Reading about different kinds of life insurance policies is quite a task, especially nowadays when every insurance company has got a couple of variations in policies on their own in order to attract more customers. Although these new policies only differ from the old ones in few details, they can leave the potential customer confused. With dozens of policies to choose from, we’ve decided to pick the most popular ones and try and explain the main differences between them and point out their virtues and flaws to help you with your decision.
When starting, first you need to think about the reasons you want to get life insurance in the first place. If you’re in your early 30s and still don’t have a family, this shouldn’t be on your list of priorities. But if you’re the sole provider of your household and have several members that are financially dependent of your income, getting a life insurance should be on top of your list of priorities. These investments, no matter how uncomfortable to think about, are the responsibility of any adult that wants to ensure his family is financially secured even after their death.
Now we’re gonna try and cover some of the most popular life insurance policy types that people choose, with the accent being on choosing between short term and long term policies.
As the name indicates, this kind of insurance is only valid for a certain amount of time. Different insurance companies have different time frames for these contracts that go from one year to forty or more. If the person insured dies within the time frame covered in the contract, the beneficiaries get paid the sum called the death benefit. This sum is fixed and doesn’t change over time, but if the contract expires, the insured in no longer covered. One of the biggest disadvantages of this type is that premiums the insured has to pay increase over years, due to the fact that they’re more likely to die the older they get. While some insurance companies raise the premiums every year, others do it on a 5 year or 10 year basis, depending on the contract.
The opposite to term life insurance is whole life, which is valid through the insured person’s life no matter how many years pass until they pass away. While term insurance contracts can be canceled at any time, whole life contract can only be canceled due to the insured failing to pay the premiums. Many people list the lack of flexibility as one of the main downsides of this type of insurance. The other big downside is the fact that whole life insurance costs way much more than term insurance, because there is a cash value in the policy, unlike with the term insurance. This means that the insured has a sort of fund he can use to borrow money from or pay premiums in the latter years, at the cost of his death benefit getting diminished by the amount borrowed plus additional charges.
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