One day your current financial needs such as saving for your child’s future college tuition fees, or saving up money for any sort of emergencies will be talked of yesterday, and overtime newer needs and ambitions for life would develop and grow. You may wish to start a business with the years of money you collected through your job. However, with so many uncertainties and unexpected financial risks lingering around in one’s life, they need to consider a product that could help them ensure that their years of savings are insured for an unforeseen future.
Your life insurance helps you and your family secure all your financial savings and assets for multiple purposes and not just for the time when you’re gone. Life insurance is your personal financial product that is designed by insurance companies that will furnish a measure of protection and ensure that all your savings are secured for you and your beneficiaries in case an unforeseen event takes place and your ability to generate income is stopped. Therefore, by the contract in a life insurance policy, the beneficiaries of the insurance holder are guaranteed payments by the insurance companies should an unexpected event happen in your life. Although life insurance policy is primarily for the moment in time when one is gone and wishes to secure a future for their beneficiaries who are dependent on them, when used in conjunction with other policies, it can prove to be an even great insurance package.
Now, one may ask themselves why they need different policies along with the one life insurance. The answer to this is, with time your needs and goals may greatly transition, and it becomes questionable if one policy could help you support all your newer needs. So, with time you might look for other options and greater coverage. Moreover, the law does at no point in your life bound you to one insurance policy. However, you must ensure that the total demanded benefits of all your insurance policies do not exceed your income level.
Many insurance policies could benefit you and similarly your beneficiaries for a lifetime. But it is indispensable for the insurance holder to choose the right insurance type due to declining need overtime when you are near retirement. Following are some of the insurance options that may prove to be the most useful over time:
Permanent Life Insurance
This type of life insurance policy provides your beneficiaries, or people reliant upon you to generate income. The benefits that are rewarded in a permanent life insurance policy are cash value components, and secondly, they come in the shape of death benefits after the policyholder has died.
In the cash component there the policyholder has the option of accessing your savings when they are alive. The payments that you make to the insurer gradually accumulate and are known as premiums. Therefore, the policyholder can acquire a loan against the cash value in the unfortunate event that you’re diagnosed with a terminal illness.
The beneficiaries can get the death benefits either as a lump-sum payment or they can be divided as a series of payments like pension or annuity. The holder must specify at the time of acquiring the insurance how they want their death benefits payment to be delivered. These payments are totally subject-free to any tax-rate.
Following are a few different variations of permanent life insurance:
- Universal Life insurance (ULI)
This is similar in nature to term life insurance in that it has lower premium rates. Universal life insurance has the option of flexible premium/payments. Once you think you have accumulated a significant amount of cash value component, in this permanent life insurance you can reduce the number of premiums and you can also increase the death benefit. However, it is important to point out that universal life insurance requires fixed premiums.
- Variable universal life insurance (VLI)
As opposed to a whole life policy, in its variable version, the cash value component premiums and the death benefits can vary and are adjustable. The biggest benefit of variable life insurance is that it provides a range of investment options through which the policyholder can increase their cash value. However, with investment options, there is always the element of risk involved which can significantly reduce both death benefits and cash value.
- Indexed Universal Life insurance
In this version of universal life insurance, the interest rate on the cash value of your policy is not fixed and constant. This
- Whole life insurance
This is a type of permanent life insurance in which the cash value component premiums and death benefits remain constant for the whole length of the insurance policy, additionally here the rate of return is fixed and guaranteed by the insurer. And therefore, there will be a minimum rate of interest on the overall cash value component.
Term Life insurance
This is sometimes also referred to as a pure life insurance policy that ensures the policyholder of the insurance coverage and its death benefits to their beneficiaries within a specified term or passage of time. When this term is concluded it can then be renewed by the recipient. Policyholders also have the choice of converting term life insurance to permanent life insurance.
Unlike a universal life insurance policy, the term life insurance only furnishes death benefits, and there is no cash value component. Premiums of the term life insurance and firstly determined, firstly by the total price of the insurance policy and secondly other determinants such as gender, medical history, health exam, medications, familial history, etc.
Following are major types of term life insurance:
- Level Premium
- Insurance coverage in a level premium is between ten to thirty years
- Premium payment and the mentioned death benefits are predetermined and fixed.
- Premiums have higher rates
- Yearly-renewable insurance coverage
- Not like level premiums the term is not predetermined but could be renewable every year.
- Premiums increase over time as the recipient ages i.e. year-to-year.
- Rise premiums can make it an attractive option.