Even once you realize that you do need life insurance there can be some confusion as to what type of insurance would best suit your needs. You need to know what the different types of insurance are and what requirements must be met in order to obtain coverage.
There are several choices involved concerning insurance and the basic policies are whole life insurance, term insurance, no load, mortgage and universal. The term policy is considered the most popular form of insurance where you will pay a fixed amount over a certain amount of time. If you pass away during that specified period of time the insurance company will pay off the pre-determined sum. Unfortunately there is a drawback to this insurance and that is that if you do not die during that time the policy voids and you no longer have coverage. You can still get insurance after the original time expires, however it is usually at a higher rate.
Unlike the term insurance plan, whole life insurance will cover you for a lifetime. Each month you will pay a premium until you pass away; if you decide that you no longer want the policy you can cash it in and receive a one time lump sum of cash. This type of policy has what are called cash values and face values; the cash value is what is paid out if you cash in the policy, while the face value is what is paid out at the time of your death.
A universal life insurance policy will take the premiums that you pay and then invest them in money markets, bonds, mortgages, etc. At the time of death the investment fund will pay out the amount that was specified when you purchased the policy. Even if the investments do not turn out as well as expected the insurer still pays the previously agreed upon minimum amount.
No-load or low-load life insurance usually has less expense involved than the more traditional insurance policy. This means that more of the premium that you pay actually goes toward earning money rather than other expenses such as commissions.
Mortgage insurance means that in the even of your death the mortgage on your home is paid off. However, be sure to update or upgrade this policy if you happen to get a second mortgage or use the home as collateral for another loan as the policy usually only covers the original amount of the loan.
Of course, your personal circumstances should be taken into consideration as well when you are deciding which type of life insurance policy is right for you. There are different needs for different situations, including married people that have children; what happens to the family home if you both die together? In that case you may want mortgage coverage included. Business owners also have special circumstances that will need to be included in their coverage as it may be of concern to their employees, partners and even the share holders if applicable.
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