Life Insurance: Different Types
Life Insurance is an essential part of our life but many of us are completely unaware of its pros and cons. Many consumers pay their premiums and feel secure but do not find time to check exactly what kind is most suitable for their individual conditions and what benefits they are entitled for. We are presenting here some basic facts about most common types of Life insurance.
There are two basic types of life insurance. Term insurance protects you for a limited, specified period of time, while permanent insurance combines a death benefit (the proceeds the beneficiary of a life insurance policy receives upon the death of the insured) with a savings component. Especially during your younger years, term insurance generally offers the higest death benefit for the premium. It also allows you to convert your coverage into payment insurance during what's known as the conversion period.
Permanent insurance comes in various forms, including whole life (also known as ordinary life), universal life, variable universal life and several kinds of survivorship life. All of these policies combine a death benefit with an accessible savings, or cash value, component that you can use for a variety of financial goals. Because permanent insurance is designed to provide lifelong coverage, it usually requires higher initial premium than do term contracts for the same amount of coverage.
Here we discuss 2 different types of Term Insurance:
Annual Renewable Term: These policies provide a level death benefit you can renew each year (until about age 80) without a medical exam. Annual renewable term insurance is best suited for people with short-term coverage needs because the premium generally increases each policy anniversary. Despite this, annual renewable term is normally the most affordable type of life insurance.
Level Term: These types of policies provide a level death benefit, and may be suitable if you have a young family and need affordible protection over a set number of years. Unlike annual renewable term, where premiums increase annually, level term premiums remain the same throughout the level premium period. Typical terms periods include 5, 10, 15, 20 and 30 years.
Frequently, both permanent and term life policies offer an accelerated benefits option that enables you to receive your death benefit early if you become terminally ill, and a waiver of premium rider, available at an additional cost, which automatically pays your premium if you become totally disabled. (certain restriction apply to both of these options).
We will elaborate more on different types of permanent insurance in a future posting.
Labels: insurance
posted by Igloo @ 11:05 PM
3 Comments:
Annual Renewable Term isn't the best and consumers should be cautious of it because after the first year the premiums sky rocket. Be sure to shop around and check out individual level term life insurance policies which are usually priced the best and come in 10, 20 or 30 year terms.
Yes, I agree with Byron.
Level term life insurance does offer a more affordable option, when compared to annual renewable term.
Also, in 2003, about 97% of term life insurance policies purchased in the USA were level term life insurance.
Level term offers you premiums and coverage that remain the same for up to 30 years.
Make sure to learn about term life insurance before choosing a plan, and compare rates from several insurers.
It may very well be the topic of one of your future posts but let me add that there are two types of insurance plans, Term Insurance and Permanent Insurance. The former has a lower initial cost; but the premiums only stay the same for a particular term - it's usually 10 or 20 years. You have to be careful, because after the term ends the cost increases in a dramatic fashion, and if you don't renew it your coverage ends and your premiums are gone. Initial premiums for a Permanent Insurance are higher than Term Insurance but your cost remains the same. If you choose this product, you have coverage for your lifetime and depending on the plan it may also generate a cash value.
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