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Life Insurance

Life insurance is another type of insurance that many people purchase at some time in their lives. They most often think about this insurance when they have a spouse or children that need to be taken care of if something should happen to them. There are several types of life insurance policies to choose from, depending on your situation.

Within each of these categories are multiple options for payments and payouts. With whole life insurance, you make payments up to a certain age or number of years. Once it is paid, you can receive the cash value of the policy. Many people appreciate having the extra money when they are living on a fixed income. However, insurance policies pay a low return so it might be more beneficial to invest in other ways.

Term life insurance is set up for a specific number of years where you make your monthly premium payments and then the policy expires. There is no cash value payout or any other payment for this type of insurance. The benefit to buying this policy is that the payments are often lower than other types of life insurance, which allows people with lower incomes to have a life insurance policy for their family.

Term life is the ideal choice if you only want insurance until your children reach adulthood and want to make sure they have a good income if you are not around to provide. You can get a large policy for a fraction of what you would pay for a smaller policy with whole life. This makes it affordable for a wide range of people.

Return on premium term life insurance is relatively new, but it has the benefits of both whole life and term life. You pay premiums for a specific number of years and then receive those premiums in one lump payment at the end of the term. You do not make any extra money, but you get back what you paid into the policy.

This type of term life insurance has higher premiums than regular term life, but they are lower than whole life premiums. It is a good option for someone that wants to maintain a policy for a limited time with no concern for a return on their investment.

Limited pay life insurance is a mixture of whole life and term life insurance. You pay premiums for a specific amount of time like with term. However, the policy is yours to keep, which is more like whole life.

Universal life is very similar to whole life, except that the cash value can change. With whole life, the insured is guaranteed the cash value as long as they pay the premiums. With universal life, the policy can lapse if the value falls below the premium cost. The benefit with this type of insurance is that the benefits can be adjusted throughout the life of the policy with certain limitations.

When choosing a type of life insurance policy, you have many considerations to know which one will work best for your situation. You need to answer some basic questions that will help determine the best policy.

  1. Do you have a spouse and/or children to provide for? Term life insurance can give you a large payout for a decent premium.
  2. Do you have a mortgage that would need to be paid? Would your spouse need help to provide for the children?
  3. Do you want something to pay for final expenses or provide extra income after retirement? Whole life will provide additional cash when you no longer have a job for income.
  4. Are your needs likely to change over time?

Once you answer these questions, you will have some information for an insurance provider to work with. Along with this information, how much you can afford on premiums will be a primary deciding factor in the type of insurance you purchase.

To know how much you will need on your policy, figure up the loss of income and what expenses would have to be paid. This can include a mortgage, car loan, tuition for college, and any other expenses that the life insurance would be used for. Calculate in your final expenses as part of the costs. Insurance agents will add in the cost of inflation to make sure your money will pay for everything ten or twenty years from now.

Next Section: Disability Insurance

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