When and Why Should I Consider Life Insurance?
If you are the main income provider for your family, have dependents, or are responsible for ill or aging parents, then you may need life insurance. Life insurance is a contract between the insured and the insurer, that in the event of a death or debilitating illness or injury, an agreed upon sum of money is paid to the dependents of the policyholder.Each policy has its own set of terms including the annual premium, amount of coverage, and circumstances that nullify the policy such as suicide, war, or fraud. If you are in need of a life insurance policy to protect the financial future of your family, carefully consider your life insurance options.
Life insurance plans
There are many different forms of life insurance. Some, like term life insurance, are extremely affordable at first, but significantly rise with age. Others, like whole life insurance, have more expensive premiums but offer more financial benefits.
The four main types of life insurance are:
- Term: This type of life insurance is considered temporary insurance in that it is set up in varying increments of time such as five and ten year terms. Term life insurance only covers death benefits and is not eligible for cash options.
- Whole life: Considered permanent life insurance, wholelife coverage offers benefits regardless of the time of death and includes a cash option if you cancel your policy.
- Universal life: Similar to wholelife, except that you have the option of changing your death benefits and premiums options.
- Variable universal life: This specific type of universal life insurance allows policyholders to invest the cash value amount of their policy into stocks, mutual funds, as well as other investment options. This type of insurance offers more financial gain, but also opens the policyholder to the risk of financial loss.
- Age: The older you are, the more you can expect to pay in life insurance premiums.
- Health and medical history: If you have a prior documented illness or are considered unhealthy (such as being a smoker), your policy is dramatically more expensive than that of a healthy policyholder.
- Income and occupation: The more income you make, the more you need to have in an insurance policy. This also applies to the specific type of occupation you have. For example, a person working in a dangerous field, such as commercial fishing or firefighting, pays more than someone involved in a non-dangerous field does.
- Number of dependents: The number of dependents in your family also contributes to your policy costs. The more dependents you have, the more coverage you need to provide optimal coverage.
Although a majority of the life insurance plans offer a cash value of the policy, most financial experts agree that it is best to keep your life insurance policy and investments separate. This is because life insurance policies are often subject to expensive commissions.
Updating your policy
Your life insurance policy, like every other major financial investment in your life, needs periodic review. For example, if your salary increases or one of your children reaches the age of 18, your policy needs updating to insure adequate protection.
Life insurance for students
Although students are not typical life insurance policyholders, in some cases it is a wise investment. Consider the skyrocketing costs of a college education. It is common for students to spend upwards of $15,000 a year on their education. If they attend college for four years, they can easily accumulate $60,000 in debt. If the student decides to continue their education such as attending graduate school, these costs can become even higher. In these cases, carrying some sort of life insurance such as a limited term life policy can help protect the student's family from unnecessary financial burden in the unfortunate event of the student's death or injury.