There are two basic types of life insurance: term insurance and permanent insurance .
• Term Insurance : In this type, you buy insurance for a fixed period of time. If anything happens to you in this period, the insuring company pays a fixed amount. If you remain safe in this period, then the company does not pay anything. There are two sub-types: annual renewable term and mortgage insurance. The premium in term insurance policies is less than a permanent policy.
• Permanent Insurance : In this type, if anything happens to you for the duration of the policy, your dependants will be paid the insured amount. If nothing happens to you and after the policy matures, you will be paid the amount of your premiums with interest and a bonus. This type can be used as a form of savings since you can withdraw some money after meeting all the conditions. Types of permanent insurance are:
• Whole life insurance : In this type of insurance, the beneficiary will get a guaranteed amount. The disadvantages are that there is no flexibility in the premiums, death benefits are fixed and there is no way you can withdraw any amount. When compared to other savings policies; this type may offer less value.
• Universal Life insurance policy : In this type, the premiums are flexible and the return rate may increase since it is based on what the status of the market. You can discontinue the premiums any time you want.
• Limited pay : In this type, the premiums must be paid for a fixed number of years.
• Endowments : In this type, after the policy matures, a fixed amount is paid to the beneficiary. These are more expensive when compared to other types.
• Accidental death : In this type, the beneficiary is paid an amount if you pass away in an accident or you suffer loss of limbs. This type is also called AD&D (accidental death and dismemberment) policy.
A few things to consider are:
• Face value: This is the amount of money that will be paid in the event of a claim.
• Premium: It is the amount you pay every year or month. If you stop paying the premiums, your beneficiary will not be paid when something happens.
• Length of coverage: The number of years for which the policy is in force.
|
