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Life Insurance — Who needs coverage, and what type coverage is needed

Life insurance can be a very important element in making sure your financial house is in order. Life Insurance decisions are usually easier for the consumer to understand, but there are some important factors to take into account.

Life Insurance comes in two basic flavors—term and whole life (or permanent). Term insurance is the least expensive and usually only has a single function, paying a predetermined death benefit. Rates for Term Insurance, when compared to whole life insurance, are quite low. The younger the insured is when the policy is written, the lower the premium will normally be. The rate for Term Insurance is based on a set of factors such as age, sex, smoking habits, and several other factors predictive of the length insured’s longevity. There are two general types of term insurance. Level term provides a benefit that remains constant throughout the life of the policy. Decreasing term lowers the benefit each year of the term. Decreasing term insurance has lower premiums and is commonly used as mortgage insurance. A decreasing term policy can be written so that the end of the year benefit value matches what’s still owed on the mortgage; if the insured dies, the benefit settles the mortgage.

Whole life insurance pays the benefit in full when the holder dies as long as the policy remains in force. Whole life possesses a savings plan component. Whole life also has some subcategories: Traditional, universal and variable universal. Explaining the differences in these variations on Whole life insurance is beyond the scope of this summary. In general, all WholelLife policies accumulate a cash-value while providing a death benefit. The variable and universal subcategories of these policies offer the insured the opportunity to select investments for the cash-value that may bring higher returns. These options are paid for in the form of higher premiums.

Generally speaking term insurance is a great option for breadwinners who want maximum death benefit protection at a relatively low price. When term policies expire, they have no cash-value or continuing benefits. Whole life policies will provide death benefits with the added benefit of helping the insured accumulate a savings nest egg.