First published: 3 October 2022 @ 6:00 pm
The many types of life insurance that exist today can be confusing. In purchasing life insurance, it is important to know the ins and outs of each policy.
What is the Purpose of Life Insurance?
It is important to understand that life insurance is not a substitute for retirement savings.
Rather, it serves as a form of financial protection in the event of your death.
The financial security of it can provide for your family, which may include children or a spouse.
In addition, the death benefit will allow you to leave a legacy to those you love and care about.
It also protects against estate taxes that may apply to your assets upon your death.
Types of Life Insurance
There are four basic types of life insurance: term, permanent, universal and variable. Each has its own unique purpose and benefits.
Let’s look at each type in more detail:
1. Term Life Insurance
A term policy lasts for one year at a time with the possibility of renewing for up to five years. The term policy also requires that you pay a premium each year.
It allows you to continue your coverage until your original term expires, or you cancel the policy.
Most term policies also include an optional rider. It provides additional coverage for the first few years after you cancel the policy if you choose to do so during this time period.
2. Permanent Life Insurance
The policies are long-term plans that do not expire.
They offer an extra level of protection over the term and they typically have a lower premium.
Different from term life policy, this insurance policies can last as long as you want it.
The premium is usually set at a level that guarantees that the policy will be paid out over a long period.
3. Universal Life Insurance
This insurance is a hybrid type of policy. It combines the benefits of permanent and term life insurance into one policy.
Universal policies offer a range of coverage options, including both term and permanent coverage in one policy.
This allows you to customize your coverage to meet your individual needs.
Financial hardships and needs are covered by the policy, including death, disability, and hospitalization.
If you have children, it can help cover them until they are of age. This will help cover any future medical or educational expenses that may arise.
4. Variable Life Insurance (Vital)
A variable life insurance plan is unique from the other types. It provides you with several options for increasing your death benefit.
This includes the option to increase your benefit after each payment period (premiums).
The benefit increase is paid by the insurance company, which may require you to pay additional premiums in order for the increase to take place.
These types of plans are often used by younger people who want greater flexibility in how much benefit they can receive in the future.
Common Mistakes People Make When Purchasing Life Insurance
1. Not Getting a Comprehensive Policy
One common mistake people make when purchasing life insurance is not getting a comprehensive policy.
A comprehensive policy includes additional coverage beyond the standard death benefit provided by most term and permanent policies.
A comprehensive policy will provide you with additional protection.
This includes many things, such as accidental death benefits, funeral expense benefits, income continuation benefits, health care expenses continuation benefits, and more.
2. Not Knowing Which One is The Best
Another common mistake people make is not knowing which policy is best for them.
The best policy will depend on your specific needs and preferences.
If you do not know what these are, speak with a financial advisor to help you find the best policy for your needs.
3. Not Understanding Your Life Insurance Coverage
Beside that, people also do not understanding the coverage options available in their policy.
Each life insurance policy has different coverage options that can help you meet your unique needs and preferences.
Your agent can help you understand the coverage options available in your policy. This will help you choose the coverage that best suits your needs and preferences.
4. Not Knowing the Cost
Life insurance company representatives are trained to use a series of questions and numbers to estimate your life insurance needs.
But if you’re unsure about how much you need, you can always ask an agent for a free quote.
This will help you get a sense of the cost of your insurance needs.
While it’s unnecessary to buy the cheapest policy, if you don’t know how much it costs, then you might not afford it.
Avoid Any Policy lapses
Life insurance is a substantial investment for anyone, whether you are planning to retire or simply want financial protection in the event of your death.
By understanding how it works and the different coverage available, you can find the best policy that meets your needs and preferences.
As always, if you have questions about insurance or other financial planning issues, read more of our articles at our site, HandyWork!