Saturday, November 17, 2012

Types of Life Insurance and How They Work

Life insurance has become increasingly popular, but there are still many individuals that are reluctant when it comes to buying life insurance. Whether you want to ensure that your loved ones don’t encounter any financial difficulties after you are gone, or you want to pay off debts so that you won’t force others to do that for you, life insurance comes in handy. There are two main types of life insurance you can buy and we are going to look at each and see what the pros and cons are so that you can decide on your own what the best is for you. 

1. Term Life Insurance

A term policy offers only life coverage – the moment the insured dies, the company pays the amount of the policy to the rightful beneficiary. You can buy these types of insurances for a period of one year, 5, 10, 15 or even 30. While it is rare to buy life insurance for year, it’s not unheard of. Let’s say you’re starting a new job that requires you to do a lot of traveling, driving your car a lot at night or in cold and icy locations. You could think of buying a 1 year life insurance to make sure your loved ones are taken care of if you were to die in a crash. We suggest you invest in a 20 or 30 year insurance and choose a company that offers good premiums. 

2. Whole Life Insurance

On the other hand, whole life insurance is a combination of term policy and an investment section. This policy builds cash value and the insured can borrow against it. It sounds better, doesn’t it, but wait, there’s a catch. Whole life insurance is much more expensive than term life one, because you’re not only paying for your actual insurance, but also for the investment part. These are being marketed as retirement plans but they’re not very good investments, as plenty other investment plans are much more affordable.

So, now that we’ve seen what each does for you it is easy to make a choice. If we do a quick comparison between the two, term life vs whole life, we can safely say that term life insurance is better. We suggest you do a little research on your own, find a good and reliable company and ask them all the questions you feel need answering. They’ll be more than happy to help and clarify things for you.

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