A life insurance policy is a contract between a policy owner and the insurer. This policy will guarantee that the insurer will pay a sum of money to the beneficiaries that the name is mentioned in the contract when the insured dies. The money is the exchange for the premiums that are paid by the policyholder.
The application of life insurance must disclose accurately the past and also current health conditions of the insured as well as the high-risk activities of the insured. Without those details, the contract cannot be enforceable.
Life Insurance Policy in Various Different Types
A lot of life insurance types are available in order to meet the preferences and needs of all sorts of people. Depending on the long-term or short-term needs of the people who are going to be insured, the main choice that needs to be considered is permanent or temporary life insurance.
1. Term life insurance
This kind of life insurance will last a certain number of years before it ends. You are free to choose this term when you are taking out the insurance policy. The most common terms that are offered by the insurance company are 30, 20, and 10 years.
Term life insurance that is highly recommended is the one that balances the long-term financial strength with the affordability. Below are three types of term life insurance you need to know before purchasing any insurance policy.
a. Renewable term life insurance policy
This is a yearly term life policy that is renewable. This policy provides a quote only for the year when the policy is being purchased. The premiums will increase annually. This policy is usually the least expensive policy in the beginning.
b. Convertible term life insurance
This is an insurance policy that allows the policyholders to convert the term policy they already purchased to a permanent insurance policy.
c. Decreasing term life insurance
Decreasing term insurance policy is a renewable insurance policy with coverage that is decreasing over the policy’s life at the predetermined rate.
2. Permanent life insurance policy
A permanent insurance policy will stay in force for the entire life of the insured unless the policyholder decides to stop paying the policy’s premiums or he surrenders the insurance policy. Usually, this kind of policy is more expensive compared to the term insurance policy.
a. Whole life insurance
This is a type of permanent insurance policy that accumulates the cash value. This cash value insurance allows the holder of the policy to use the value of the cash for various purposes, such as cash, the source of the loans, or to pay the premiums of the insurance policy.
b. Universal life insurance
This is another type of permanent insurance. This permanent insurance has the component of the cash value that earns some interest. The premiums of this permanent insurance are flexible. Unlike whole life and term life insurance, universal insurance premiums are adjustable.
You can adjust the premiums of this insurance over time and design the premiums with a death benefit that is increasing or level.
c. Indexed universal life insurance
An indexed universal insurance policy is a universal insurance policy that allows the policyholder to earn an equity or fixed indexed return rate on the component of the insurance’s cash value.
d. Variable universal life insurance
With this variable universal insurance, the holder of the policy can invest the cash value of the policy in a separate account that is available. This insurance also has premiums that are flexible and can be designed with a death benefit that is increasing or level.
2 Things That Help You Get The Right Life Insurance Policy
Before purchasing an insurance policy, there are things you need to know first. Understanding those things will help you be ready to purchase the right insurance policy and prepare everything you need to get the right policy. Below is everything you need to know before purchasing any policy of life insurance.
1. Determine the amount you need
Always think about the types of expenses that will need to be covered in case you are gone. Some things like college tuition, mortgage, and other debts and also the funeral expenses need to be your consideration when you are going to purchase a policy of life insurance.
Also, if your loved one is not able to provide their own cash flow, you also need to consider income replacement when looking for the right insurance policy. There are various online tools you can use to calculate the potential expenses that need to be covered by the policy.
2. Prepare the application of life insurance policy
The costs and premiums of your insurance policy are affected by so many factors, such as age, health, gender, driving record, lifestyle, family medical history, and many more. Below are some factors you need to know before purchasing an insurance policy.
Age is the most crucial factor since the biggest risk determinant for many insurance companies is the life expectancy of the policyholder.
Statistically, women live longer than men. That’s why women usually pay lower rates than men who are the same age.
c. Smoking habit
People who smoke are at risk for so many health issues that can shorten their life and increase the premiums that are based on the risk.
For most policies, medical exams will include health conditions screening in order to figure out diabetes, cancer, and heart disease, and also medical metrics that are related and can indicate risk.
Dangerous lifestyles will also make the premiums of insurance policies become much more expensive. Make sure you change your lifestyle to a healthier one.
f. Family medical history
If the insurance company figures out that your immediate family has a major disease, your policy of life insurance may come with higher premiums.
g. Driving record
If you have a drunk driving history or moving violations, the insurance premiums costs may increase dramatically.
One more step you need to do before purchasing an insurance policy compares the policy quotes. The prices can be totally different from a company to another company. It is crucial to get the best combination of company rating, policy, as well as premium cost.
A life insurance policy is going to be something you will pay every single month for decades. Make sure you pick the right insurance policy. The details on this page will help you get the right one that will make sure your family will be fine in the future.