Life Insurance Explained: The Different Types Of Policies Available
Purchasing life insurance is perhaps not as glamorous as buying any other kind of commodity
. However, any financial planner will advise you that it is one of the single most important fiscal decisions you can make. In simplest terms, a life insurance policy guarantees that an insurer pays an agreed upon sum of money to a client's loved ones, in the case of the client's death. Of course, there are different kinds of policies available. Depending on the financial situation of the client, a skilled planner may suggest different policies at different stages in life.Term life insurance is perhaps the most bare-bones model available. It stipulates a face amount that is payable at death; it also outlines the amount of the premiums the insured pays and the amount of time (or term) for which the contract is good. At the end of the term, the policy also ends. Permanent insurance carries on the contract until the insured dies, fails to pay the premium or surrenders the policy for cash. Payments get more expensive the older the client gets; after all, insuring an octogenarian is a lot riskier than insuring a 30-something person in her prime.
Under the permanent life insurance umbrella, there are a number of options open to a client. For example, a whole life policy carries a guaranteed death benefit and cash value, while also offering frequently stable policy premiums. Since it is possible to borrow against the policy, it is a favorite fiscal vehicle for young families. Limited-pay policies are excellent for individuals who foresee paying into the plan all of the premiums within a specified period of time, such as 10 or 20 years. Since premiums can be significantly higher, this is frequently not an option selected by those just starting their careers.
Other types of policies, like universal and annuities, are also popular options. These policies are complex, and best discussed with a financial planner or other expert.
Policy add-ons and limitations serve to custom-tailor a policy to an insured's unique circumstance and also take into account uncommon risk factors or occupational hazards. For instance, the use of an accidental death option greatly limits the payout duty of the company - old age or suicide are not covered - but protects someone who is sufficiently young and healthy to be unlikely to die from a disease and whose mortality may be far more at risk due to an accident. Yet even there the fine print may prevail and participating in a risky activity - such as car racing - may protect the insurance company against the duty of paying out.
It is obvious that buying life insurance is no small decision. It has far reaching consequences for the beneficiaries but also places fiscal liabilities on the insured. Consulting with an experienced financial planner is important, as they have the ability to take a client's entire fiscal picture into consideration prior to making a recommendation. Ensure that your buying decision is a sound one and rely on the services of a professional to offer advice. Remember also that frequent reviews of your overall fiscal situation may result in the need to switch policies to better serve your needs and those of the beneficiaries.
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