only paid if the insured dies.
So, if the insured lives through the entire term of their insurance, the coverage disappears and there are no benefits. Additionally, if a term life insurance policy expires on a person at an older age, perhaps in their 60s, it can result in what is called “exploding” term life insurance because the insured can't afford to renew term. Unless the coverage can be rolled over into permanent life insurance, it expires.
Permanent life insurance, on the other hand, is intended to last for the entire life of the insured, rather than a particular time period. Additionally, it develops equity by earning interest, often similar to a long-term bond, which has cash value. This money, which is growing in your policy, can be accessed while you are still living as a beneficial piece of a balanced portfolio. While there are many varieties of permanent life insurance, the two main types are whole life insurance and universal life insurance.
The cost of life insurance premiums depends on a number of factors. Underwriters analyze factors such as age, health and history of you and your parents’ medical histories. They even analyze habits such as the use of tobacco and look at avocation such as whether you an avid drag racer, scuba diver or skydiver. Underwriters review these factors and often request your past medical records and that you to undergo a medical exam.
The varieties and possibilities of life insurance policies can be staggering. So how do you know which is best for you? It is a good idea to start by doing research to find out as much about life insurance as possible. Then think about your goals, what you want to provide for your beneficiaries after you are gone. After equipping yourself and thinking about your goals, visit the experts Lifeinsure.com where you can get instant life insurance quotes anonymously seeing the entire market without giving personal information.
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