While a lot of people have life insurance, many still don’t know about the basics or the stipulations when taking out this type of policy. When buying life insurance for yourself or for a loved one, it is important to understand what the best and most cost effective policies for your needs. Here are some tips to help you make an informed decision about what sort of life insurance you should purchase.
First, it is important to know about the two life insurance policies.
Temporary Life Insurance
Temporary life insurance, also called term insurance, is a short-term policy. This means that the policy only lasts between 10 to 30 years. Term life insurance is ideal for younger individuals, as it is usually cheaper than permanent life insurance. But keep this in mind: as you age, the cost of this policy will increase. That is why it is best to buy life insurance when you are young and in good health. Another positive is that the cost for premiums on life insurance for young people can be quite inexpensive as you might only have to pay a few hundred dollars or more a year.
Permanent Life Insurance
A permanent life insurance policy, also called Cash Value, covers the duration of an entire lifetime. This policy is life insurance and an investment. When it scheduled to be collected, the payout options can vary. However, most people opt for a lump sum once the individual is deceased. These policies can be quite expensive, but they do offer tax advantages. In fact, they are popular among some, because they provide people with tax shelters for their money. That is one of the reasons why people choose permanent life insurance policies. In addition, these policies can be renewed and accrue value over a long period of time. The cash value is deposited into a savings account, and can be turned over to another individual or even used as a loan. Finally, it is best to avoid taking money from this account before the settlement. In so doing, individuals will be hit with taxes and penalty fees.
It is also worth noting that many people hold the belief that if someone commits suicide, the life insurance won’t be available to claim. Of course, it depends on when the policy is taken out and when the suicide occurs. That is, if the person takes out a policy of any kind – either short-term or permanent – and then kills themself, collecting the life insurance may prove to be futile. Indeed, if the policy is purchased and the person then immediately commits suicide, generally the life insurance company only reimburses the premium and accrued interest. However, it is possible to submit a claim for a full payout.
Which one is best? That depends on your financial concerns. But approach permanent life insurance policy plans with health skepticism. Since insurance companies are profit driven, insurance agents will push you to buy a permanent life insurance policy, because these yield high profits. So, when you are determining whether or not to purchase term or permanent, be aware of this fact. (If you do your research online, you won’t have to contend with an insurance agent who will try and sell you permanent life insurance).
(Also read: Common Insurance Myths To Be Aware Of.)
The U.S. Department of Veterans Affairs (VA) offers life insurance to service members, veterans and their family members.
The VA offers several different types of life insurance policies:
- Servicemembers’ Group Life Insurance (SGLI): This insurance is available to active military members (service members, ready reserve and the National Guard). The VA’s site states that SGLI is available in increments of $50,000, with a maximum of $400,000.
- Veterans’ Group Life Insurance (VGLI): Military members who were enrolled in the SGLI program can convert it to this policy once they are no longer on active duty.
- Family Servicemembers’ Group Life Insurance (FSGLI): For Service members who are enrolled in SGLI, this policy is available to their spouses and dependent children.
- Service-Disabled Veterans’ Insurance (D-VI): This life insurance is available to service members who were discharged after April 25, 1951. (The discharge, however, cannot be dishonorable).
- Veterans’ Mortgage Life Insurance (VMLI): Veterans can buy this life insurance if they have a Specially Adapted Housing Grant or own a home with a mortgage.
Avoid combining your investments with your life insurance. Whole life insurance might not be the best way to invest your money.
If you are seeking investments for long-term gains, taking out whole, or permanent, life insurance should be avoided. Instead, look for alternative places to invest your assets in order to strengthen and expand your financial portfolio. Moreover, what you will get in return for this investment is unknown, thus making it a risky option. Besides, you won’t start seeing any benefits until the policy has reached its 13th or 15th year, and if you cash it in before 10 years, chances are you will lose money. The cost for whole life insurance varies. It can cost anywhere from $1,000 to $10,000 or more per year.
If you are thinking about buying life insurance, do careful research on policy options for you and your family. It is always best to buy life insurance, as mentioned above, when you are young and healthy. Service members can also take full advantage of life insurance policies offered by the VA. Just remember to weigh all the options, investigate the clauses, provisions and policy choices before making a final decision.