Life insurance is a contract between an insurer (insurance company) and a policy holder that guarantees that the insurer pays a sum of money to the beneficiaries when a policy holder dies, in exchange for the premiums paid by the policy owner during their lifetime. All life insurance policies offer a death benefit, which is a tax free lump-sum in exchange for the premiums paid to the insurance provider for the term of the policy.
There are three types of Life Insurance, Term or Temporary Life Insurance, Whole Life or Permanent Life Insurance & Universal Life Insurance.
There is no one type of life insurance that fits all, each one has its benefits and drawbacks. Your life insurance needs are determined by a range of factors such as your age, household income, marital status, number of dependents, your debt profile, mortgage loan and amortization schedule.
Term Life Insurance or Temporary Life insurance lasts for a specific length of time, called a term which can be 1, 5, 10, 20 or 30 years during which the policyholder needs to offset the financial impact of losing an income. The death benefit and monthly premiums remain the same through your chosen term. If the policy holder outlives their policy, their beneficiaries won’t receive a payout.
The best term life insurance policies balance affordability with long-term financial strength. Before a term expires, it may be renewed, usually with higher premiums. Oftentimes, renewals are guaranteed as a term life insurance policy does not require the insured to undertake medical examinations. In some cases Term Life insurance can also be converted to Whole Life Insurance before the expiry of the term.
Annual or Yearly Renewable Term life insurance is a short-term policy that locks in your premiums for one year with the option to renew at the end of each year. An annual policy can be useful if you have short-term debts or need coverage for a brief period of time.
Decreasing Term Policies is a form of term life insurance where the death benefit decreases in later years of the policy.
Pros: Term Life Insurance offers the cheapest premiums, and it’s sufficient for most people.
Cons: If the policy holder outlives their policy, their beneficiaries won’t receive a payout.
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