Essential Life Insurance Questions
Do I need life insurance and if so, how much?
Whether you require life insurance will depend greatly upon your personal circumstance. It is important not to get fooled by insurance sales people who will often call and offer a "promotional deal" for their "valued clients". Now, do not get me wrong, if you feel you require life insurance and a good deal presents itself, you should seriously consider it, but do your homework before you sign up. If you are the main provider or if your dependents rely on your income, then it is a good idea to get life insurance. As a general rule of thumb, you should get cover for approximately ten times your annual salary. In the event of your early demise, those funds will keep your family and loved ones financially secure and provide for their future education, housing and other day-to-day expenses.
What type of policy should I buy?
There are many life insurance options to choose from and these choices may be intimating to the first time buyer. The most important things to consider are your age, lifestyle, hereditary conditions and available funds to invest in life insurance.
Whole Life
Whole life insurance is a more traditional life insurance policy, also known as a straight life insurance policy. A fixed premium is paid for the duration of the insureds life. This policy will pay out in the event of death, contracting a dread disease, such as HIV/AIDS or Cancer and in the event of becoming disabled in an accident.
Variable Life
A variable life policy has a death benefit and also an investment benefit. A cash value is attached to your policy and you may choose to invest those funds in investment accounts. Variables such as the exchange rate and interest rates will influence your options and returns.
Universal Life
Universal life insurance is the most flexible option when choosing life insurance. You may choose to increase or decrease your cover and premiums at any time. This option also has a death benefit with a cash value. Although the flexibility of such a policy may seem very attractive, the attached administrative fees are high. Due to this, a universal life policy will not be for everyone.
Term Life
Term life insurance is probably the most cost effective policy that is available today. These policies are usually part of an employment benefit where you are covered by your employers group life insurance plan. It is called a term life policy because cover will lapse if you change jobs. Sometimes, you may receive a portion of your premiums back in cash after you change employers.
If, for instance, you are a young, healthy husband with no family history of heart disease, with no children and earning a modest salary, your life insurance needs will be vastly different to that of an older woman who has a family history of cancer, has children and earns a high income. The young husband carries a significantly lower risk and has less disposable income, therefore a variable life or term life policy may be better suited for him. The lady in the latter example would be wiser to consider a whole life or policy which offers more cover, but costs more.
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