Many people create monthly budgets to manage their household income and responsibilities. They may also contribute to a retirement plan through their employer or financial institution. Although these are great first steps to financial security, they may not be enough to leave a lasting legacy for family members. Adding life insurance to an existing financial plan may help create financial security for future generations.
Understanding Life Insurance Options
The simple reason that many individuals do not have life insurance is that they do not understand all the complex terminology. In the most basic form, there are two primary types of individual life insurance: term life and whole life.
Term Life Insurance
Term life insurances covers a specific period of time, such as twenty years, as long as the premium is paid. The period of time is chosen by the policy holder and is known as the term. At the end of the specified term, the insurance policy expires and there is no payout available. Premium prices generally increase as the insured ages. Term life policies can be renewed at the end of the time period, usually at a higher premium rate.
Whole Life Insurance
In contrast to a term life policy, whole life insurance products are designed to cover the insured party until death. Some restrictions apply and most policies are automatically paid out at age one hundred or shortly thereafter. Unlike term life, whole life policies often have variable premiums that increase with age or changes such as chronic health conditions. Although either policy can include routine physical exams, companies offering whole life policies often require a medical evaluation before issuing a new policy.
Combining Policies
A solid financial plan that includes life insurance can keep families secure even after the death of the policyholder. Combining a whole life policy with a less costly term life plan provides adequate coverage to cover living and maintenance expenses after the death of an insured person. To create wealth or a financial legacy, consider more than one policy and establish a trust or other long term strategy to invest funds for future use.