The Basics About Life Insurance

If You are Thinking of Buying Life Insurance, Understand the Basics

Usually people begin to think about life insurance policies when they get married, or buy a house or have children, but there are many other reasons for buying life insurance. Many employers offer life insurance for their employees and that is generally term life insurance, which is for a fixed term and is usually only valid for the period of time you work for that company.

You can take out a life insurance policy on yourself, your partner or your children or grandchildren, and can choose to have a policy which will pay out when the child goes to college, so that their education costs can at least be partially covered. Grandparents are now taking out policies on the birth of their grandchildren as a gift for them in later life.

The type of policy you take out will depend on your financial circumstances at the moment, and term life insurance is the cheapest. You can take out this type of policy for a fixed term ranging from between 1 and 30 years. The monthly payment or premium is very low compared to other types of life insurance because the policy has no cash benefit; if you or the person insured dies within the time period of the policy then you or your beneficiaries named on your policy, receive the death benefit, but at no time is there a cash value on this type of policy. This means that you cannot borrow against it or get cash from it unless you die. These policies are good to tide you over if you are short of cash when you take out the policy, but are not ideal. If you decide to have this type of policy, make sure that you can convert it within the first five years to a policy which will give you cash benefits.

life insuranceWhole Life Insurance is for people who want guaranteed lifetime insurance, which pays a guaranteed death benefit when the person insured dies. The premiums are higher for this type than for term life insurance and you have to pay the premiums on time every year. The benefits of this type of policy are that they have cash value, which accrues with interest every year. The difference between the cost of insurance and the premiums paid, is deposited into a cash-value account and the money in such an account can be use to pay the fixed premium in later years. You can also borrow against the cash-value if you need to after you have paid into the account for a number of years. If you choose to cancel the policy, however, you may be charged for the cancellation before the death of the person insured.

Universal Life Insurance is similar to whole life insurance but this has more flexibility as the premium payments can be changed by the policy owner and the amount of death benefit can be altered. For example, you could choose to pay  double the amount of the annual premium one year, and the excess money could be put into a cash-value account so that you can earn more interest, which is typically around 3 or 4 per cent per annum. Policy owners may choose to have a higher death benefit while their children are young and lower it when they become adults with families of their own.

To calculate the death benefit you require you should multiply your annual income by eight or twelve, so that your family is sufficiently insured should you die. Most companies want you to undergo a medical examination or will request information from your primary health care giver. However, there are guaranteed issue life insurances which require you to answer questions regarding your health.

You need to compare quotes, and read the fine print very carefully before signing anything. If you are not sure of the jargon, ask a lawyer to explain it to you. It’s better to be safe than sorry! If you suspect that a company is not financially stable because the deal they are offering is too good to be true you should do some research to check them out by using AM Best, Standard and Poor’s or Weiss Ratings. The last thing you want is to be ripped off in an insurance scam, or to pay into a company which is not financially solid.