Life Insurance - Read The Fine Print
There are two types of life insurance to choose from, and before you commit to buying either one you should have a good understanding of what each can offer. They both have pros and cons. When it comes to life insurance, you do need to read the small print.
The major purpose of buying any type of life insurance has always been to provide for family that you leave behind. An unplanned death and associated burial costs can cause major financial issues if the family struggles to find money for a funeral.
If the breadwinner of the family dies, there needs to be a way to provide for the family after his death. A stay at home mom is the most common victim of a family with no life insurance. Her sole method of income has disappeared. If her husband did have a policy, at least she has something coming in for bills as she plans her future.
One type of life insurance is called "term". It simply means that if you have a term policy your survivors will be paid only if you die during the term of the contract or policy. A policy usually runs for anywhere from 5 to 40 years with five year increments in between. The healthier you are, the lower your premiums. Term is the cheapest kind of life insurance.
Cash value insurance is another option. Also referred to as whole or universal life, this type of insurance is much more expensive for even less coverage. Unlike term, a policy will cove you you for your whole life, but of course you are paying premiums for your whole life as well.
Cash value also comes with an investment option. You can select various funds and stocks to invest in and you are guaranteed a return on your investment. However, read the small print in your policy, usually within the first few pages, that discusses your investment return. Even though the company might promise you a return of about 15%, you personally only get about 3-4% - the company keeps the rest.
Also when you are reading the fine print, you should look for the section that talks about exactly what funds will be paid out upon your death. Your family doesn't get the cash value and the death benefit! They get the death benefit - the face value of the policy. The company keeps your cash value.
Last but not least, if your insurance agent tells you that your policy will pay for itself after so many years, ask how this is done. Agents want their customers to believe that after about 20 years no more premiums are due. This isn't true at all. Premiums are due, but they are taken out of your cash value portion, reducing it significantly. If you ever need a loan, you'll be in trouble.
The major purpose of buying any type of life insurance has always been to provide for family that you leave behind. An unplanned death and associated burial costs can cause major financial issues if the family struggles to find money for a funeral.
If the breadwinner of the family dies, there needs to be a way to provide for the family after his death. A stay at home mom is the most common victim of a family with no life insurance. Her sole method of income has disappeared. If her husband did have a policy, at least she has something coming in for bills as she plans her future.
One type of life insurance is called "term". It simply means that if you have a term policy your survivors will be paid only if you die during the term of the contract or policy. A policy usually runs for anywhere from 5 to 40 years with five year increments in between. The healthier you are, the lower your premiums. Term is the cheapest kind of life insurance.
Cash value insurance is another option. Also referred to as whole or universal life, this type of insurance is much more expensive for even less coverage. Unlike term, a policy will cove you you for your whole life, but of course you are paying premiums for your whole life as well.
Cash value also comes with an investment option. You can select various funds and stocks to invest in and you are guaranteed a return on your investment. However, read the small print in your policy, usually within the first few pages, that discusses your investment return. Even though the company might promise you a return of about 15%, you personally only get about 3-4% - the company keeps the rest.
Also when you are reading the fine print, you should look for the section that talks about exactly what funds will be paid out upon your death. Your family doesn't get the cash value and the death benefit! They get the death benefit - the face value of the policy. The company keeps your cash value.
Last but not least, if your insurance agent tells you that your policy will pay for itself after so many years, ask how this is done. Agents want their customers to believe that after about 20 years no more premiums are due. This isn't true at all. Premiums are due, but they are taken out of your cash value portion, reducing it significantly. If you ever need a loan, you'll be in trouble.
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