Life insurance is often perceived today as sustenance for a risk-free life. There are many life insurance policy holders who swear by it in order to be able to protect the members of their family and their loved ones from hefty debt obligations, loss of income etc in case of untimely death. There are several kinds of life insurance policies available in the market out of which two are exceedingly popular. These are the whole life or cash value insurance and the term life insurance. There are both cons as well as pros associated with insurance plans.
The Different Types of Life Insurance:
The cash value insurance essentially constitutes policies where premiums are used for payment of the cost of insurance. A portion of this insurance is placed in attached investment vehicles which grow over course of time. There are certain well known cash value insurance products which include whole life, variable life, paid-up insurance and universal life insurance. In spite of minor differences, such insurance plans are basically the same. Most cash value insurance policies contain a cash value and a death benefit which is added to whenever a premium is paid by a client. The term life insurance appears to be significantly quite different from its counterpart, that is, cash value insurance. Such insurance does not comprise of what is known as cash value account. The premiums are solely used for the purpose of paying cost of coverage. The premiums maintain a coverage level for one specific term. When a policy’s term reaches its end, it is imperative for a new policy to be purchased.
Benefits of Life Insurance:
Both the term value insurance and the cash value insurance are known to have a large number of benefits. The greatest benefit associated with the cash value insurance is the fact that it is capable of providing coverage for an entire lifetime of a policy holder. Several individuals are known to take advantage of purchasing such an insurance policy when they are in their youth and when they require it the most. The cash value accounts can also be drawn or borrowed against life of the insurance policy. The policy holders are generally not needed to pay any kind of tax on the interest which they earn or the earnings which they incur from the cash value accounts. Corporations and individuals are also known to benefit quite a bit from the term life insurance. A huge advantage associated with term life insurance is the fact that the premium is very cheap.
Consequently such insurance policies are extremely attractive for people when they are young and are in the pink of health. The monthly premium of term life insurance usually ranges between thirty and forty dollars. As a result, it is well within the means of most individuals, especially those who are just starting out career wise. Term life insurance is excellent for the covering up of financial obligations that shall end eventually. Examples include automobile loans, education costs and mortgages.
Disadvantages of Life Insurance:
Although both cash value and term life insurance are highly valuable, they are not without their disadvantages. A most significant disadvantage associated with cash value insurance is that there is a lot of inconsistency in premiums. Several cash value insurance policies are known to contain required premiums which are capable of increasing in course of time. As a result, they can be quite expensive for individuals who are of slender economic means but who wish to purchase coverage that will benefit their family when they die. Although many insurance policies may contain riders where the dividends from the cash accounts could be used for the payment of premiums, instances like this will almost always result in the extraction of funds away from investment or cash value account. A guarantee also does not exist as to whether sufficient funds shall be available for covering missed premiums in case a policy holder happens to fall short.
An important disadvantage of term life insurance is that such an insurance policy is not permanent. While policy holders can enjoy very cheap premiums when she or he is young, the terms of the products will expire after the passage of a certain time period. The terms of the products can also expire upon an insured person reaching a particular age. As soon as one policy expires, the insured person will have to purchase a new insurance policy. This implies that the insured person needs to quality for the new insurance program on the basis of her or his current age as well as health so that the coverage can continue. More often than not, this results in uninsurability or high premiums. There are some term insurance policies which contain renewal options which might not require proof of the fact that the policy customer is insurable so as to continue the coverage.
Considerations to Make When Purchasing Life Insurance Policies:
When setting out to purchase life insurance policies, it is recommended for individuals to consult experience insurance agents. It is vital to find life products which are tailored to specific needs of a particular policy holder as well as her or his family members. For example, an individual might only require protecting her or his family from mortgage obligations for a period of fifteen years or ten years. If an individual desires being covered by an insurance policy for the entire period of his life, then he can go ahead and purchase the whole life or the cash value insurance policy. Individuals need to also pay important consideration to the fact as to whether the use of the life insurance policies for purposes of investment is a good move or not. For the long term, it might just be more profitable for a person to purchase term life insurance and then take advantage of the low premiums. After that he or she can invest in stocks or mutual funds which are entirely detached from the insurance policies.