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.

Home Purchase with Seller Financing

Due to the demise of many marginal mortgage lenders, many feel that there would not be any possible way for them to fulfill the dream of home ownership. You may, however, explore a few other alternative ways. We recently discussed how you may explore the possibility of renting a home to buy. Today we discuss another possibility -- that of seeking financing from the seller so that he/she can carry the loan for a limited period of time.

It is possible to find such homeowners through Multiple Listing Service (MLS) but your own choices could be limited. So, do your homework first.

First step is to obtain your FICO credit score (read our past postings on 'credit') because you would want to show the potential seller that you are qualified. If your FICO score is under 670, try to clear that up to bring the score as much above that as possible. Remember, you need to do that anyway even if you were to obtain a loan from a conventional lender.

Next, have a look at your future income and ascertain how much of monthly payments you can make keeping your other payments aside (like car, credit card etc). It should never exceed one-third of your monthly income (more preferably, of your take-home income).

When you are armed with these two information, you are already a much better buyer and the seller could find more confidence in working with you. Still it would not be easy, so don't expect miracles to happen.

A home seller that would be willing to carry a loan generally would ask for slightly higher interest rate than what could be obtained from a conventional lender. On average, a seller may carry a loan for 5 years, amortized over 15 years. So, when the monthly payment is figured, it would appear as if the loan was to be for 15 years, but there would be a balloon payment at the end of 5th year when the loan is actually due to be paid in full.

So, no matter what, even if you manage to find a seller financing, start saving immediately to accumulate a down payment so that you can qualify to obtain a loan from a conventional lender.