Life insurance is a policy to help dependents in the event of a policyholder’s death. It basically involves a payout that is given to your family in the case of your natural or accidental death during the course of a policy. This payout helps your family to pay any outstanding loans and carry on with their current standard of life.
Life insurance can be term based. Term based life insurance can either be fixed or decreasing. As the names suggest, the fixed variant has a static payout that doesn’t change with the years. The decreasing type, on the contrary, has a dynamic payout that decreases with the increase in the elapsed years of the policy.
Another type of policy is life assurance. It differs from life insurance in that a payout is definite in its case as it doesn’t have any expiry date. However there’s a catch. Premiums, apart from being higher than those of life insurance policies, are broken down into two portions. One portion goes towards buying your life insurance cover while the remaining percentage is invested. The payout therefore depends upon the performance of the investment funds in question.
All of the discussed policies so far, pay the assured amount in lump sum if the policyholder dies. However, this will present an allocation predicament to the concerned family after the initial loans are repaid. Handling such an amount of money can be arduous, especially for younger, careless beneficiaries. To counter this a policy known as Family Income Benefit is there. In it, the final payout is divided into monthly installments. This will help in the management of monetary resources for the family In question. Despite the positive, there is a major disadvantage, the sum is paid for only the months remaining in your policy after you die.
Another variant is the Over 50s Life Insurance. It is geared towards people who need life insurance in later years. Unlike conventional life insurance, this doesn’t require any medical information to ascertain eligibility. Instead all applicants in the 50 to 80 years range are guaranteed acceptance. The final payout is considerably low and is more in the line of paying for your funeral while leaving a little amount of money for your loved ones.
Like policies, there are differences in premiums as well. Guaranteed premiums tend to remain the same throughout the course of a policy. Reviewable premiums go through a review process every 5 to 10 years and can be increased or reduced, depending upon your conditions. However, in most cases they are augmented.
Now that you know the types and main details of a life insurance policy, it is time to decide the term and cover of your insurance plan. Both of these things should be well-thought out and should be decided after discussion with your family. You should factor in outstanding mortgage, credit card payments and other loans that you owe with their associated time periods. You should also give weight to the number of dependents you have, whether or not you are the soul breadwinner of your family and your daily expenses.
In short, life insurance policy decisions shouldn’t be made in any sort of rush and should be done so with a cool head and ample amount of time on hand. After all it is one of the significant financial decisions of your life!