© 2008-
SavingsNut.com™ – The Best Site On The Internet For Money Saving Tips & Frugal Living Ideas
Also Visit
“A Detailed Guide of Money Saving Advice & Budgeting Know-
“The best resource on the Internet to teach both young and old how to reduce everyday household expenses. Simply the best.” TSN
LIFE & DISABILITY INSURANCE
LIFE & DISABILITY INSURANCE MONEY SAVING TIPS
Factors To Consider When Buying Life & Disability Coverage
The primary function of life insurance is to provide a “financial cushion” in case a wage earner in the family passes away. It is meant to provide the financial resources necessary to pay the bills (including the mortgage) when a regular income disappears due to death of a family member. It is not meant to make a family “wealthy” in the event of a death, or to ensure that a lot of money is available to leave to your children. There are many variations of life insurance. The most common types are discussed below.
1. Term life insurance is pure life insurance, without any investment component. When the insured dies, the face amount of the policy is paid to the beneficiaries, assuming the policy is in effect. If the policy expires before the insured dies, the policy is worthless. Among the types of term life insurance available are:
a. Standard term life insurance. This insurance pays a stated amount at death for any reason (except suicide is generally excluded for the first two years, and other exclusions such as service in a war zone, etc. may apply). Policies can generally be bought for any length of time. The annual premium will increase as the insured ages.
b. Level term life insurance. This is identical to standard term insurance but the annual premium will remain constant throughout the term of the policy. Premiums during the early years of the policy will be higher than a standard term policy, and during the later years of the policy premiums will be lower.
c. Group term life insurance. This is term life insurance generally bought through your employer, or perhaps another organization. It pays a stated amount to your beneficiaries upon death. The term of the coverage either ends with employment, or upon the employee’s discontinuation of coverage. This type of coverage can be very economical because of group efficiencies, but may be expensive if the insured is a younger employee rather than a more senior employee.
d. Accidental death life insurance. This insurance will pay a stated amount at death if the death is caused by an accident covered by the policy. If death is caused by natural causes, no benefit is paid. The term of this type of policy can be short or long and can cover most all accidental deaths, or cover only a certain type of accidental death. For instance, flight insurance purchased for a specific trip would be a very limited form of accidental death insurance. This type of insurance is often inexpensive because of its limited coverage, but is not necessarily a good deal.
e. Credit life insurance. This is term insurance that is generally purchased to pay off a specific debt (such as a mortgage) if the insured dies. The beneficiary would be the creditor or debt holder. Its term is limited to when the debt is outstanding and the amount paid during death is limited to the amount of the debt. For instance, as the mortgage or other debt is paid down over time, the amount paid to the creditor upon death also decreases. This type of insurance is generally fairly expensive, given the amount of coverage provided, and is often not a good buy. Unless specifically required by the lender, a better choice is to buy either standard or level term insurance in an amount sufficient to pay off the mortgage or other debt.
2. In addition to paying a set benefit amount in case of a death, permanent life insurance also provides an investment vehicle to accumulate wealth over an extended period of time. Unlike term insurance, when the policy term is over (or perhaps sooner) the policy will have a cash value that is redeemable. Often, the investment part of the life insurance has certain tax advantages that are attractive, versus other investment vehicles. Since there is an investment component, in addition to just life insurance protection, the premiums for this type of insurance are higher than for term insurance. There are many variations of this type of life insurance including:
a. Whole life insurance. Like term insurance, whole life pays a benefit upon death of the insured, but also has its own value apart from any death benefits. Premiums are generally constant over the life of the policy.
b. Universal life insurance. Universal life insurance is a flexible whole life
insurance plan. These policies are interest-
c. Variable Universal Life Insurance. Variable universal life insurance is universal
life insurance that allows you more control in how the cash value of your policy
is invested. It permits you to invest the cash value of your life insurance policy
in various funding options, that in turn invest in such things as stocks and bonds.
You decide how your net policy values are to be invested, and you bear the investment
risk. If market performance is poor, your death benefit may decrease, and you may
have to pay higher premiums to keep the policy in effect. But your cash value also
has the potential to grow more rapidly than with other cash-
Next Page
