Life insurance is one of those things a lot of people generally think they do not need, but in fact, do. On the other side of the spectrum, it’s also something that people know they need, but don’t have.
What is life insurance, again?
Life insurance is essentially a contract or signed agreement between you and an insurance provider or company. Your payments, or premiums, will yield a lump sum known as death benefit, and will eventually be received by your beneficiaries upon your death.
The major benefit of having a life insurance is to protect your family from loss of financial source after your death, especially if you are a breadwinner or a provider. Your beneficiaries can use the money for daily living expenses, bills, mortgage or school. Life insurance supplies a safety net so that your loved ones can keep the standard of living that they have come to know.
Getting life insurance is one major aspect of financial planning and forward thinking.
What are the different types of life insurance?
Life insurance comes in 4 major types: term, whole, universal, and variable. Knowing what each type entails and how each type works is crucial in finding out which one is suited to your needs.
Term life insurance
This life insurance covers you for a specific period. Think 1, 2, 10, or 20 years. The death benefit is paid only if you die within the policy term that you took. Generally, the premiums start out lower, depending on your age. The younger you are, the more coverage you can buy.
Whole life insurance
Also known as permanent life insurance, whole life insurance provides coverage for as long as you are paying your premiums. The concept of whole life insurance policies is in the accrual of cash value. You can collect this amount if you stop the policy, and your beneficiaries will receive a fixed amount upon death.
The premiums in whole life insurance policies are generally higher compared to term life insurance.
Universal life insurance
This type of life insurance is much like whole life insurance since this is also permanent, but it offers greater flexibility than the whole or term.
With universal life insurance, you can increase or decrease the cash value and death benefit as your needs change. Your premiums will either rise or drop depending on what works to meet your requirements.
Variable life insurance
This type of life insurance is also permanent. What makes variable life insurance unique is its investment part. The cash value yielded from the premiums are invested in sub accounts that are just like mutual funds.
Variable life insurance policies are considered a security since these have investment risks.
What type of life insurance do you actually need?
So how do you choose the life insurance that is right for you? You need to consider several factors in doing so. You need to decide how much you need, as well as your future expenses and current debts. Once you have established these things, you can begin to figure out which of the life insurance types works for you.
It is recommended that you seek the help of financial advisors when it comes to discerning the type of life insurance that is suited to your lifestyle and needs.
How important is finding the right life insurance?
Getting life insurance is a form of wealth management, especially since you’re trying to take care of future needs and resources given a sudden death. Figuring out and choosing the right life insurance that meets your needs and capabilities is crucial, otherwise, you might end up with something that does not align with your goals and reservations.
It is imperative to seek the aid of financial professionals who have the utmost knowledge and understanding of the craft, so you don’t get lost in the translation of life insurance policies.
Still have questions? We are here to help. If you would like us to look at your retirement and see if you are utilizing the best possible options, we would love to meet with you and learn more about your goals to see if there is a good fit for us to work together. Reach us at 562-432-3783 or [email protected] to schedule a free introductory meeting.