Family life insurance, or simply known as life insurance, is your proof to your family that you care about them and their welfare even after your death. Life insurance is the guarantee you give to your family that financial obligations will be covered and that they will not be burdened in the sudden onset of your death.
Grim as it may sound, we really do not know when our time is up in this world and it is best to always be prepared. Taking out a life insurance policy is one of those preparations that you need to do, and the sooner you do it, the less it will cost you.
Understanding Life InsuranceAt its most basic, life insurance plans are really straightforward. The insured party pays regular monthly, quarterly or annual premiums and the insuring company pays out the face amount of the policy to beneficiaries upon the death of the insured party. In the case of whole life insurance, the insured party receives the cash out upon maturity of the insurance policy.
These premium payments are based on the insured party’s state of life at the time the policy is taken out. The amount to be paid is calculated based on age, gender, health, lifestyle, and work of the person to be insured. The higher the risks perceived by the company based on the insured party’s inputs, the higher the premium will be.
Despite these clear-cut definitions however, taking out a life insurance policy is not as easy as 1-2-3. There are so many options available and plenty of insuring companies to choose from so it is important to study each one before committing to one.
Term Life Insurance
The first form of life insurance is term life insurance. This policy will cover the insured party for a specific period of time that could range from one year up to thirty years. Term life insurance is renewable upon maturity and can be converted to whole life insurance, when desired. Should the person die after the insurance has matured, the insurer is no longer obligated to pay the beneficiaries.
Basic term life insurance is the cheapest form of insurance available in the market, and is considered by many to be sufficient enough in providing the needed coverage. Other variations of term life insurance have also been made available in recent years to make them even more attractive. These include level term life insurance wherein the premium payments remain unchanged and annual renewable term life insurance so that policyholders don’t have to worry about forgetting to renew.
Advantages of Term Life
- Term Life Insurance is, as previously mentioned, cheaper than whole life insurance without sacrificing the benefits of a cash payment upon death.
- Term life insurance is simple and straightforward. You choose the face amount of your policy and the length of coverage which will equate to a specific amount of premium payment.
- Term life insurance provides the flexibility of choosing the amount and length of coverage at every renewal, so the insured party can change it as his or her needs change, although of course the premium payments will also change accordingly.
- The insured party also has the freedom to put his or her remaining money, coming from lower premium payments, in whatever form of investment that could gain even higher returns than a whole life insurance plan.
Whole Life InsuranceWhole life insurance provides the insured party with coverage for the rest of his or her life or up to a certain advanced age, and has the added benefit of the insured party being able to receive the payment upon maturity of the policy instead of his or her beneficiaries.
Whole Life Insurance, which are also considered as investment or savings plans, accumulate towards a guaranteed cash value as well as earn dividends which could be cashed out or borrowed on should the need arise.
The premium payments on whole life insurance are a bit more costly than those of term life insurance, thus it becomes prohibitive to most policy buyers.
Advantages of Whole Life
- Whole life insurance plans do not need to be renewed so you don’t have to worry about not being covered at any given time in your life.
- Because whole life insurance plans don’t need to be renewed, the premium payments are level and will never change throughout the whole period of the policy.
- Whole life insurance plans give the insured party the option to stop the policy after a certain amount of time and get a good amount of money paid in premiums as well as the dividends over the period covered.
- With a whole life insurance plan, the insured party gets to have the security of knowing that there is an emergency fund from the cash value just in case he or she gets into a dire situation of needing money.
Choosing between a term life and a whole life insurance plan really depends on your needs and your current financial standing. In the end, the most important thing is that you do get a life insurance plan that will provide a cushion for your family in the sudden occurrence of your untimely death.