Life insurance pays a pre-determined benefit to survivors upon the death of the policy holder. When purchasing life insurance, people have a choice between term life insurance and some variations on a whole life policy. Term policies tend to be cheaper, but they do not accrue any cash value. If they remain unused, then the premiums paid are not refunded back to the policy holder. Whole life policies tend to be more expensive, but they do accrue cash value that policy holders can use in certain situations.
Term life insurance provides a death benefit for survivors if a person dies within a contracted period. For instance, if a person purchases a 20-year term life insurance policy and passes away during that 20-year period, then survivors will receive a death benefit. Term insurance is recommended for people under 40 years of age who do not have a heredity that suggests they may develop a life-threatening illness.
Whole life insurance lasts until the death of the policy holder, and the premiums stay the same until the policy reaches face value. With basic whole life coverage, policy holders have no control over how the cash value of their policy is invested. In contrast, variable life allows policy holders to choose investments, and their cash value varies according to the performance of the chosen investments. Universal life comes with higher administrative fees, but policy holders can vary both their premiums and their death benefits to suit their financial situations.
The Insurance Information Institute reports that only one-third of all Americans own individual life insurance policies. To save money on life insurance, people should consider purchasing multiple policies, including auto and homeowner’s, from the same insurer. Also, applying as part of a group, such as a union, may result in discounts. Since the cost of insurance is based on life expectancy, people who are overweight, people who smoke or people with dangerous jobs or hobbies will pay more for life insurance. As with all insurance policies, having a better credit score will likely result in lower premiums. When comparing quotes, people should consider not only the quoted price but also the level of coverage provided for that price.
People who have no dependents and who have no one who depends on their incomes may not need life insurance. However, for people who have dependents or people who support others with their incomes, life insurance is a non-negotiable part of a sound financial plan. As a rule of thumb, people should purchase coverage equal to five to ten times their annual salary.
According to the National Funeral Director’s Association, the average cost for a funeral in the U.S. is $6,560. The cost of a funeral, however, pales in comparison to the loss of the wages that the person would have earned during their lifetime. In addition, certain major expenses, such as the cost of a college education for dependents, will have to be paid without the deceased person’s income. For most people, especially for people with families, purchasing life insurance coverage is a crucial part of a sound financial plan.
Resources:
http://www.lifehappens.org/life-insurance/
http://insurance.illinois.gov/Life_Annuities/Life_Annuities.asp
