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Is Time To Consider Why Life Insurance Is Important?

By Jenny Gibbs

This may be the time to wonder why life insurance is important? The security of life insurance is more appealing than ever during recessions according to historical trends. And, this recession is no different when it comes to how people look at their life insurance as a support tool at this time.

The two basic types of life insurance

A life insurance policy pays a certain amount of money to the beneficiary of the policy when the party insured passes away. The insured party whose life is insured, the beneficiary, the policy owner and the insurer are the interested parties.

Life insurance comes in two primary forms designated term life or permanent life. Permanent life insurance has three types. A good resource for research on this subject is the web. Insurance policies issued by well rated companies offering a comparably cheaper rate, with the optimal term for you should be preferable. The best rates are given to those who are healthier, have a healthy family history, do not have poor habits, risky past times or careers. Comparison-shopping becomes more important if you think your rates will be higher. A medical exam is the normal part of the insurance application procedure.

Term Life Policy

This is simplest and cheapest. Coverage is for a fixed period. This policy can be renewable with difference in premiums from the basic type. Some term policy types can be convertible to a permanent policy type, the benefit of which is the avoidance of a medical exam.

Permanent Life Policy

Coverage is for life and not a term. People may prefer to avoid the hassle of renewing term policies by choosing this type of insurance, even though it comes with costs avoided in the other form.

Whole life, variable life and universal life policies are the different types of permanent life insurance policies. A whole life insurance policy has an insurance and a investment component. The insurance component is the prearranged amount that is paid out to the beneficiary. Investment of the premium allows for the building of a nest egg upon which tax is not paid. Borrowing against this amount is also possible. There is a danger of being underinsured if you cannot afford the cost of coverage you actually need.

The variable policy is linked to the vagaries of the stock market. Universal life policy can be renewable, funds can be transferred from the insurance component to the investment component; and, premiums can be paid from the interest portion earned.

Permanent policies come with charges upon cancellation, which can deplete the accumulated value of your policy. While tax-free feature of such a policy is not as notable today as there are other financing vehicles which provide that haven as well; and some may be at better terms than what is available under such policies.

Premium financing plans

Premium financing plans are a way for those who have assets over $5 million. It offers an option to those seniors who do not want to liquidate some of their assets to pay for the premium. The insured borrows money to pay the premium with assets pledged as collateral. The borrower is often, required to be a partnership, corporation, or trust. Such plans are developed between lenders and insurance carriers. At the time of death, a portion of the payout amount is used to pay off the lender. However, the loan can be paid off earlier if preferred. Use of this tool can lower out-of-pocket costs and gift tax liability. A greater internal rate of return on the amount to be paid over non-financed methods might also be a benefit. For those who want to keep their policy until the end of their life, they might want to consider a life insurance trust which is estate tax payment exempt.

Need to review your life insurance policy

Changing needs may require changing your insurance policy. Other reasons might require revision such as the need to change your beneficiary, organizing your insurance burden from policies obtained for different purposes such as mortgage insurance policies, taking advantage of newer policies offered on the market that have more desirable features, improving your financial planning and or benefits. Be mindful of the fact that it is easier and cheaper to change when you are younger and healthier.

Taking care of your loved ones is affordable and simple when you get a life insurance quote today! Having life insurance will give you and your loved ones the security that is needed if something happens suddenly.

Article kindly provided by UberArticles.com

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Article Citation
MLA Style Citation:
Gibbs, Jenny "Is Time To Consider Why Life Insurance Is Important?." Is Time To Consider Why Life Insurance Is Important?. 17 Aug. 2010. uberarticles.com. 10 Mar 2015 <http://uberarticles.com/finance/is-time-to-consider-why-life-insurance-is-important/>.

APA Style Citation:
Gibbs, J (2010, August 17). Is Time To Consider Why Life Insurance Is Important?. Retrieved March 10, 2015, from http://uberarticles.com/finance/is-time-to-consider-why-life-insurance-is-important/

Chicago Style Citation:
Gibbs, Jenny "Is Time To Consider Why Life Insurance Is Important?" uberarticles.com. http://uberarticles.com/finance/is-time-to-consider-why-life-insurance-is-important/


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