A Basic Guide to Life Insurance
Life insurance is one of the best investments to protect yourself, your family, and your assets from any unpredicted circumstances. However, only a few think wisely about the inevitability of death, accident or natural disasters destroying human lives. Although it is unpleasant to think about the same but being practical in your thoughts and approach for such circumstances is a significant decision to be taken at the right time.
Types of Life Insurance
There are primarily two types of life insurance, term, and whole life, with their distinctive set of benefits.
Term Life Insurance: Term insurance is the simplest and most viable type wherein the insurance company gives the death benefit in cash to the nominee or family of the insured person. This benefit is gained only if the death occurs during the term of the policy. This type of insurance is further sub-divided into two categories, level, and decreasing term insurance.
• Level Term is the policy wherein the death benefit stays same throughout the tenure of the purchased plan.
• Decreasing Term offers a drop in death benefit over the term usually with increments in one year.
Whole Life Insurance: This is also known as permanent insurance policy wherein the predetermined death benefit is paid by the insurance company whenever the insured person dies. In this case, the insurance company designs the premium and the death benefit in a way that the insured person enjoys high benefits at an advanced age while paying the same premium every year till the planned time span. This type is further sub-divided into three major categories, traditional, universal, and variable universal.
• Traditional Whole Life insurance is a simple and common type that offers death benefit with the saving account of the insured person wherein the person is paying an absolute premium on a regular basis.
• Universal or Adjustable Insurance is a type that offers a flexible option for paying a monthly premium from the saving or cash value account. In this type, the insured person can reduce or increase the insurance premium whenever desired. However, the policy gets lapsed if the saving account does not hold the minimum balance to pay for the insurance coverage.
• Variable Insurance is a type where the insured person can merge the death benefit with his or her saving account. The insured person can use the combined amount for further investments in the stock market and mutual funds, but then here the risk will increase and accordingly both the cash value and death benefit will vary.
Evaluating Your Need for Life Insurance
Once when you have made up your mind to take life insurance, the toughest decision is to how much do you need and how to make a comprehensive evaluation of the same. However, there is no thumb rule for choosing a perfect policy but here are some guidelines to help you make the right decision for determining your strategy of purchase:
The first factor is to look around and beyond as to how much debt you have. Knowing about all your debts become essential because after you die, you have to make sure that your family can pay off all your loans and manage a life worth living.
If in case you are the only earning member then make sure to have the death benefit that makes enough money for your family to live the basic needs. Besides, also make sure to keep some margin for inflation that is sure to occur year by year. For this calculation of your yearly income protected against inflation, you can help of any sound financial advisor or a reliable insurance company.
Consider the future expenses that might take a toll on your annual income. Major financial requirements are involved in the education, marriage and the business settlement of your child.
The Bottom Line
The importance of life insurance if purchased at the right time with the calculated death benefit certainly gives peace of mind. It further works to supplement your retirement, protect the growth of your business and secure your family with monetary gains. However, before you step into this world of investment, it is advisable to educate yourself intending to envision the safety, security, and growth of you and your family.
