Life insurance – This is probably one of the most important and major decisions you will make in your financial plan. However most of us fail to take the decision in time and would often realize that it’s too late to get one. So you need to get in to action now and know how to get maximum coverage and a low cost life insurance policy without wasting your hard-earned money.
So what exactly is life insurance? A life insurance policy is insurance on a person’s life. Upon a person’s death it is the insurance that will provide for the dependents that the person left behind. In other words, a life insurance policy will serve as income replacement and will prevent your dependents from financial burden. If you are wondering whether or not you need life insurance, ask yourself this question. “Will somebody struggle financially after I die?” If the answer is yes, then you will need to purchase a life insurance to protect them. The life insurance that you will purchase may be for your spouse, your children, your aging parents or your employees. Believe or not, some people even purchase life insurance policies to protect their pets when they die.
However, you have life insurance does not mean that you are properly insured. To know how much insurance coverage you need, you have to consider three different time frames.
The short term expenses – This refers to all the expenses that need to be settled upon your death. These include burial expenses, payments for unpaid credit card debts, home mortgage settlement and estate taxes for the distribution of your estate to your heirs. All these should be immediately settled by your dependents soon after your death and using your life insurance coverage.
The living expenses – Living expenses include all the costs your family will need to lead their daily life. These include expenses for food, utilities, car payments, house rental and other regular fees that they will need to pay. If your family is used to a lavish lifestyle then you have to consider that also when planning on the amount of coverage.
The long term expenses. These include funding for your loved ones education and retirement life. A rule of thumb in deciding the amount of life insurance coverage is that you should have enough life insurance in place to pay off all debt, and have enough to fund 7-15 years worth of income replacement, college and retirement costs.
There are basically two types of life insurance. The first type of life insurance is cash value which also known as the universal life insurance or whole life insurance. This type of insurance gives you an investment option. However, you need to pay high premiums compared to what you would pay for a term life insurance quote. Cash value insurance combines life insurance with a savings option.
A term life insurance is pure insurance for a specific period of time usually 10 to 35 years. This will not give you any investment options since the amount you are paying regularly will go only to insurance coverage. There are three types of term life insurance. The increasing term means that your premium payments keep increasing while the amount of your life insurance coverage remains the same. The second type of term insurance is the decreasing where your premium payments are level while the amount of coverage decreases as the term progresses. The third type of term insurance is the level type. In this both the premium payments and the amount of coverage are levelled throughout the term. Term life insurance for seniors is usually offered at a much shorter term period.
Another type of term insurance is the term life insurance no medical exam policy. This is also known as the accidental life insurance. In terms of premium payments this policy is the cheapest but it is the most expensive one in terms of what you get out of it since the average payout is only 2 percent of all the claimants.