Life insurance is one of the most essential types of personal insurance. However, most of the time, policyholders aren’t aware of the details. When asked about life insurance, they answer that it’s about paying premiums that can be claimed by the beneficiaries in case of the policyholder’s death.
In this article, we’ll discuss everything you need to know about life insurance.
What is Life Insurance?
Life insurance is an agreement or contract between you and the insurance company. Although the main point of having life insurance is to secure the claim for your beneficiaries, each policy is still different. However, the common coverage includes the basics, such as funeral expenses and financial assistance for the beneficiaries.
Usually, when availing of life insurance, you can consult with your insurance adviser so that they can explain the details and give you various options based on your needs and preferences.
Types of Life Insurance
Although there are many types of life insurance, the two most common are term life insurance and permanent life insurance. These types of life insurance are based on whether the policyholder prefers a long-term or short-term policy.
1. Term Life Insurance
Term life insurance lasts for a certain period and pays out the death benefits if the policyholder dies before the term expires. The term usually lasts for around 10 to 30 years, depending on the insurance company’s offer.
The term life insurance is also less expensive than permanent life insurance since it doesn’t include a cash value component. Once the term expires, there’s nothing left to claim, but it’s also helpful for short-term needs.
Here are some options you can choose from when considering term life insurance:
A. Renewable term life insurance
If you don’t want to avail of permanent life insurance yet you still want to continue having life insurance, you may opt for renewable term life insurance. If you consult with your insurance adviser, you can ask if there’s a renewable term clause in the insurance policy they recommend.
B. Convertible term life insurance
If you think there’s a chance that you’ll change your insurance policy from term life insurance to permanent insurance, you should avail of convertible term life insurance. As mentioned, you can switch from term to permanent life insurance without undergoing the initial process. This is a great option if you’re unsure about getting permanent life insurance.
2. Permanent Life Insurance
The permanent life insurance is more expensive than the term life insurance. However, the advantage is that it’s a great long-term investment (since it lasts a lifetime) and the cash value grows over time.
In terms of cash value, although it’s guaranteed to grow over time, the rate still depends on the policy. So, before availing of any permanent life insurance, you should first consult with your insurance adviser.
In some cases, if the insured individual decides to end the insurance policy, they can get some money minus some internal policy costs or a surrender charge.
Meanwhile, there are two main types of permanent life insurance— whole life insurance and universal life insurance.
A. Whole life insurance
whole life insurance is a type of permanent insurance that covers death benefits and a savings account. This savings account can be used for various purposes. Additionally, the savings part of the policy can increase depending on the dividend the insurance company pays.
B. Universal life insurance
On the other hand, universal life insurance offers more flexibility than whole life insurance. One of its main benefits is that you can make adjustments in your premiums once your savings account earns money, and the death benefits increase over time.
Benefits of Life Insurance
Similar to other types of insurance, life insurance offers various benefits. These include financial security for the beneficiaries, death coverage, payment for property expenses (for property owners), payment for outstanding debts, and business protection. Of course, if you know your death won’t be a burden to others, having life insurance can give you peace of mind.
Key Considerations When Choosing a Life Insurance Policy
Are you planning to avail of a life insurance policy? If yes, here are some of the things you should consider.
A. Needs
Do you have a financial obligation to your family? If you’re providing a significant amount of money to your household, securing life insurance is a must.
B. Policy Type and Premiums
Based on your current financial status, what type of life insurance can you afford? Meanwhile, even if you can afford permanent life insurance, you can also avail of the convertible term life insurance if you need time to think.
C. Reputation of Insurance Company
Did the insurance company provide the right amount of claims to the beneficiaries of their past clients? Were there issues in the past or present claims? If the insurance company has a good track record, it’s a good sign that you’re on the right path.
Final Thoughts
Availing of life insurance can be a complicated part of your financial plans. However, it also provides a lot of benefits for you and your beneficiaries. If you want to discuss more about life insurance, don’t hesitate to comment below!
