After becoming secure in a career and beginning to build a financial portfolio, you may want to consider purchasing a life insurance policy. Life insurance provides a family with financial protection after a death. In the event of your death, life insurance can be used to cover debts and invested to provide for replacement your income so that your family can maintain an adequate lifestyle.

Choosing the right insurance policy can be tricky. There are different kinds of plans available. Before purchasing, you must explore and understand the many options, and then determine which type of plan best fits your needs.

Life insurance can be placed into two primary categories: term and permanent.

Term Insurance

Term life insurance provides you with coverage for a short period of time. It is the least expensive type of life insurance and is often used as protection against temporary debts (mortgages and loans). This particular type of insurance may be the best choice for young families who need coverage, but do not have a lot of money to spend.

It is important to remember that term insurance only offers temporary protection and does not cover beyond the terms that were agreed upon. You should also be aware that premiums can increase depending on your age and health.

There are three kinds of term life insurance that you must know about before deciding on a policy: non-guaranteed term life, annual renewable, and convertible term.

Non-Guaranteed Term Life
This type of life insurance only provides coverage for a short time, usually a year.
It is a good choice for young people who do not have a lot of money to invest in a long- term plan. Non-guaranteed term may also be a wise choice for people with a mortgage or other payments that need to be considered on a current basis but will be less of a burden in the future.

Be cautious. If you have this type of policy and become ill, you may have trouble purchasing other forms of life insurance after the non-guaranteed term is over.

Annual Renewable
Annual renewable life insurance is similar to non-guaranteed term life, but the terms last for 10, 20, 30 years. Premium amounts can be locked in for a fixed number of years. Longer terms can help you avoid yearly increases.

Convertible Term
This form of term life insurance also offers buyers the option of converting their term policy into a permanent policy later. Convertible term may be a great choice for young people who cannot afford permanent insurance now, but will need it in the future.

Permanent Insurance

While term life insurance only lasts for a specified period of time, permanent life insurance lasts the entire span of an insured person's life. Permanent insurance can also be used as a form of savings account.

Be cautious. Payments can be a burden, so make sure your job and finances are stable before purchasing a plan.

There are three kinds of permanent life insurance: whole (or ordinary) life, universal life, and variable life.

Whole Life Or Odinary Life
Whole Life or Ordinary Life is similar to annual renewable term or convertible term in that the plan spreads the cost of insurance over a person's lifetime. The premiums do not change, which may cause stress in a period of financial problems. A positive to this plan is that premiums will not increase if your health declines. This plan also helps to build your savings. If financial setbacks make it difficult to pay premiums, the cash value can be used to keep the insurance in force.

Be aware that your extra money is invested by the insurance company; so you must select your company carefully.

Universal Life
With universal life insurance, after you have made your first payment, you are given the freedom of increasing or decreasing the amount of money your beneficiary will receive (within the limits of the company's minimum and maximums). You have the option of a flexible payment plan. Another benefit is tax deferred cash value. A universal life policy allows you more control than the whole life or ordinary life. But before choosing this policy, make sure you are ready to spend time managing the account.

Caution: the company may increase charges, and like whole or ordinary life the company may invest your money. So, again, research before choosing a company.

Variable Life
This is a plan design for people with strong investment portfolios. This policy fluctuates according to the success of your financial portfolio instead of offering a cash value.
The positive side of variable life insurance is that you have control of your money and may choose how to invest it.

Variable life policies can be very risky. Insurance agents are required to pass an exam to sell this type of insurance. It is important to invest cautiously. Because this plan is so risky, the government considers them to be securities, which must be registered with the Securities and Exchange Commission.

There are many insurance companies to choose from. When choosing an insurance company, remember to research all of the options. There are numerous websites and other research tools which track companies and their performance.

http://moneycentral.msn.com/investor/calcs/n_life/main.asp

http://www.life-line.org/life/ins_needs.html

http://www.bygpub.com/finance/LifeInsCalc.htm

Printer Friendly Version