Life insurance is a cover that seeks to cushion your family member, next of kin, and dependents from the cost and hardships that might arise in case you die. There are two principal types of life insurance. There are;
- Term insurance
- Permanent/Whole life insurance
We are going to explore the two types of protection above and help you understand which one is best for you.
Term insurance is a simple structure of life insurance, where you are next of kin will get compensated if you die at any point during the policy term. The policy term can be anywhere between one and thirty years. Term insurance does not provide any other benefits. The policy expires when its mandate expires. The policy does not have any advantages when the term expires. The premiums for such a policy are usually quite low.
There are two types of term life insurance. They are;
- Level term
- Decreasing term
In a standard term policy, the benefit of the policy in case of death remains the same during the entire duration. In the unfortunate event that you pass away during the first year, your next of kin will get the equal compensation you would get if you pass away in the last year.
In decreasing term policy, as the name suggests, the benefits drop as the term progresses. The drop is periodic, usually every year. Most people prefer to go for level term policies.
Permanent/Whole Life Insurance
Whole life insurance coverage lasts for your entire life. Your death will be compensated even if you die at 100. There are many variations of full life insurance. Different insurance companies have different varieties of permanent insurance. They use the extra benefits to try and entice people to pick up the insurance policies.
Usually, the premiums rise as one ages because of the risk of death increases. The cost of insurance premiums for older adults can be quite high. You might wonder, won’t the insurance companies collect a lot of money over the years? Won’t they receive more payment than they will probably use to compensate your death if you live too long? That’s true. However, to control that, there are regulations in place that require the companies to make a cash value available to the policyholder if they desire to exit the policy and the principles they’ve paid cumulatively goes above a certain point.
More and more insurance companies are nowadays offering cash value benefits at various points of the life insurance policy. For instance, you can get a specific cash value after paying premiums for five years, and you need to exit the plan. However, you will not be given an amount equivalent to the entire cumulative total of the premiums you have been paying.
Life insurance is an excellent way of cushioning your loved ones from the financial shock that they’d suffer if you died. Take time to explore different insurance companies and find out what kinds of life insurance policies they offer.