The first thing you must do is state your reason for buying Life Insurance. It can be used as a tax-free way to pay off debts that remain after the person who dies is gone. Life insurance can also be used as an investment vehicle, where the savings from not having to make the monthly payment on the debt accrue until there is enough saved up to cover it. Life Insurance can also be a way to save money for children or other dependents should something happen to someone who has life insurance and they die.
Life Insurance comes in two basic forms: Term and Whole Life .
Term Life Insurance is pure Life Insurance, which means that you are covered only if somebody else dies within a certain period of time. Term Life Insurance is the cheapest Life Insurance that you can get, and if you just want Life Insurance protection, then Term Life is what you want to look for. If your reason for buying Life insurance is as an Investment vehicle, or as a way to save money for your children/dependents, this information does not apply to you.
Whole Life policies cost more than Term Life because it includes both Life Insurance and an investment component. A portion of the monthly payment that you make on Whole Life goes into safe investments (savings accounts or CDs) instead of paying off some other debt like with Term Life plans. After a certain period of time (usually 10-15 years) Whole Life converts from pure Life insurance to a limited savings plan. With Life Insurance Whole Life, the longer you pay the monthly premiums, the more of your payment goes into investments and makes a return for you, instead of being used to pay off some debt. Keep in mind that since Life Insurance is an Investment it can go up or down in value just like any other investment vehicle.
What Is Whole Life Insurance
Whole Life Insurance policies also offer cash values which will accrue even while it is still a Life Insurance policy. The more years you have been paying on Life insurance whole life policies, usually means higher death benefit and higher cash value. This means that if you were to die sooner rather than later with a Life insurance Whole Life policy your beneficiary would get more money because there was less time for the Life insurance to degrade. Life Insurance Whole Life policies do not have guarantees of returns on the amount invested, and you should check with your Life Insurance provider to see if there are any guarantees for return on their investments.
Some Life insurance whole life policies come with guarantees for specific time periods (usually 5 years) where the money put in will earn a certain percentage of interest or return. The other advantage of Life insurance Whole Life is that usually over longer periods of time the cash value portion becomes more valuable than Term Life insurance premiums would be at that age, especially if it has been within the previous 10-15 years since conversion from pure Life Insurance.
If you want to buy Term Life Insurance then you need to decide how much coverage you require before purchasing Life Insurance. Life insurance can be as little as $10,000 to as much as 10 million dollars so it is important to think about who you would want to have the Life Insurance money if something happened to you and how much that person would need before deciding on a Life insurance sum.
If your Life Insurance is going to be used for a debt payment then you should look into Life Insurance policies that offer “return of premium” riders or benefits. These Life Insurance policies will refund the premiums paid back into your bank account after a certain period of time (usually 2 -5 years) if nothing happens during this period of time. A good example of when the return of premium might come in handy is with an auto loan or mortgage loan.
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