If you’re looking for a life insurance policy for the first time, then the options can be confusing. There’s a choice of whole and term life insurance and then level, decreasing or increasing term cover. If you’re considering a term life insurance policy then what are the advantages and disadvantages of the different options?
Term life insurance is a cheaper option than a whole life policy. It will cover you for a specified period of time and will pay out a certain lump sum if you die within the period. They each have their own benefits or weaknesses depending on your situation.
Level term insurance
These policies will pay out the same if you die at any point during the term of the cover. It`s beneficial for people who need to cover the payments on an interest-only mortgage and maintain the family`s living standards should they die. However, if you`re just looking to pay off a mortgage, which will decrease during the policy`s term, then it`s a more expensive option.
The main disadvantages are that if you don`t die during the policy you won`t receive any payout. Also, the amount that is paid out will not increase over time, even though the cost of living will steadily increase. Therefore, an amount that you think is suitable at the start of the policy may be inadequate further down the line.
Decreasing term insurance
Like level term insurance, the premiums on these policies will stay the same throughout the time period. However, the amount that is paid out in the event of death will decrease, making premiums cheaper. A decreasing term policy is designed to cover an outstanding mortgage, so you need to ensure it will always be sufficient.
As with level term cover, one of the disadvantages is that they don`t payout if you don`t die before the end of the period. You will also pay the same premiums throughout the life of the policy, even though, as it nears the end, your family will receive little benefit should you die. You should consider whether your family would also need help with their living costs.
Increasing term insurance
One of the most expensive forms of term life insurance is an increasing policy, where the payouts will rise. These are a good option for people who take out cover at a young age when they can’t afford high premiums.
As their financial situation improves they can increase their payments and therefore the death benefits. When people first take out policies they don’t consider that their cost of living will increase and their payout may not necessarily take this into account.
Increasing your cover will also help to offset the rise in inflation. Increasing insurance policies can either be traditional, where they increase by a certain rate on the anniversary, or they can be index-linked which will rise based on either GDP or the Retail Price Index.
There are disadvantages though, as if something happens to you in the first few years of the policy when the payouts are smaller, you may not be adequately covered. As with other term insurance policies, if you don`t die during the period you will not receive any payouts and will need to consider other insurance options.
Life insurance is something that you should research thoroughly and seriously consider `how much life cover should I have` before taking out a policy. Term policies are one of the cheapest options but make sure you take into account the advantages and disadvantages of each, together with your financial situation and requirements.
Tackling the Myths Behind Life Insurance Coverage
Myths are fun to read about in history books or fantasy novels, but they’re no fun when it comes to life insurance. Along with home and health insurance, life insurance coverage is an important part of your financial plan, but it’s sometimes confusing to deal with. This often drives people to forgo life insurance coverage – some 40 percent of Americans lack coverage, according to J.D. Power.
Many people have misunderstandings about their coverage, often resulting in decisions that could place them and their families at financial risk. Financial stability is a concern for aging adults. Many policies ensure financial flexibility with a reliable retirement plan or annuity, but if you need cash, you can also sell your structured settlement. Understanding the truth behind some of the most common life insurance myths can help you make the right choices about your coverage.
Myth #1: Life insurance is too expensive
Many people assume that life insurance is an expensive affair that they would be better off without, financially speaking. However, the vast majority of life insurance policies are actually cheaper than you think. For instance, Nationally-known life insurance company State Farm offers $250,000 of 20-year term coverage for less than $15 per month or $175 per annum.
There are life agencies that can offer you a free helpful mobile app that provides up-to-date life insurance quotes from over 100 different carriers. Available for Apple and Android devices, Mobile Life Insurance Quotes offers customizable quote results with policy fees included for all 50 states.
Myth #2: You don’t need life insurance if you’re single and young
Anything can happen in life, even if you’re young and single. If something does happen, you should have at least enough life insurance to cover medical expenses, funeral expenses, and personal debts. Otherwise, you might end up leaving behind unpaid debts for your family or executor to worry about.
Myth #3: You don’t need a separate life insurance policy if you have gone through your job
It’s great to have life insurance through your employer. However, if you decide to change jobs, don’t have enough qualifying work hours, decide to retire, or end up losing your job altogether, you’ll also lose your coverage. Having a separate life insurance policy allows you to keep your coverage no matter where you go. If you’re still interested in keeping your employer’s coverage, there’s always COBRA. An
according to information gathered by eHealthInsurance, COBRA coverage lets you continue your employer-sponsored insurance, although you may end up covering up to 102 percent of the monthly premium.
Myth #4: You’ll only benefit from life insurance if you have kids
Not so fast – life insurance comes in handy if you’re married and your spouse depends on you for support, or if you’re taking care of your parents, grandparents, or other dependents besides your children. Not only will you be able to leave behind enough to have your spouse and dependents taken care of, but your own expenses will be taken care of, as well.
Myth #5: There’s no real difference between life insurance policies
Contrary to popular belief, there are a few distinct differences between common life insurance policies. As USA.gov explains, term life policies are designed to last for a finite period of time, usually ending sometime before you pass away. Term policies are cheaper, but they have no cash value if you cease payment on your policy.
Permanent life insurance, on the other hand, lasts until the day you die. The policies also feature a tax-privileged savings component, meaning that a portion of your premium is set aside for you to use in the future, according to Forbes. Permanent policies usually cost more than term life insurance.