- Life Insurance to Protect the Family - Lita_kauw
Life insurance can be bought in such a way that it will insure against death or disability, covering different periods of time. Risk life insurance can be structured in two basic ways, either as whole life insurance or as term insurance.
What is Whole Life Insurance?
When is it best to buy a whole life insurance policy? A policy of this kind is generally used to provide insurance cover for the policy holder's life until he or she dies, as long as premiums continue to be paid.
Whole life has a cash value component and in most cases the premiums and the death benefit are fixed. The cash value also grows tax-deferred and typically allows for withdrawals and loans against the policy. Premiums are based on how long the insurance company expects the individual to live.
A portion of each premium is invested in order to generate the funds needed for when the policy pays out.
What is Term Life Insurance?
A term life insurance policy is the best option for a couple with young children, who need to provide for their children in case one or both partners dies, but who are working within a budget. It is one of the cheapest insurance options available. Term life is purchased for a specific time period, for example 10, 15 or 20 years.
There are different kinds of term life insurance policies:
- Level Term – The premium and death benefit remains the same each year.
- Renewable Term Insurance – If the term life insurance is an annual renewable policy, the life cover can be renewed each year without filling out a new application or passing a physical exam. However, the premium is not fixed, and goes up each time the policy is renewed.
- Decreasing Term Life Policy – The death benefit decreases each year while the premium remains the same. The policy ends when the death benefit reaches zero.
- Increasing Benefits – With this kind of cover the death benefit amount will increase each year and the premiums payable will increase yearly as well.
Making the Choice Between Term Life and Whole Life Insurance
Choosing a life insurance product depends largely on what the family can afford, since whole life is a more expensive option than a term insurance policy. Whole life is typically purchased to provide a lump sum of money at whatever age the insured dies, can help to avoid the payment of inheritance tax and allows for loans against the policy. Term life would generally be taken out in order to provide financially for a young family, the cheapest options being a level or decreasing term insurance policy.
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Fleur Hupston - Fleur Hupston is a professional freelance writer based in Botswana, Southern Africa. From this unique perspective, she writes travel ...
