Let’s face it – life insurance is not a fun topic. Who wants to think about getting ready to die? But like it or not, if you have people who depend on you for your income, like your children, spouse, or elderly parents, buying life insurance is something you should consider to make sure they are taken care of even after you’re gone, or if something happens that forces you to stop working. You wouldn’t want them to suffer, would you?
How will life insurance help you?
Life insurance provides your dependents with a sum of money if you pass away or become permanently disabled.
It’s important to know that there are three types of life insurance products – be sure not to confuse them!
- Term life products last for fixed periods (5-40 years). If anything happens to you during this period, your dependents will be paid a sum of money. However, if something happens to you after the term of the policy has expired, your dependents will not get anything. Because term life insurance has no savings or investment elements tied to it, your term life premiums will be lower than a whole life policy with similar premiums and coverage.
- Whole life products last until your death and pay your family a lump sum amount when you pass away. You can think of it as a term-life policy with forced savings. The savings part helps pay for the higher cost of insuring you as you get older, which keeps your premiums stable. When you pass away, the extra savings are paid to your family as a “death benefit”.
- Investment-linked whole life policies are whole life policies added with an investment product. Instead of keeping your savings like in a normal whole life policy, the savings are invested. Your premiums and insurance payout will depend on how the investment performs. So, if the investment loses money, you may have to pay higher premiums, or your family might get a lower death benefit or not get it at all.
So which type of life insurance should you go for?
- Figure out what you need – if you only need the insurance until your children are grown up (and hopefully making money of their own), then you should go for a term life insurance. It’s cheaper!
- Do you want a savings element built into your plan? Then perhaps a whole life insurance policy is a better option. However, do shop around as there are many types of whole life policies ranging from basic to advanced. This will affect the price of your premiums.
- Do you want to link your insurance with an investment? Investment-linked policies are risky and can cost more. Although it could give you added returns, those returns could go up or down depending on how your investment performs. Additionally, although these policies provide the same amount of coverage as whole life and term policies, premiums for investment-linked policies are generally higher.
Whichever you choose, be sure to purchase a life insurance policy through a licensed insurance agent or broker. Do your homework carefully before making a decision – read our guide on life insurance to help you and use our checklist to help you compare plans!
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