A General Overview of Life Insurance

Life insurance is typically bought to protect our families and ensure security when we pass away. As well as providing this financial safety net, life insurance can also be used for cash accumulation, wealth transfer, estate planning, and other investment purposes.

It is often difficult to determine what life insurance plans are most appropriate for you. The first step is to evaluate how much coverage you want and where your investment would best serve you. You must determine what kind of expenses will need to be covered by your dependents, from the costs of the funeral to debts you may have left behind. It is important to consider the standard of living that you would like for your survivors, and planning for their futures (such as college education for a child).

As time goes by, it is valuable to go over your life insurance policy to see if it is still appropriate for your needs. Evaluating your policy on a yearly basis ensures that as your life changes, as you make major purchases, have a child, etc., your insurance will change with you.

No matter what your station in life, there are plenty of reasons for you to consider purchasing life insurance. Buying life insurance at a young age can save you money, as rates increase with age and possible health risks. A single person with no dependents can still buy a plan to cover his or her medical expenses, funeral costs, and debts that they may have already incurred (such as a college loan). If you have children, whether you are single or married, it is important to plan for their education and their financial future in general. Marriage as well, can often lead to outstanding debts, such as those on a mortgage or a car. Remember that even a stay-at-home parent may want to purchase a policy to help cover child-rearing expenses should they pass away. A life insurance policy is even valuable to the elderly, who may want to leave more for their children and grandchildren, or ensure that they will not pass on debts.

When buying an insurance plan, you are faced with the choice of buying a term policy or a permanent life policy. Term life insurance provides benefit protection for a set duration of time, so if you are only looking for temporary coverage, this is the most appropriate option.

There are different types of term life coverage. Firstly, there is non-guaranteed term life insurance. This covers the insured for a short period of time, such as a year, and provides simply a death benefit. Another term option is annual renewable and convertible term life insurance. While the term life insurance in general presents an option to young people who cannot afford to purchase a permanent life plan, premium rates can escalate from year to year. Annual renewable policies are for longer terms (such as a decade or two) that can help you avoid these yearly price increases. Convertible term insurance is the same as annual renewable, however convertible insurance offers the option of changing your plan to a permanent life policy, say if the regular term premiums get too expensive due to old age or poor health. If you are young and cannot currently afford a whole life plan, but intend on purchasing one eventually, this is a good choice.

Some people, however, approach life insurance as a type of savings, a way to accumulate cash. In this case, permanent life insurance is the best plan. A whole life policy is one where the costs of your plan is averaged and spread out over the duration of your life. Your insurance company will then invest the excess money after you have paid your premiums. If you are concerned, however, about your financial stability in the future, this type of plan may be to restrictive. A universal life policy may be more appropriate.

The universal life policy gives you the option of changing the value of your death benefit. You also have the option of paying your premiums whenever you like, and however much you like, provided you do not miss a payment and provided your insurance company does not place restrictions on your advanced payments. It is also possible that your provider may require a medical check-up if you would like to increase the value of your death benefit.

The final option for permanent life insurance is variable life. This type of policy is based on investments, investments that your insurance company will make with your premium payments. It is thus very important to choose your insurance company wisely when selecting a variable life policy, as their investment decisions determine your benefits. Some variable policies allow your to place a minimum value on your death benefit, to protect you from completely losing your benefit to poor investment decisions. With a variable policy, you are also able to take out a loan based on the cash value of your plan. You can even cash in your plan, but this is a very expensive way to get the type of brief coverage better provided by a term policy.

Choosing what policy works best for you is still a complicated decision, and it is wise to consult your insurance agent as to what is the best plan for you. If you are most interested in purchasing a term policy, make sure that you know how long you can keep the policy and what are the conditions of renewal. You should also find out how often the premiums will increase, and whether or not your plan will allow you to convert it to a permanent policy down the road.

With a permanent policy, it is most important that you consult you budget and make sure that you will be able to keep up with the regular payments on your premium. You should also be aware of the value of your policy should you choose to surrender it. A permanent policy only makes sense if you actually intend to keep the same plan for the duration of your life.

For a wide selection of life insurance choices and quotes, check out www.getagreatrate.com.

©2004 The Lawrence Marketing Group

www.GetAGreatRate.com is an excellent source of information empowering people to compare and buy personal insurance products to meet their individual needs. GetAGreatRate offers online quotes for auto insurance, life insurance, home insurance, and health insurance.