Buying life insurance for the first time can be a little overwhelming. The process is a little easier if you understand some of the fundamentals of the two different kinds of life insurance: Whole life and term life. Each type has benefits and drawbacks depending on your age, health, and the amount of insurance you need.
It is important to understand what insurance is and what it is not. The first thing to remember is that life insurance policies are not good candidates for investment. You will do much better to put money into a managed investment. Most life insurance policies have set payout rates that do not change over time. If you want to increase your savings, buy into a retirement fund or a high yield savings account so that you can begin to accrue interest right away. These funds also allow you to make withdrawals after a certain number of years, which you can’t do with a life insurance policy.
Just like a retirement fund, life insurance works best the younger you are when you first buy your policy. Younger individuals have fewer health problems that can cause the life insurance rates to be higher. A younger person will also pay into the life insurance policy for a longer amount of time before the policy will be required to pay out. That means that you can spread your total payments out over a longer period so that each payment is lower than it would be if you were older.
A term life policy is purchased for a specific amount of time. You can choose to buy life insurance for 10 years or for 30 years, whichever fits your needs the best. Rates are generally lower for term life policies because they have a definite ending point. Whole life policies are open ended. When you buy a whole life policy, the policy remains open until you die. Whole life policies are generally much more expensive because there is no real way to determine when the policy may end. A whole life policy is also more expensive because you generally make payments for a longer period than you would for a term life policy.
Insurance agents may care about your life insurance needs, but they also care about their need to support themselves. Most insurance agents work strictly on a commission basis, which means that they only make money when they sell policies. In most cases, whole life policies bring in much larger commissions than term life policies. An insurance agent may try to talk you into a whole life policy regardless of your practical insurance needs. The best thing you can do is research the difference between the two types of policies and decide which you really want before you talk to an agent.
Most economists will advise their clients to purchase enough insurance to cover at least five years of your budget without a salary. Some economists recommend that you hold enough insurance to cover as many as seven years of salary. Your particular situation will determine how much you really need. The purpose of life insurance is to provide a financial safety net for your dependents when you die. If your spouse pays the majority of the bills right now, you will not need to purchase as much insurance. If you have children who would need support after your death, you may want to purchase a larger amount of insurance.
The amount of insurance you purchase depends on the financial impact your death would create for your dependents. If you have children, you may want to purchase a policy that will cover you until your kids are old enough to move out and support themselves. If you are the sole breadwinner for your household, you may need to purchase a policy that covers you until you retire. You should not look at an insurance policy as a retirement fund for your spouse since you can’t determine when the policy will pay out. You should also keep in mind that an insurance policy that covers you as you reach retirement age would be more expensive than one that ends before you become a senior citizen.
People who are in better health generally pay lower insurance rates. Life insurance premiums are determined based on the risk that you will die and the policy will need to be paid off. If you are in poor health, you will pay higher premiums because you have a higher risk of dying while the policy is intact. This is another reason that younger individuals pay less for life insurance than older individuals pay.
Modern technology has made it easier than ever to shop for an insurance policy. You can log onto several different insurance quote sites where you will be able to fill out a simple form and receive life insurance quotes from many different insurance companies. Shopping online gives you the opportunity to read about the different aspects of the policies offered by different companies in the comfort of your own home without any pressure from an agent. When you can take your time and compare policies directly, you will have a better chance of making a choice that is best for you.
It can be tempting to gloss over some of the things that might make your policy premiums higher. Avoid the temptation. Life insurance companies usually find out about hidden health problems or other things you left out of your insurance application eventually. If you were less than truthful with your life insurance company, your family may have serious trouble drawing from the insurance policy pay out in the event of your death. Be as honest as possible so that the policy will be as secure as possible.