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Looking
for a Life Insurance Policy?
Whole Life
Universal Life
Term Life
Shopping
for an life insurance policy is more than just looking for the
best price. Service quality, reliability of the company, and
its financial ratings are critical if you want to be certain
your family will receive the coverage.
A lot of things can go wrong that
can make your choice of a life insurance company critical
both while you are alive and after you are gone. Sometimes
the price may look right, but if it comes with poor service,
takes a long term to settle a claim, or the insurance
company goes bankrupt before you are able to collect, saving
those dollars monthly will surely not have been worth it to
you and your family.
If you are
interested in life insurance, any insurance salesperson will
be delighted to explain the type of policies available to
you. But unless you educate yourself first, it's all too
easy to get confused by insurance policy lingo and end up
paying too much for a policy that may not meet your needs.
Here are
explanations of the various types of life insurance:
Term
insurance provides a preset amount of cash if you die while
the policy is in force. For example, a five-year $130,000
term policy pays off if you die within five years -- and
that's it. If you live beyond the end of the term, you get
nothing (except, of course, the continued joys and sorrows
of life itself). With term insurance, you pay only for life
insurance coverage. The policy does not develop reserves.
Term
insurance is the cheapest form of coverage over a limited
number of years, especially when you're young. It is
particularly suitable for younger parents who want
substantial insurance coverage at low cost.
Get a quick quote here. Since the risk
of dying in your 20s, 30s or 40s is quite low, the cost of
term insurance during these years is as reasonable as life
insurance prices get. Also, if you need insurance for only a
short time, say to qualify for a business loan, term is your
best bet. However, the older you are, the more expensive
term insurance premiums become compared to the payoff value
of the policy. This, of course, is understandable, as the
older you are, the greater the chance you will die during
the policy term.
Term policies
offered by different companies have all sorts of
differences, some fairly significant. For example, some
policies are automatically renewable at the end of the term
without a medical examination, often for higher premiums,
and some are not. Some have premiums set for a period of
years, but others guarantee a premium rate for only the
first year. After that, the rate can go up. Some can also be
converted from a term to whole life or "universal"
policy during the term, again without needing to requalify.
But remember,
with term insurance you never lock in the right to maintain
the policy no matter how old you become. If you want to
ensure that insurance will continue in force for your entire
life, term isn't for you.
Whole life
(sometimes called "straight life") insurance
provides a set dollar amount of coverage which can never be
cancelled, in exchange for fixed, uniform payments. Because
the payments are the same throughout your life, in the early
years of the policy, the premiums are high compared to your
statistical risk of death. This is why reserves are built
up. Assuming you live a long while after the policy was
issued, your payments become low, compared to your risk of
death. In other words, during the first few years of a whole
life policy, insurance companies take in substantially more
money than they pay out.
Some of the
surplus goes to pay the insurance agent's commission. Some
of it becomes your cash reserve, which the company puts in
fixed-income investments. After a set time, usually several
years, you have the right to borrow against the cash
reserve. You can also, of course, cancel the policy and
receive its cash surrender value.
Whole life is
generally undesirable for younger people with small children
who can't afford the high premiums during the early years of
the policy.
Universal
life combines some of the desirable features of both term
and whole life insurance, and offers other advantages. Over
time, the net cost usually is lower than whole life
insurance. With universal life, you build up a cash reserve,
as with whole life. But you can also vary the premium
payments, amount of coverage, or both, from year to year. In
contrast, whole life requires one set payment amount, which
cannot be varied, for the life of the policy. Also,
universal life policies normally provide you with more
consumer information. For example, you are told how much of
your premium goes towards company overhead expenses,
reserves and policy proceed payments, and how much is
retained for your savings. This information isn't usually
provided with whole life policies. There can be other
significant advantages to universal life; an insurance agent
will be glad to explain them to you.
Looking
for an ideal life insurance plan? Here you can find the
links to access more information and get free online quotes.
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