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Life insurance is a financial product that you are typically paying for the long-term. When you commit to paying premiums for 5 to 30 years, or possibly even the remainder of your life, you need to be sure that you understand the ins and outs of what you are paying for.
As long as you understand the complexities of life insurance, you can feel secure when you purchase within your budget.
There will be advantages and disadvantages to any type of product that you purchase, but with life insurances making a bad purchase can be much more damaging than it is with the average consumer good.
This is why it is so important that you read up on life insurance advantages and disadvantages before you start comparing quotes or filling out applications.
Read this honest consumer guide and learn everything that you need to know to make an informed decision as you comparison shop and sift through the product offerings.
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What are the different types of insurance that you can purchase?
Life insurance is not a one-size-fits-all type of product. There are advantages to specific policies that may not exist if you buy a different type of plan. This is why it is important to learn about the types of insurance that are available to you before you assume that every plan has the same drawbacks.
Here is a breakdown of the most popular types of permanent and term insurance plans sold today by leading insurance providers:
– Level Guaranteed Term Insurance
Term insurance is a temporary form of coverage that will only provide you with protection for a specified number of years.
If you choose a guaranteed renewable level term, you will have the same amount of coverage for the entire term that you select.
The premiums will also remain level, which will make your payments more predictable for a set period of time.
Most level terms can be renewed, which means that you must medically qualify at the end of the term to determine what premiums you will need to pay at your older age.
– Annual Term Insurance
Annual terms were once popular but have declined in popularity because the premiums rise each year you have the plan.
The annual term plan offers a level death benefit, but the premium will go up every year as you become a higher risk.
These plans automatically renew, which can make them a great option for people who do not want to medically qualify or who cannot. They do tend to be the more expensive term plan in the long run.
– Universal Life Insurance
Universal life is often called adjustable life and is a permanent insurance policy that includes a death benefit and an investment component. The policy itself stays in effect for your whole life as long as you pay premiums that will keep the policy active.
The death benefit will rise over time because the investments will earn cash value. If this value sits, it can pay for your premiums.
– Whole Life Insurance
Whole life, which is also called ordinary life, is a traditional form of permanent insurance. It too has an investment component, but you will pay the same payments each month making it the less flexible option.
For those who like predictability but still want an investment component, whole life is a better choice than universal life. The only time that the death benefit will rise is when you earn dividends on the plan, and you leave them in the policy.
What are the most common disadvantages of term life?
Perhaps the biggest disadvantage to buying term life insurance is that you never know if you will get what you are paying for.
Term life insurance is much less expensive than permanent insurance, but the affordability comes with drawbacks because you are gambling with your money.
If you do not die during the term and you do not renew the plan, your policy ends and you can kiss the money you spent goodbye.
There is also no investment component built into a term life insurance plan that helps you justify spending the money when a death benefit is not being paid out. If you would like to renew your plan at a later age, you have to worry about being able to afford the more expensive plan.
There is also a chance that you have fallen ill or been diagnosed with a condition that will make you ineligible for coverage unless you purchased a special guaranteed renewable rider. Unfortunately, many people are not aware that this rider is available.
What are the common advantages of term life?
There is a reason why term life insurance is the most popular type of insurance purchased today. The advantages of term life outweigh the disadvantages. Perhaps the biggest advantage of term life is that you can purchase peace of mind at a bargain price compared to the cost of permanent life.
For pennies on the dollar, you will have funds to protect your family and to pay off financial obligations if you pass before your time.
As long as you understand that term life insurance is not meant to provide you with protection for your entire life, you are using the right tool as you plan for your financial future.
There are also riders that make it possible to ensure you will always be eligible to keep your plan.
With a term plan, you can provide your kids with money for their education, replace your income, pay off mortgages and other debt, or pay for other obligations that will someday go away.
If you select a term that is long enough to provide the protection that you need until the obligations go away, it could be a great tool.
What are the common disadvantages of permanent life insurance?
Permanent life insurance is not for everyone. If you want to buy coverage for the traditional use, then the cost of permanent insurance may be much too high depending on how much insurance you need.
If you need to buy a large plan, the cost of whole or universal life could be ten times higher than the cost of a term plan. For those who are not concerned about cost, this may not be a disadvantage.
Another drawback is that many buy whole or universal life because it has an investment component but do not realize that the interest you will accumulate could be much lower than the interest you would accrue in another savings vehicle.
Some financial experts feel like allowing the insurer to invest your money for you is like having a middleman who charges you maintenance fees that shave off the profits and make moves that benefit themselves.
The complex nature of a permanent plan can also benefit the provider. Many times, the illustration does not tell you enough for you to understand if you are going to get a return on your money. You have to be willing to do your homework before you assume that you will earn exorbitant cash values.
What are the common advantages of permanent life insurance?
Having permanent insurance can be advantageous to people who cannot qualify for any insurance later in life. While the costs are high, the idea of getting permanent coverage is enough for many to choose a whole life plan over a term life plan.
You will never have to worry about a medical condition disqualifying you or about your premiums rising when you turn 55, and your term ends.
Knowing how much you will pay for the entire remainder of your life could be enough for you to pay those higher premiums for a plan that will always give you peace of mind.
Investment value can be a good thing if you go in knowing what to expect.
If you are going to pay your money to the insurer, you might as while accumulating value on that money that you can tap into or use to pay your premiums with a universal life plan.
If you want to borrow against the account, that is an option. If you want to withdraw your dividends or cash value, that is also an option. The possibilities do not exist when you get a term life plan.
Now that you know the advantages and disadvantages of both categories of insurance, you can start to comparison shop. The best way to find affordable premiums for the type of insurance that you want is to get quotes from multiple providers.
You can contact each insurer directly or you can use your time wisely by using a rate comparison tool that gives you access to the instant quotes with the top insurers in the marketplace.
Enter your personal information, choose a benefit, and then find out which carrier has the best plan. Start with our FREE tool below!