Purchasing life insurance can be overwhelming for many people. There are many different types of life insurance available such as term, permanent, universal and variable universal, and many competing insurance carriers from which to choose. You must also consider your own individual needs when determining how much life insurance to purchase. Life insurance should be viewed as the replacement of income in the event that a spouse passes away.
Popular Types of Life Insurance
Purchase term insurance. Term life will provide benefits to the surviving spouse for a specific term or period. For example, a 20-year term life policy will provide benefits to the surviving spouse if the person dies within 20 years from the start date of the policy. Term life policies are beneficial to help pay off a mortgage or send surviving descendants to college while these types expenses are still being incurred. Term is also considered risk insurance. If death doesn't occur during the specified term, there will be no refund issued.
Purchase permanent life insurance. Permanent life insurance will provide benefits to the surviving spouse at any time, there are no term limits. Although a whole life insurance plan can be cashed in 50 or 100 years down the line, a surviving spouse may not have the same expenses (e.g., mortgage and college) and would still have to incur the monthly expense of upkeeping the policy. Whole life insurance rates are steady and will not be adjusted for the life of the policy. Permanent life insurance also has a guaranteed cash value, unlike term insurance, which will allow you to borrow against the policy. Typically whole life insurance carries an endowment age of about 100 years old. If the person named on the policy reaches this age before death, the surviving spouse will not be able to cash in on the policy.
Purchase universal life insurance. Universal life is permanent insurance. Customers can select the amount of insurance and the monthly premium amount due. This type of plan is based upon cash value. Any premiums paid over the cost of the insurance are credited toward the cash value. The cash value accrues interest. Policy holders may redeem the cash value before their own death. Also you can borrow against the cash value of the policy without accruing interest charges.
Invest in variable life insurance. Variable life insurance garners the most risk, but also can potentially produce the most gain. Variable life insurance is permanent insurance. Policy holder's can separate the insurance into several accounts, similar to mutual funds, which vary in value according to how the stock market is doing. There is no age limit for this type of policy.
Applying for a Life Insurance Policy
Calculate how much coverage you need. A life insurance policy should replace loss of income. Some customers may decide to buy enough insurance to cover loss of income for two years. That means if your spouse earns $50,000 per year, the policy should provide around $100,000 worth of coverage. Others buy enough coverage to cover their expenses for 10 years.
Complete an application for life insurance. The application requires the full name, date of birth, age and Social Security number of your spouse. You must also include the current health condition of the spouse and any risky behavior. For example, if your spouse has cancer or if your spouse smokes tobacco products, you must include this information.
Read over the fine print. Some insurance policies will not pay for deaths that occur by excluded means. This could includes death that occur from a car accident, murder or death as a result of certain illnesses.
Pay monthly premiums on time. Once you have applied and been accepted for a life insurance policy, you must pay all monthly premiums on time. Paying late can result in the policy being canceled.