Life insurance is an essential financial tool to ensure the financial well-being of your loved ones in the event of your demise. There are various types of life insurance policies available, and the right one for you depends on your needs, goals, financial situation, and life stage. Here’s a brief overview of the main types of life insurance and their best applications:
Different Insurance Types
There is a level term contract which lasts a pre-agreed amount of years, and if you die it will pay out a preset amount. The contract can cover a mortgage or provide money for the person’s dependants. This would be best for those people who have a mortgage and have many dependants.
Another contract is decreasing term, which is used for mortgages, but it decreases over time due to the mortgage cost decreasing over time. This is best for individuals who need a covered mortgage and their dependents can rely on their own work and life for their money.
Family income benefit contract is similar to the decreasing term, however, it instead, pays out a regular income rather than a single large sum. With this, you can make sure your family does not worry about diversifying their standard of living. This contract is best for people who need money for struggling dependants, as the individual is the main provider.
Term Life Insurance
Description: Provides coverage for a specific term, typically 10, 20, or 30 years. If the insured passes away during this term, the death benefit is paid to beneficiaries. There’s no benefit if the insured outlives the term.
Best For: People who need coverage for a specific period. This might be the years until children are independent, or a mortgage is paid off.
Whole Life Insurance (Permanent)
Description: Offers lifelong coverage with an added savings component, building cash value over time. The policy pays a death benefit whenever the insured passes away.
Best For: Those looking for lifelong coverage or an additional savings or investment tool.
Universal Life Insurance
Description: A type of permanent insurance that offers flexibility in premium payments and death benefits. It also has a savings component that earns interest.
Best For: People seeking flexibility in their policy and potentially higher cash value accumulation than whole life insurance.
Variable Life Insurance
Description: A permanent policy with an investment component. The cash value is invested in various sub-accounts, similar to mutual funds, allowing for potential growth.
Best For: Individuals comfortable with investment risk and looking for potential for higher returns.
Final Expense Insurance
Description: Specifically designed to cover funeral and burial costs. It’s a type of whole life insurance but with smaller benefit amounts.
Best For: Older adults seeking to ease the financial burden of end-of-life expenses on their families.
Factors to Consider When Choosing Life Insurance:
- Financial Needs: Assess the financial needs of your dependents. Consider current expenses, future obligations (e.g., children’s education), debts, and your spouse’s earning capacity.
- Duration of Need: Determine how many years your family might need support. If it’s only until your mortgage is paid off or your children are grown, term insurance might suffice.
- Budget: Premium costs vary widely between term and permanent policies. Ensure your choice fits comfortably within your budget.
- Investment Component: If you’re interested in an investment component, look at permanent policies with cash value components, like whole, universal, or variable life.
- Flexibility: If you want the ability to adjust premiums or death benefits, consider universal life insurance.
It is a contract that pays a certain sum of money to your dependants if you die inside of the contract terms. This money can be used to pay off debts and pay for the funeral.
Why Get Insurance?
There are many reasons to get a life covering contract. One of these is to pay off a mortgage, this can be a hefty price and it is always good to not have to worry, or spend pension money on it. You may want children expenses covered if you’re children still live at home, or need to pay for university.
Whole Of Life Contract
This ensures the dependants get a payout for the dependants, no matter when the person dies. Because of this, the contract is usually more costly than the other insurances. This contract is great for those who have dependents who would suffer financially if the person died.
Choosing the right life insurance policy is a significant decision that requires careful consideration of your current and future financial situation and goals. It might be beneficial to consult with a financial planner or insurance professional to ensure you make the best choice for your unique circumstances.