Types of Life Insurance
There are a number of factors to consider when purchasing life insurance. Basically, you want a policy that fits your needs without costing too much. You need to determine what you need, what you can afford to pay, and the type of policy you would like to purchase. To assist you in determining your life insurance needs, click here for a life insurance needs calculator.
If you are going to make an informed decision, you need to understand the different kinds of life insurance that are available. If offered by your employer, group life insurance is one option to consider. Group life insurance is often a staple in employee benefits packages. Employers offer it because it is a less expensive benefit they can provide their employees. In addition, many group policies will offer the employees supplemental amounts they can purchase at more affordable group rates. Often this will also include coverage of a spouse and children. Most group life insurance policies are term policies which cover employees while they are working.
You can also purchase life insurance as an individual policy. In general, there are three basic kinds of life insurance.
1. Term insurance
2. Whole life insurance
3. Endowment insurance
Term insurance is protection for a specified term, usually one or more years. Death benefits are payable only if you dies within that term of years. This type of coverage usually provides the largest death benefit for your cost. Many term polices are renewable for additional terms even if your health has changed. Each time you renew the policy, premiums will be higher.
Whole life insurance provides death protection for as long as you life. Most types will charge the same premium over the life of the policyholder. Because the premiums are spread out over time, the cost can be several times higher than you would initially pay for term insurance for the same amount of coverage. Eventually it will be less than if you were to keep renewing term life insurance through later years. Some whole life policies will allow you to pay premiums for shorter periods, say 20 years or until age 65. Premiums are higher because the payment period is condensed. Whole life policies also develop cash values. A policy with cash values may be used as collateral for a loan.
An endowment policy pays a sum to you if you live to a certain age. If you were to die before then, the death benefit goes to your beneficiary. Premiums are higher than for whole life, therefore this type of insurance typically gives you the least amount of protection for your premium dollar.
Once you have determined your life insurance needs and the type of policy best suited for you, a comparison of costs of a variety of policies can help you make your final decision. A good life insurance agent should be able to assist you in the shopping process.
