The main goal of buying a life insurance policy is to provide financial protection for those you leave behind when you die. In general, a policy should take care of the mortgage, debts and possibly leave a small amount that can be set aside and saved for the future.
If you’re looking for a life insurance policy, but aren’t sure which type of policy to purchase, then read on. In this article, we’ll review the two main types of life insurance and what to look for in a life insurance policy.
What Is Life Insurance?
Life insurance is a type of financial product that leaves money behind to help your family after you die. The money can be used to pay:
- Funeral expenses
- Pay off debt
- Pay off mortgage
- Replace lost income
The money may support your loved ones for a few months to several years. When purchasing a life insurance policy, you pay a premium each month to the insurance provider. The price of your premium will be determined by:
- Your age
- Amount protection you need
- Type of policy you purchase
What Types Of Life Insurance Are Available?
When you begin researching life insurance policies, you’ll find there are several different types available. Here are two of the main types: term life insurance and whole life insurance.
Term Life Insurance
This is the most basic type of insurance. You choose the amount to be insured, and the period (length of time) you want to be covered. If you die during the term (the length of time you chose), the policy will then payout to your beneficiaries. If you don’t pass way during the term, the policy will not pay out anything, and the premiums you’ve paid are not refunded. There are various types of term insurance, but the three main types are:
- Level term: this type of insurance pays out a lump sum when if you die during the set term. The amount you’re covered for remains the same throughout the term.
- Decreasing term: the amount you’re covered decreases over the term of the life insurance policy. This type of insurance is often bought to pay a debt that reduces over time, such as a mortgage.
- Increasing term: the amount you’re covered for increases over the term of the policy and keeps up with inflation. In this way, your loved ones will still receive a nice payout, even considering inflation.
Whole Life Insurance
Whole life insurance policies are ongoing and payout when you die. It’s not based on any specific term. However, the policy will pay out eventually because it’s a known fact that you’ll pass away at some point. As a result, this life insurance policy tends to be more expensive than term life policies.
How Much Coverage Do You Need?
One thing to understand is that the more protection your life insurance policy offers, the higher the premiums will be. You’ll need to determine why you want life insurance. Is it to pay off the mortgage? To pay for funeral expenses? To leave a nest egg for your family? This will determine the type of life insurance policy you need.
Most of the life insurance companies also offer funeral cover that can specifically be used to pay funeral related costs and expenses. If you’re wanting a policy to take care of the mortgage, then you might consider a decreasing term life policy.
As noted above, the amount you’re covered reduces over time, the same way a mortgage is paid off—the amount you need to pay it off is lower each as you make payments. Here, you’ll need to consider how much you currently owe on the mortgage and use that amount as the base for the amount of coverage you need for a decreasing term life policy.
If you’d like to leave your family inheritance after you die, then you should consider a whole life insurance policy. To determine the amount of coverage, you’ll need to consider your current income, your family expenses, and then compensate for prices increasing over time. This will be the amount of coverage you’ll need.
If you’re over 50 and would like to make sure your funeral costs are covered, then you might want to consider a term life policy. However, if you’d also like to leave an inheritance, then you may want to consider a whole life policy instead. The amount of coverage should cover the cost of your funeral and then an additional amount you’d like to provide for your family.
What To Watch Out For When Buying Life Insurance
There are many insurance providers available and many options when it comes to the types of policies available. As you shop for life insurance, you’ll want to watch out for the following:
1. Higher premiums
If you have pre-existing health issues, your life insurance premiums could run higher. This is because the insurance companies will see you as a higher risk. Health conditions that can cause higher premiums to include:
- Health disease
- High blood pressure
- High cholesterol
- And more
It pays to shop around because there are insurance providers who do offer affordable rates for people who have pre-existing health issues.
2. Terms And Conditions
before signing any contract, you’ll want to thoroughly read through the insurance policy’s terms and conditions. Some people refer to this as the “fine print.” In the terms and conditions, you’ll find the policy rules, guidelines, etc. all written out. It pays to read every detail. This information will tell you how to make a claim, issues that can cause a claim to be rejected, and more.
In this article, we’ve covered the basics of what to look for in a life insurance policy, how to determine the level of coverage you need, and more. Be sure to reach out and speak with an experienced insurance agent for more detailed information.
If you are interested in even more lifestyle-related articles and information from us here at Bit Rebels, then we have a lot to choose from.