Term insurance protects against death within a specific period, usually 1-30 years. Its a pure insurance which can buy highest amount of coverages for lowest rate. It may not be perfect for everyone else, but it usually be the best financial product for most people. However, which one is best suited for you is all depend on your personal choice & other vital info such as your income, dependents, family needs, savings, debts, health, other existing life policies etc. I personally think that if you are confident enough to amass tons of money within your active age to support all of your family’s future needs, then you may go for term insurance. But what if not? Would not you consider the other side of the coin? You may not be in your desired financial position & sound health to reapply for another term due to incredible premium hike or there are possibilities that you may be denied by the insurance company to extend your term insurance for further period. And beyond 70 years of age, its hard to have another term insurance.
Again, you should keep in mind that there are two basic type of Term Insurance-1. Level term in which death benefit remains the same throughout the policy period and 2. Decreasing term policy,benefit of which drops year on year basis during the course of policy period.
Permanent or Whole life, sometimes called cash value policy, is three different types in terms of flexibility:-
1. Traditional Whole, 2. Universal & 3. Variable which produced some cash value that can be borrowed on, cashed in or converted to provide you a monthly income for the rest of your life.
Traditional Whole life is the most basic kind in which death benefit and premium remain the same level throughout the policy period. The cost of per thousand of benefit increases as the policy ages. Thats why premiums are charged higher than the usual and are locked in or invested. When these over-payments grew and reached a certain amount, you get the cash value.
Universal life is similar to whole life with a flexible payment option. If you have enough cash accumulated in your policy, you have the option of altering premium payment or skip a few.
Whereas Variable life allows the insurance company to reinvest the money in various instruments like stocks, bonds, money market mutual funds along-with the death protection. Hence it can be a good choice as money quickly grows tax free, but subject to market risk. Imagine, if the fund is not performing well, your cash value & death benefit can be jeopardize. Good news for you is that there’s certain policy in the market that gives guarantee that the death benefit will never fall below certain minimum level. If you get loan against the policy, money still remain invested and you’ll get the money tax free.Wow!what a policy, I find it an awesome option keeping in mind the country’s consistent economic/GDP growth.
