Life insurance is important to ensure the financial well-being of your loved ones when you’re no longer around. Although it isn’t the first type of cover most people take out, it’s certainly one of the most important. It’s easy to neglect your life insurance and assume that having a policy is enough. Most people never need to claim life insurance, so many aren’t even aware of the extent of their cover. Don’t fall into this thinking trap, where you simply assume your cover is sufficient. Doing a proper evaluation of your life insurance cover could make an immense difference to your family’s quality of life one day. When shopping around for Florida life insurance policies, there are a few things that are helpful to know.
Different Kinds of Life Insurance
Not all life insurance policies are the same. Policies differ depending on your personal needs. Some of the most common life insurance policy options include:
- Term life insurance
- Variable life insurance
- Universal life insurance
It’s imperative that you understand the differences between the above mentioned policy types. Knowing the difference will help you make a choice that’s right for you and your family.
Term insurance is a type of life insurance cover that will pay out within a set period. For instance, your policy might be valid for 10, 20 or 30 yeas from the date of purchase. This means that a term policy will only pay out if the policy holder dies within a set amount of time.
For example, if someone takes out term life insurance at the age of 25 and the term of their policy is 30 years, the life insurance policy will only pay out if the 25-year-old policy holder dies before the age of 55.
The benefit of term insurance is that will cover almost any death if the insured dies before the policy expires. Illness, car accidents and other accidental deaths are usually all covered by the policy. The only exception is certain cases where the insured’s death is found not to have been accidental. This means that death by suicide won’t be paid out by a policy. Homicide cases where the insured’s death was related to claiming the insured’s death benefit also won’t be paid out.
As an added benefit, term insurance plans often (although not always) have a fixed premium. This means that the monthly cost of the policy will remain the same throughout the duration of cover. If the 25-year-old policy holder mentioned above paid $50 monthly when he/she took out their cover, the premium will still be $50 even 30 years later until the day the policy expires.
Variable insurance is a form of permanent life insurance. What this means is that, unlike term insurance, your policy won’t expire after a set number of years. The benefit of a policy that doesn’t expire is that you’ll never lose your death benefit.
Another benefit of variable insurance is its investment component. Most people don’t think of life insurance as a form of investment, but it can be. The investment component of a variable insurance policy is like a mutual fund – where the money from policy holders is combined and invested in the market. As a result, your policy investment can grow in value. Keep in mind, that negative market growth can also pose a risk, causing your investment to diminish in value at times.
After years of owning your variable insurance policy, you’ll typically see good returns on your lifelong investment. The benefit of the investment account on your variable insurance policy is that you can take out a loan using your policy as collateral as a way to access your funds with minimal taxation.
One of the disadvantages of variable insurance is that your monthly premiums usually aren’t fixed as with term insurance. Most permanent insurance policies also have higher premiums when compared to term insurance.
Universal insurance is another form of permanent life insurance, meaning your benefits won’t expire. As with variable insurance, you also get an investment and savings benefit with your policy.
Thus, the main difference between a variable and universal policy isn’t based on the duration of the policy, as both are lifelong. Both policies also include an investment benefit. However, the main difference lies in the nature of the investment. Whereas variable insurance operates with a mutual fund investment benefit, the investment component of a universal policy is based on a set interest rate. The interest rate at which a universal policy’s investment grows is determined by the insurer.
It goes without saying that a universal life policy promises more stability in terms of growth. The lifetime gains from a universal policy are generally more predictable. As is custom in financial affairs, less risk does impose somewhat on potential gains, however.
Money invested into the market has far more potential to grow and isn’t restricted by a predetermined interest rate. The trade-off with variable versus universal insurance is risk. Investors who choose variable insurance stand to both lose or gain more from investing money in the market rather than receiving a flat interest rate.
Which Life Insurance Cover is Best?
No single form of life insurance cover is better than another. When choosing life insurance, your personal needs should take preference to help you decide.
Who Needs Term Insurance?
When looking at the life insurance policies listed above it’s easy to dismiss term insurance as less advantageous than permanent options. But keep in mind that term insurance does offer some benefits. Mainly, the premiums on term insurance are generally much cheaper than that of permanent policies.
This allows a young individual in need of cover to take out life insurance at an affordable rate, only for the required time. For instance, the insured may base the duration of his/her cover on how long they’ll be paying off their mortgage, or when their children will reach adulthood.
A major disadvantage of term insurance is that it comes with an expiry date. By the very nature of term insurance, the insured individual will be older when his or her cover expires. Age related ailments can make it more difficult or even impossible to renew cover after expiry.
It should also be noted that insurance companies will base premium cost on an individual’s risk profile. This means that younger individuals who follow a healthy lifestyle tend to pay lower premiums than older persons with riskier lifestyles. A company can penalize you for smoking or pre-existing health ailments.
Who Needs Variable or Universal Insurance?
Both forms of permanent insurance are suitable for anyone who’s looking for more assurance than offered by term insurance. However, permanent insurance policies do come at a higher price and affordability might be a concern for many people.
The benefit of permanent insurance is that companies aren’t as strict about health background checks. This makes permanent life insurance a good option if you’re older or if you suffer from a life-threatening condition. The assurance that comes with permanent insurance means you’ll have a definite death benefit, as well as an investment to assist your loved ones.
One of the disadvantages of permanent insurance, however, is that your investment might not grow as much as you would hope. There are better investment options available that you could take advantage of. If you financially invest in a life policy, you’ll be sacrificing money you could invest elsewhere at a better return rate.
The catch is that other investments won’t include a death benefit, so if caring for loved ones is your priority, permanent insurance can still be a good investment for you.
Alternatively, you can apply for term insurance to obtain a death benefit and invest any capital you have on hand separately. The drawback of this option is that you’ll need to be skilled in finances and investing to ascertain financial gain from your investments.
Different kinds of life insurance policies are tailored according to individual needs. The best option for you will depend on your age, current health and what you’re willing to spend on monthly premiums.
If you’re looking for life insurance in Florida and you’re not sure where to start, contact Pini for help. We’ll guide you in choosing the best life policy for your needs. At Pini, we understand that you’re an individual with unique needs. Our staff are dedicated to helping you get the cover that will benefit you and your family most in times of need. Talk to us about all your life, home and car insurance requirements and we’ll help you choose a policy that you can trust. Your peace of mind matters to us, which is why we’ll do our best to educate you on exactly what your policy covers.