It is said that you have life insurance because you love someone. It is certainly not for the benefit of the insured. Life insurance should be called “Love Insurance” for you only need when you love someone and to protect them.
If that someone depends on you financially, life insurance is a must. It is proof of your commitment to protecting the financial future of your loved ones.
There are a few key factors when it comes to life insurance, it is not only a matter of whether you have coverage or not. Granted, having any type coverage is better than having none.
Some of these key factors include what type of insurance, what are the guarantees of premium and benefits, what is the length of your coverage, who owns the policy, who are the beneficiaries.
A licensed agent can help sort through all of the decision making points, to make sure you have the coverage that your family needs.
One of the main decisions you need to make is what type of policy to get, which will impact the premium, length of coverage and cash accumulation.
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There are three kinds of policies, term, universal and whole life insurance.
It covers you for a specific period of time which can be 10, 15, 20, 25 or 30 years. The main advantage of term life insurance is that the premiums are lower. The downside is that the coverage ends; and if you want to renew it you will be subject to underwriting again. There is no value at the end of the term and only a small percentage of term life insurance pays, since most coverage ends before death.
It covers you for the rest of your life and accumulates cash value. There are two main advantage of universal life insurance, it provides coverage for the rest of your life and accumulate cash value which earns interest, the cash value grows tax deferred and can be accessed and used at your discretion. The drawbacks are that it requires a higher premium to fund the cash accumulation; you run the risk of the policy lapse if cash value is too low to pay for the policy’s coverage. This means you must fund it adequately and be careful how much cash you withdraw from it.
Very similar to universal life insurance, it covers you for the rest of your life and it accumulates cash value. The major difference is that with whole life insurance the carrier assumes the risk of funding the policy properly, not you. This has a side effect of requiring higher premiums than universal life, one of its major drawbacks. On the upside, so long as you pay your premiums, you are guaranteed coverage for life.