Life Insurance: A View
Life insurance is a policy where you insure your life, so that your loved ones do not face financial crisis when you are no longer around. In case of the individual’s death or terminal illness, the insurer is supposed to pay the nominated recipient, a sum of money. Life insurance can be for different time periods. There are short-term as well as long-term policies, and you can decide on the policy you want, based on your preferences.
Need For Life Insurance
The different choices in life insurance policies are perplexing. There are numerous things to be kept in mind before going for a life insurance. You don’t need insurance if you have no dependents. Life insurance becomes extremely important if you are supporting your family, paying bills and looking after the children’s expenses, as in the event of your death these duties will be covered by the life insurance made by you.
Amount of Life Insurance: There is no specific rule for the amount to be invested in life insurance as it depends on your supply of revenue, people dependent on you, debts you have, the lifestyle you follow. It is normally suggested to be approximately 5-10 times your yearly income.
Types of Policies to Go For: Life Insurance is divided into:
- Term
- Universal
- Whole Life
- Endowment
Term Insurance: Insurance provided for a particular duration of years for a specific premium. This policy does not amass cash value. Term insurance offers coverage at fixed rates, during the fixed course of time. It is recommended that people below 40 years having chances of a terminal illness should opt for term insurance.
Permanent Life Insurance: This is the life insurance that remains active till the policy pays out, unless you fail to pay your premiums. Apart from fraud in the application, the policy cannot be terminated by the insurer. This insurance puts up a cash value. The policy holder can have the money in cash by withdrawing it, have it as a loan or after surrendering the policy, claim the surrender value.
Types of Permanent Insurance:
- Whole Life
- Universal
- Limited Pay
- Endowment
Whole Life: Here the premium remains constant till your death. There is a built up cash reserve, but the investment type is not under your control.
Universal: Premium amount can be changed by using part of your gathered pay to cover part of the premium charge. Also by paying higher administrative fees, sum of death benefit too can be changed.
Limited: Premiums here are to be paid over a designated time period like 10-yrs, 20-yrs up to 65 yrs of age.
Endowments: Here the death benefit at a certain age equals the cash value in the policy. The age it starts is known as the endowment age. To summarize, before zeroing on to any life insurance policy, always educate yourself about its basics (using online help), then a trusted broker should be looked for, and finally you should go for the policy recommended by him.