Basics About Life Insurance
As an Independent Insurance Broker the one product that I have to explain to people more than any other is Life Insurance. While the concept and need for life insurance for some may be a no brainer the details regarding what life insurance is and what type you need may not be so easy. I want to try to make this as simple as possible for you to understand.
Life insurance is probably the easiest way for us to ensure that our families financial situation will still be OK in the event of our death. This insurance is the one insurance product that you as the insured will never see the results of, your family on the other hand will. I think that is why so many people don't think that they need this insurance because they will never actually get to use it.
Lets start with what life insurance is. It is a contract with a insurance company that states that in the event of your death they will pay whomever you have chosen a specific amount of money that you determined. Usually the person receiving the payout is a spouse or children. In return you agree to pay regular premium payments to the insurance company. While this is a pretty basic explanation of how this insurance works I want to take a look at the different types available.
The most common form of life insurance is term insurance. This will probably be the most affordable and least confusing form. Basically you agree to pay the insurance company payment for a specified period of time and they agree to payout a specified amount in the event of your death within the specified timeframe. The younger that you are the more affordable this type of insurance is. Also term insurance does not build any cash value like other types do.
The next product to look at would be whole life insurance. This is pretty similar to term insurance except that it does build cash value on a tax deferred basis. This is pretty popular with people wanting to supplement a retirement income or plan for college education costs. This still should be thought of as insurance more that a investment.
Next would be universal life insurance. This type is the most flexible form of insurance. While it does build cash value like the whole life policy it allows the policy owner to adjust the premium as well as the death benefit as their lifestyle changes. The insurance company will guarantee you a certain interest rate and the interest rate can never fall below that mark but can be higher. As long as the cash value of the policy is enough to pay the premium, that policy will stay active whether you skip a payment or not.
There are other forms of life insurance available like variable insurance policies. The three that I mentioned above are usually the most common that you will encounter.
Life insurance is a product that is overlooked by a lot of people either because they think they don't need it or they plan to get around to it later. I believe that probably everyone has a need for it in one form or another. As I stated above the younger that you are when you start planning for this need the more affordable it will be. With the economy the way it is today life insurance rates are at an all time low. Even if you already have a policy it might not be a bad idea to see what is available to add to it or replace it, you might be surprised.