It may be a well-known fact, but life insurance is not a fascinating conversation starter. However, it is a very important one. Because, even despite the careful planning for your and your family’s future, there is one thing that can derail it all. What’s that?
An untimely demise.
Most of the planning you do is based on the “what if” type of situation. The same applies to life insurance. You are planning for any unforeseen events that will take place “if” you or a beloved member passes away.
A financial plan that does not include life insurance is a poor financial plan. Why? In the circumstance of your untimely death, your family would be responsible for paying all your dues and clear up loans. And this can be a very burdening task.
That’s why you’ll need to include life insurance under your financial plan. So, let’s understand how it works.
What Is Life Insurance?
Life insurance, by definition, is a type of insurance that financially helps protect your family and loved ones. It uses a vast amount of money that is free of any tax. This amount usually includes all the savings and allowances that you have made throughout your life.
Should an unfortunate event occur, your family and loved ones will still be able to live their lives without taking on the duty of paying your debts. Life insurance will cover expenses for any of your existing loans/debts, mortgages, pending grocery and shopping bills, college funds, and so on.
What Are The Several Types Of Life Insurance?
Learning about life insurance and its types can be difficult. But if you understand the concept clearly, you will come to know how useful and beneficial it is. Read on to know about the different types of life insurance.
Whole Life Insurance
Also known as the “Permanent Life Insurance” or the “Straight Life Insurance,” this is the original type among the rest. It has been in existence since the 19th century and is very effective even today.
This type of life insurance offers you a couple of “guarantees.” These guarantees are valid throughout your whole life and hence the name “Whole Life Insurance.”
In this type, if you pay for the premium, in addition to paying your loved ones a death benefit, it also promises a very safe and reliable method of saving money.
Coming back to the previously mentioned “guarantees,” you might be curious about what these are. Let’s break it down.
Guarantee #1 says that on cash, you will get a reasonable price of return.
Guarantee #2 says that even when you make a purchase, the amount won’t change. It will remain locked.
Guarantee #3 says that you will get the “death benefit” that will last you your entire lifetime.
Universal Life Insurance
If you are familiar with what a term insurance policy is, you can understand this type easier. Universal life insurance is simple just a term insurance policy that comes along with a component of savings.
Like the renewable term insurance, the cost of the term policy of this type also keeps increasing every year. When you first start, it can be affordable and inexpensive. However, the price keeps rising as you age, which may be a problem for some people.
Term Life Insurance
The simplest type among the three is term life insurance.
As the name suggests, term life insurance helps cover your expenses for a specific period/term of your life. When this term comes to an end, your coverage also ends. However, in the end, your insurance company will permit you to extend your coverage at an increased price.
This type of insurance offers anywhere between 10 years to 30 years. Another important feature of this is that, unlike the previous two types, term life does not include savings.
How Should You Build Your Financial Plan?
The simplest way to get started is by identifying your short-term and long-term goals (in terms of savings). Decide where and how you will be using the savings for. Planning for real estate, retirement, children’s educational funds are some of the areas you can plan for.
Additionally, estimate the price of your assets as this will help you understand your financial state better. It is the DIY method. If you want expert help, you can talk to financial advisors or brokerage services, etc.
Life insurance is not a mandatory investment. However, it can be a very beneficial investment in the long run. It assures you that your family will be in good care in the case of an unfortunate situation.
One person’s financial plan may be different from the others. To make the best out of your savings, you need to frequently map out your priorities and check your assets and liabilities. That will assure you that you and your family are financially secure and well taken care of.