When it comes to understanding life insurance, the differences between the different types of polices are pretty straightforward. The number one thing to keep in mind about life insurance is if it isn’t needed, don’t waste the money on purchasing a plan.
Determining whether or not life insurance is needed will be based on a person’s current and predicted future situation. If the person has no dependents, there is little likelihood that insurance will be needed. On the other hand, if the person is married and/or has children and is the primary income provider, it will be best to invest in some type of insurance policy.
After determining whether or not life insurance will be needed, it then becomes time to decide what type of policy should be purchased. There are two basic types of insurance: short-term and long-term. Let’s take a closer look at both of these types.
Short Term vs. Long Term
There has been an ongoing debate for many years relating to short-term vs. long-term insurance. Some people suggest short-term insurance to be best for people who are under 40 years of age and have no type of family disposition for any type of life threatening illness. Others recommend long-term policies no matter the personal situation that a person is living in. To keep things simple, short-term insurance is going to be the cheapest type of policy to purchase; however, it will not accumulate within itself a cash value like a long-term policy will.
Short-term life insurance is most commonly referred to as term insurance. This form of insurance only pays out in the event that the policyholder becomes deceased during the period of time that is predetermined when the policy is purchased. Most times, term insurance policies can be purchased with an active period lasting anywhere from one to 30 years. So, if the policy is purchased for a 20 year active period, the policyholder would have to become deceased during these 20 years or it will not pay out. Sometimes, if the policyholder does not become deceased during the active period of the policy, there will be the option to continue it for additional money. Most term policies have a fixed premium rate, meaning the amounts paid every month for the policy will not fluctuate.
There are several forms of long-term insurance, including universal insurance, whole life insurance and variable life insurance. The benefit associated with a long-term insurance policy is that it will build up a cash value. After so many years, if the policyholder wants to access part of the cash value, he or she can. Also, if he or she wants to use the cash value to pay for his or her premiums, with some long-term policies, this is possible. The downside to long-term policies is that they are incredibly expensive. In fact, they tend to be two to three times more costly than short-term policies.
Choosing Between the Two
When it comes to choosing life insurance, there are many online tools that can be used to make the process easier. Also, it is usually best to speak with a trusted insurance broker; this type of professional will have the knowledge it takes to help with choosing the most appropriate type of policy.