Life Insurance 101

Since the thought of dying is unpleasant, many people avoid shopping for life insurance. Many feel that it is not necessary until retirement. Unfortunately, a large number of people find out the hard way that this valuable coverage is essential for people of all ages. As soon as a person becomes a legal adult, it is time to start thinking about life insurance. The good news is that people who buy life insurance at a younger age enjoy a lower price. There are three popular types of coverage, so it is important to understand the basics of each one.

Term Life Insurance

Term life is the most popular choice for life insurance. It offers a death benefit without the demand for an investment, cash value components or savings. The term lengths are usually between 10 and 30 years. At the end of the designated term, the coverage expires. There are several different variations of term life, but the most popular is level term insurance. This means that the premium stays the same throughout the policy's duration.

On the other hand, people who only want enough of a death benefit to cover costs that decrease over time usually choose decreasing term insurance. This is best for those who have a mortgage or substantial debts that are being paid down. The downside to term life is simply what its name implies: It is only good for the time allotted. After the policy expires, uninsured individuals must shop for new coverage. This also means that they will be charged according to their age and health status, which could be a drastic difference.

Whole Life Insurance

This type of coverage features a cash value account that grows over time. It is a form of permanent protection, so the policy will not end after a specific period. Both the death benefit and premium remain the same throughout the policyholder's lifetime. For example, a 45-year-old man who pays $5,000 annually for a $500,000 policy will pay the same for the rest of his life. Whether he dies at 46 or 100, his death benefit will still be $500,000. However, the separate cash value account grows over time. Policyholders can take out loans against the funds in the account. If they are not paid back during the individual's life, the death benefit will be reduced to compensate.

Universal Life Insurance

People who prefer flexibility usually choose this type of coverage. However, it is very complex, so it is important to discuss this option with a reputable agent before signing up for a policy. After an initial payment, a policyholder can reduce his or her death benefit amount.

Policyholders can also pay their premiums any time after making an initial payment, and payments can be in variable sums. There is a minimum threshold, which all payments must meet or exceed. When policyholders want to increase their death benefits, they must usually show proof that physical health has not deteriorated.

These policy options certainly give consumers plenty to think about. No type of policy is better than others for every situation. In order to decide which option is best, each person must assess his or her individual needs. People who have families must also consider their current and future needs. Be sure to compare quotes from several companies before choosing a policy.

Clayton Lawrence is a personal finances guru and freelance blogger for wholetermlifeinsurancequotes.org, a site he often recommends for getting free life insurance quotes.