Might You Be Interested In Why Life Insurance Is Important?
Do you know why life insurance is important? The answer is simple; life insurance is a security blanket for the family. During this financial crisis, some people are choosing to keep up payments on their life insurance even as they delay payments for their utility bills as a 60 Minutes program on Wilmington Ohio that was shown on December 20, 2009 has revealed. Your coverage lapses if you do not continue to make payments into your policy. In September 2009, it was reported that a new survey released by the nonprofit LIFE Foundation revealed that 56 percent of Americans said the economic downturn made it more important for them to have life insurance, as opposed to nine percent who felt their need had diminished. Of those who had, life insurance over 70% didn't change their coverage. But, of those who did, 39% increased coverage and 28% bought coverage for the first time. Those who added coverage, reasons cited was changing financial needs and feeling of being more financially vulnerable. 33 percent lost coverage due to job loss or a job change and fourteen percent cancelled their coverage, while 11 percent decreased their coverage. Over the past year, more people added to their coverage than ended or reduced it. This reaction repeats historical trends during recessions.
Different types of life insurance policies
Life insurance provides financial compensation when the person insured by it dies. The policy pays a prearranged amount to the beneficiary designated in the policy. There are four basic parties to a life insurance contract. The Insured is the person on whose life the policy is based. The Beneficiary is the recipient of the payment of the policy. The Owner of the policy is the one who has to make payment of the premiums; and is usually the insured, but may be the beneficiary instead. And then there is the Insurer, the insurance company issuing the policy. Traditionally, husbands and wives have had life insurance policies to protect their family and/or each other.
Life insurance policies are either term life or permanent life policies. The latter has some variations. The web offers a good resource for research on what is available. Rates are lowest if you are healthy and possess a healthy family history. Habits that can negatively impact your health, a risky profession, or sports that can endanger your health will be reasons for high premium rates. But, you can reduce your costs if you do some comparison shopping for which the web is your most efficient resource. What you should look for are policies that are cost effective, provide the term period you need, and are issued by companies that have a good credit rating. Keep in mind that the right term period for you is how long you need to be insured. Commonly you will need to undergo a medical exam.
Term Life Insurance Policy
A term life insurance policy is the least complicated and cheapest policy type available. The coverage it provides is limited to a certain term. Under it, the premium is guaranteed from its issuance for the fixed term. Such a policy can be renewable. Renewable policy premiums tend to increase since aging means potential for deteriorated age.
Permanent Life Policy
In this type of insurance coverage is for the full life term of the insured, not a fixed term. Some times people change from term life to permanent life to avoid having to renew the policy. If someone has a term policy with a convertible clause, which tends to cost more, it allows one to switch without need for a medical exam. If you get insurance through your work, some plans permits conversion, automatically if you leave the company. At the same time, it is worth noting convertible can work differently. The difference is in what type of policy you can convert to, what will be the premium cost and when is it convertible.
There are three types: a whole life policy, a variable life policy and a universal life policy. The whole life insurance policy has 2 parts. One part is the amount payable when insured party becomes deceased. But, the other part is the investment part. In this policy the premiums are invested and collect thereby a cash value. This is tax-deferred so long as you maintain your policy. You can also borrow against the cash accumulated without being taxed.
What you will need to be careful of is that you are not underinsured, because you limit coverage to what you can afford in such a policy. If you will be underinsured than you should get a more affordable term life policy. The variable life insurance policy is variable because it is tied to the stock market. Universal life insurance is one that can be renewable and thus allows you flexibility of changing it to fit your changing needs. Funds can also be moved between the insurance and investment components. Premiums can also be paid from the interest part of the policy.
Cancellation charges can take a major bite out of cash value. Tax-free accumulation of cash can be less competitive than other options that are cheaper and more profitable today than such insurance policies.
Some can borrow to make premium payments
Plans allowing financing of premium payment borrowing to make these payments when due; and are available if you have assets over a certain threshold amount. When the insurance payment is finally due the beneficiary, a portion of the payment from the insurer can be used to pay off the loan; if it is not already paid earlier. This method can offer other financial benefits as well. A life insurance trust can avoid estate tax payment when due.
Life insurance policies should be reviewed by the insured
As your needs can alter over time, it is important to ensure your policy matches your needs. Parenthood or need to look after parents might mean you need to increase the coverage amount of your policy. On the other hand, if you have less people relying on you, you might need to reduce your coverage amount. As people can get life insurance from different sources, they need to also keep track of what they have. As life insurance policies available in the market can add new features, you might want to change your policy for a more appealing one. You might also need to change it to change your intended beneficiary or to make it part of your financial planning to reduce taxes or increase savings. Keep in mind that it is easier to change when you are younger as declining health when you are older can raise your insurance costs or even lead to refusal of coverage by the insurance company. If you want a mortgage insurance policies, which pay off the balance on your mortgage if you die, consider the mortgage payments in your calculations when determining how much coverage you need.
by: Rebecca Fuller