Lots of people have insurance, but why? What does it do for them?
Different kinds of life insurance policies provide different things, but more or less provide the same kind of coverage. In this blog post, we’ll talk about what life insurance covers, and things to consider when deciding what type of life insurance you need.
What does life insurance cover for you?
Life insurance is a little different than car or home insurance. Vehicles and houses can be replaced. Lives… can’t be. Some people purchase a life insurance policy intending to replace their income when they pass away, so that their dependants can be provided for in their absence. Others also intend for their life insurance policy to provide an effective way to pass on a portion of their wealth to the next generation, tax-free through their death benefit.
What type of life insurance do I need?
Deciding what type of life insurance you need largely depends on what you intend to get out of it. Let’s start by looking at the advantages of a whole life policy.
- Lifetime coverage: With a whole life policy, you are covered from the day you sign the papers to the day you pass away–as long as you keep up on your premiums. Your premium payments will also stay the same throughout that time. This lifetime coverage means a guaranteed death benefit.
- Cash value: Over time, your policy is able to grow “cash value,” which works similarly to a savings account. A portion of your premium payments are set aside, and collect interest and occasional dividends. As your policy ages, this can grow to be a substantial sum of money–capable of supplementing retirement income.
Now let’s look at another common type of life insurance, term life insurance.
What does 5 year term life insurance mean?
Term life insurance provides coverage for a predetermined duration–five years, in this example. In this kind of policy, you would pay premiums for five years. Your insurer would provide a death benefit to your beneficiaries if you were to pass away at any point within the five year term. If you outlive the five year term, your insurer no longer has to provide a death benefit when you pass away.
Term life insurance policies do not provide a cash value account. Because of this and its limited duration, premium payments for a term life insurance policy are often much less expensive than whole life policies.
However, should you decide that you want to continue the coverage by renewing after your term expires, your premiums will increase. As you get older, these price increases can often make the original, unchanging premiums of a whole life policy look attractive.
A whole life insurance policy may not be the best option for everyone, but there are undeniable benefits for its higher price. Talking with a trusted financial advisor can help you decide which route is best for you.
For those who have, or decide to purchase whole life policies, Aspen Life Settlements provides a compelling way to get cash for your policy, stop paying premiums, and maintain your coverage–keeping your death benefit. For more information about our services, visit our recent blog post.