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The Low-down on Life Insurance

There is a lot unknown to new consumers about life insurance, read below to get a better understanding.

Life insurance is a highly-competitive, multi-billion dollar industry, with a sales force dependent mostly on commissions. About 80 percent of the premiums you pay for your life insurance policy go to the agent who sold you that policy in the form of commissions, and these figures go higher if what you purchased is a whole life policy.

This explains why life insurance agents get really aggressive when trying to get your nod on the life insurance product they are selling. You will also notice that they will be peddling whole life more than term life. So it sometimes become confusing for consumers in terms of what type of life insurance would really suit them best. While it may be good to have an agent who will guide you towards making a wise decision, keep in mind that they are also trying to make a living from the commissions they will make when they sell you a policy.

So it would be helpful to learn a little bit of the basics on life insurance. For starters the annual premium for a term life policy with the value of $500,000 would cost about $500 for a healthy 40-year-old male who is a nonsmoker. For a healthy 30-year old woman who is a nonsmoker, this would cost around $260 annually. A number of years before, a person would find it hard to get a term life policy over 15 years but these days you will find it easy to buy ad 20 to 30 year term policies.

Insurance agents will tell you that whole life policies are better than term life because you can hold on to it for the rest of your life, and also save up some cash on your policy tax free. And you can even borrow from this savings. What agents would not tell you much about though is the very high premium fees involved in whole life insurance policies, as well as the even higher surrender costs should you choose to terminate the policy. If you cancel your policy within 15 years from its inception, there is a good chance that you will get very little or zero cash value.

The attraction of the savings component of a whole life policy has also waned as employees are now able to make direct contribution to 401k and IRAs, as well as many other tax-advantaged savings options offering higher yields and having complete portability. These days it would be more sensible to purchase term life insurance policies if you are gainfully employed and enjoy benefits like a 401k or a pension fund. It would also be more sensible to invest the money you would have paid to a high cost whole life insurance policy elsewhere.

The next thing to consider is the value of coverage you need. Experts say the safest amount of coverage you should have is five times your annual salary. If you have children and is indebted significantly then you should increase your coverage to about 10 times your annual salary. So if you make $50,000 annually then you will need about $250,000 of term insurance and $500,000 if you have kids and debts.

Keep in mind that the main purpose of life insurance is income replacement in the event of your untimely death. This money will be left behind to your loved ones so that they would not have to put up with the pressure of raising funds for expenses like the medical bills, the wake, and the funeral, debts owed, plus some extra for daily expenses.

Whole life policies would be more valuable for people who can afford it. This kind of policy obviously takes out the worries and concerns about leaving your loved ones completely because the policy covers you for your entire life as long as you are able to keep paying the premium. The biggest consideration about whole life insurance policies is its upkeep, so before deciding to buy this type of policy, you need to be sure that you have the financial capability to keep the policy alive.

Life insurance is certainly an investment you would want to put your money in especially if you are the breadwinner and have a family depending on you. Life insurance is the best legacy a person can ever leave to their loved ones. It is not that big an investment as well and the returns are so much greater.