Idea
 | | | |
Insurance is the thing that everyone needs in modern world. It makes you feel safe for you and your family, for your home and business. This kind of stability is guaranteed by insurance policies of different types. |
| | | |
|
What kind of life policy should you buy?
| | | |
There are two basic kinds of policy. A term life policy pays out if you die within the term of years agreed. If you live beyond the term, you and your family get nothing. The premiums for these policies may increase over time.
A more expensive permanent life policy pays out whenever you die and has a “cash value” that you can realize either by surrendering the policy or borrowing with the policy as security.
These policies are more expensive because of the savings element that earns interest and/or dividends. The initial premiums are therefore higher but stay the same during the currency of the policy. No gains tax is payable on death.
|
|
If you are only looking for short-term cover, say less than ten years, a term policy is probably better and you should invest the premium saved in a reasonably secure investment. If you are looking for longer term cover, say more than twenty years, permanent life is probably better.
For anything in between, the choice will depend on your needs. Note that most companies will allow you to convert your term policy into a permanent policy if your health is good.
What are the main kinds of permanent policy?
-
Participating whole life guarantees the amount of the premium, and minimum cash values and death benefits. This is achieved by investing a proportion of your premium and using the dividends you earn to increase the benefits.
-
Universal life gives you premium flexibility allowing you to vary the amount payable up to a maximum — some policies allow a premium holiday where you skip a year. Such policies give you a minimum guarantee of cash values and death benefits because they only pay interest not investment dividends.
-
Variable life gives few guarantees but offer the greatest potential for cash-value increases. You have to select the mutual fund investments to be made with the premium income. If you enjoy risk, you can pick funds with an aggressive profile. There are, of course, more conservative options.
However, because of the insurance component and other fees and charges collected out of the premiums paid, the quality of the investment returns are significantly lower than those achievable by making direct payments into these funds. You should not view insurance policies as investment vehicles.
Information from InsureMe.com
| | | | |
|
|
