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Making Sense Of Life Insurance

Discover the benefits of life insurance and which policy is best for you.

It is often said that there are two things that are constant in this world, death and taxes. Ironically, these two things are among the reasons why people work for the most part of their lives. When we work, we pay taxes so that we may be able to contribute to the society that we belong to. We also work to provide a good life for our loved ones and to prepare them for the eventuality of our death.

The fruits of our labor mostly go towards providing a good life for our families that we sometimes fail to prepare for the time when we are no longer around to provide for them. It is for this purpose that we acquire life insurance. Whether we like it or not, we do not really know when our time in this world will be up.

There are two major reasons why people need life insurance. First is if you have an estate that is large enough to fetch a high estate tax when you die. You can keep your estate intact and let your death benefits take care of expenses that would arise as a result of your death. This will definitely take away the financial burden of paying for exorbitant taxes and other expenses on people you leave behind.

The other reason for obtaining life insurance is if you know that your untimely death will leave your family financially infirm. Now the first reason is not really that common but the second one is. It actually applies to every person who has others who rely on them financially for their basic needs.

If you are among the people of the second type, then perhaps you already have life insurance coming from your employer. But for those who have yet to purchase life insurance coverage while having other people depending on their livelihood, there is no better time than now to consider it.

There are two major types of life insurance policies, the term life and the universal or whole life policy. Term life provides coverage for a fixed period of time which can be anywhere from five to 30 years. It is renewable once the term expires but at a higher premium rate. Whole life provides coverage for the length of the insured’s lifetime. Although more expensive, it can sometimes have a savings component that the insured can borrow against, sometimes even an investment component.

For middle-income America, term life seems to be a better fit as it is more affordable and the coverage is adequate. Whole life is more for people who would like to provide an elaborate financial security for their loved ones at a higher price. Nothing should stop you from obtaining whole life insurance if you can afford it. But for most people, the lower premium rates of term life gives them more financial freedom to cover the expenses in the present while saving up for the future in another manner.

There are certain instances when some types of life insurance may not be practical, or some life circumstances that may not require life insurance. Experts would caution people from obtaining guaranteed-issue life insurance or the ones you see being advertised on late night TV. Guaranteed issue policies look really attractive as it does not disqualify anyone from buying coverage.

What the issuers of guaranteed life policies don’t tell you is that should you die at a relatively short time from your purchase of the policy, the company will only give you back the premium you paid and not the coverage you bought. These policies typically have a high premium for a much lower coverage compared to term life and whole life policies, and an exclusion period of about two years before the insurer will pay the full death benefits.

Guaranteed-issue policies are more suited to people who cannot buy coverage elsewhere, and believe that they will outlast the exclusion period. There are alternatives to guaranteed-issue policies which you can explore like the senior life term policy. It would be best to check all your options first before settling for guaranteed-issue life insurance.

Travel or accident insurance is also another type of policy that you should seriously consider before purchasing. While it may have a very low premium, it only covers the time of your travel, which is usually safe and uneventful. You will be better off with a term life insurance policy for it would still pay your death benefits regardless of how you died.

It may be counter-intuitive to purchase life insurance for young children. They are expected to live a longer life than you and they do not really have any income nor do they have people financially dependent on them. You could use the premiums you could have paid for life insurance premiums to instead pay for a college education plan or a savings account for them.