Insurance is, first and foremost, a risk management tool. Life insurance is no different. The risk that life insurance is primarily intended to manage is premature death. Few things will cause as much financial upheaval as the death of a primary breadwinner. Not everyone will necessarily need life insurance, but most people should seriously consider a policy. Those with dependents will definitely want to purchase a policy that provides for those that depend on them should they meet an early death.
Types of Life Insurance
There are two major types of life insurance that consumers will want to familiarize themselves with.
Whole Life Insurance
This insurance is intended to last a person’s entire life. The premiums for whole life insurance will remain stable until the policyholder dies or otherwise surrenders the policy. Because the risk associated with this insurance is for an indefinite term, the premiums will tend to be a bit higher than its main competitor, the term policy.
Whole life insurance will usually have a cash value that builds up over time in addition to the stated death benefit. To build cash value, the insured will pay a sum in addition to the actual premium. This cash value will grow over time-based upon a variable rate of return that’s related to the success of the insurance company’s investments, and the insured could use this money for a wide variety of purposes. A whole life policy can be a good way to save money for the long run while maintaining a solid level of tax efficiency.
Whole life insurance is considered a form of permanent life insurance. As long as someone pays the premiums and the policyholder stays alive, the policy will remain in effect. There are other variations on the permanent insurance idea. These include universal life insurance and variable life insurance. A universal life policy allows for the use of the accumulated cash value to offset premiums. As the cash value grows, the cash flow could even take care of the premiums altogether. Variable insurance gives policyholders greater control over how their cash value gets invested. The returns could be higher, but variable life policies come with higher risk.
In addition to permanent insurance, those who want to provide for their families in the event of their deaths can opt for term insurance. As the name might suggest, term policies are good for a specified period of time. Terms usually range anywhere from five to 30 years. The death benefits associated with term policies will generally be several times higher than those offered with permanent insurance because of the limited liability they carry for the insurance company.
Term policies do not build cash value over time. Policyholders do not use term insurance as an investment vehicle, and they pay out only upon the death of the insured. Because the death benefit is the only purpose of this insurance, premiums can be substantially lower than they would be for a permanent policy that carries a similar death benefit.
Another important factor in the cost of term insurance is the length of the term. Simply stated, the mortality of a given person is likely to be higher the longer he or she lives. Therefore, an insurance company is statically much more likely to pay out a death benefit on a given policyholder within a 30-year period than it is to do so within a five-year period. Therefore, term insurance with a longer term will tend to cost more than a policy with a similar death benefit that has a shorter term.
When To Buy Insurance
Purchasing life insurance is a decision that needs to be made on the individual or family level. There are some really good times for people to reconsider their insurance needs. For example, a marriage or divorce might necessitate more or less insurance. Additionally, bringing new children into a family or having children move out on their own might be timed to reconsider the amount of insurance that’s needed.
Generally speaking, the earlier a person buys a life insurance policy, the less it will cost. This is tied to mortality tables. It goes without saying that older people are more likely to die than younger people. Therefore, because of the statistics, an 18-year-old will pay less for a new life insurance policy than a 50-year-old will.
If you’re considering insurance in the Carolinas, be sure to check with Sandifer Insurance. We’re a second-generation firm that’s been in operation for 37 years, and we’re committed to building a solid relationship with our clients. We’re located in Cheraw, South Carolina, and we’d love to discuss your options with you. Give us a call today to set up a consultation. We want to give you the information that will help you make a decision that meets your needs.