Understanding life insurance is a crucial step towards financial security. It is not always as straightforward as it might seem, with various types of coverage and policies to consider. However, by gaining a clear understanding of what you need and what you are paying for, you can confidently choose the right policy for your unique needs.
This post will look at a few aspects of life insurance and terminology to help you avoid making a mistake.
Whole Or Term Life
In the first instance, you need to know the difference between whole-life coverage and term-life coverage. While other policies are available, like universal cover (a type of life insurance that offers a death benefit and a cash value component that grows over time) or no-exam cover (a policy that does not require a medical exam for approval), these are the two main covers you will be choosing from.
Whole life coverage is a policy that you pay into for the rest of your life. Your payments, also known as premiums, can change each year and may rise drastically, but there is no end term. You just need to make your payments on time, however frequently you pay for them, be it monthly or annually.
In contrast, term life insurance is for a short term. This policy can be for 10, 20, 30 years, etc., and you only pay your premiums for the duration of the policy. This is common for people who want life insurance for the duration of a mortgage, for example, as it will finish once the mortgage is paid for.
The best life insurance policy for you is one that aligns with your specific needs and requirements. Your personal circumstances, such as your financial goals, family situation,etc, should all be taken into account when making this important decision.
Coverage Level
Life insurance coverage can come in different amounts, and you get or set the amount you are covered for. A good place to start is to calculate your earning potential based on your current wage and career trajectory and add this together for the rest of your working life. You can also consider adding in amounts for college funds for your child or spousal support in the event of your premature death to give you an idea of how much coverage you might need. You might not find the exact level, but you can choose the closest matching figure in your price range.
Your Budget
Your budget will dictate the type of policy you opt for. Whole life, universal life, and variable life policies can be more expensive than term life coverage, you need to be confident you can meet the repayments for the duration of the coverage to avoid your policy lapsing. Take a close look at your income and budget and see how much you can realistically afford. This can help you to narrow down your choices.
Features And Benefits (Riders)
There are a range of different features and benefits available with different levels of life insurance coverage, so you need to be clear on what is and is not important to you to add to the policy, as some options greatly increase how much you pay. In some cases, you can access a portion of the payout amount prior to your death; for example, if you are diagnosed with a terminal illness. In other cases, you can get a payout if you become disabled and are no longer able to work. Look at the living benefit riders of different companies to see what is available and what you want from the policy you decide to take out.
