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What do different types of insurance mean to the applicant?

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Any product has different categories to choose from. So does life insurance. All life insurance policies do not come under one umbrella. There are several policies with their benefits, rules and privileges. Not only that, the same policies may be offered by different insurance at different rates and different privileges. For choosing a policy, you must take care to consult a professional either online or at the insurance firm to understand the implications of each policy and what each policy can do for you as an individual. The very fact that there are so many policies in existence implies that every individual has his own needs, limits and expectations from life insurance. So the best way is to examine each type in detail, get all the doubts cleared and then proceed to purchase the one that appealed to you the most.

Online insurance agents are also very useful for answering queries. In fact they are quick to respond ands you can get loads of information sitting on your couch drinking coffee. To actually meet with an insurance professional is sometimes a time-consuming and arduous task and opting to go online is simpler. Online agents can be contacted at any time and they are as proficient in their job as are actual agents sitting in brick and mortar offices. The broad categories of insurance are:

  1. Whole life insurance: This refers to typical life insurance payable with fixed monthly installments and payable over a lifetime. Since the premiums are not affected by risk factors or shifts in affordability, it is best to opt to purchase whole life insurance when you are young. Insurance premiums are always lower when you are young and since the premiums are fixed from the first payment onwards, take advantage and purchase whole life when you are young. Whole life insurance policies are based on specific sums that are payable over a specific number of years to pay specific benefits. These amounts and the time duration are discussed with the applicant and only fixed with his consent and knowledge.

    Whole life policies tend to be more expensive than term life policies as the payments are fixed and benefits accrued are definitely higher than those of term insurance. You reserve the right to cancel a whole life insurance policy at any time and any rebates on the cash value will be refunded to you. There are several types of whole life insurance policies available. For example there is the participating whole life insurance policy which allows sharing of profits between the insurance company and the policy holder. These are shred in the form of dividends. Then there is the non-participating policy which does not allow sharing of benefits. The indeterminate life insurance policy resembles the non-participating one but the though the value is fixed, the annual premium is variable. The limited pay policy allows payment for a specific number of years but the benefits may be lifetime.

  2. Universal life insurance policy- this is quite similar to whole life insurance but is a more flexible version. Here the policy acts as a life insurance plan but with a distinct investment dimension added to it. A portion of your investment is invested as a savings account would and the portion can be tax-deferred to an annuity. The money is invested with more aggressive investment options like money markets. Thus the insurance company is able to take on the role of a finance company when the applicants opt for a policy like this. This offers permanent life insurance but with far greater flexibility than whole life insurance. Whole life insurance does not offer investment options of this kind. Universal life insurance allows adjustments of premiums and benefits over the term of the policy unlike whole life insurance where the benefits and premiums were fixed.

    This insurance results in much greater cost saving potential for the client and offers more than one type of death benefit. The benefits calculator can be used to find just exactly how much you need to invest to get a particular level of benefits. But you must remember that if you opt to lower the premiums, the policy might lapse. So keep a track of how much you must keep up to maintain the policy. A professional will be able to help you with this.

  3. Variable insurance policy

    As the name suggests this policy allows benefits of permanent life insurance along with benefits as here also, your premium is invested in stocks. A portion of the premium is applied to a separate investments portfolio. The difference here is that the policy allows the cline to choose the mix of investments to insurance. So you have a say in deciding how your money should be used. The saving potential as well as the risks of this kind of policy is very high. You must opt for this only if you are proficient in stocks, money markets etc. A layman might not know much of these. But before the policy scares you, be informed that the rules forbid the premium amount to drop below a certain level. So it is not as if you will end up losing your savings. But since the policy is investment oriented, the money is subject to the risks and fluctuations of the market place.

  4. Term insurance: This is a directly opposite policy to whole life insurance. This allows flexibility of the term for which the applicant may apply. The term policies may be for ten or twenty years depending on the client's choice and they are popular because they cost less than whole life. But then if the applicant passes away even half a day after the policy has lapsed, the family does stand to gain a penny.

It is obvious that there are upsides and downsides to every policy and it is in the hands of the applicant to make the final choice. But professional advice will help change his choice from a random guess to an informed decision.

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December 31, 1969

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