Choosing the best insurance policy is quite a daunting task. Many insurance agents or companies are quick to tout life’s virtues in part because of their high commissions. However, in reality, there are many factors that you must consider before deciding on the best insurance to buy for you and your family.
Before one decides to get insurance and waste all your time deciding what policy is best for you, consider this first:
Do I need life insurance?
Although life insurance provides security and financial protection for family members, especially for the spouse and children, the need varies depending on one’s personal situation. If you do not have any dependents, then you don’t probably need insurance. If you are not the main provider or you’re not the one who generates a significant percentage of your family’s income, then you don’t need to purchase it.
On the other hand, if you are the main breadwinner or if your income is important in supporting your family and covering your family’s financial obligations such as paying the mortgage or other recurring bills, or your kids’ college/university fees, buying insurance is important to ensure that these financial obligations are covered in the event of your death.
What Type of Life Insurance Is Best?
Before one collects insurance quotes and compares them, it is important to have a better understanding of life insurance.
Life insurance has 3 major options or kinds: Term, Whole Life, and Return of Premium
Term Life Insurance
Term life provides a set amount of coverage for a predetermined amount of time such as 10 to 20 years, and premiums are generally set at a flat rate. For most people, term life policies still offer the best combination of coverage and cost. It is the most popular because it is the lowest-cost way to get the most coverage for a shorter period. Since it has a renewal option, it is much easier to walk away from a policy if you find a better deal or when your needs change.
- It’s Affordable. Term life is the cheapest type of life insurance. It has a reasonable rate that enables people to buy policies with larger face values than they could otherwise afford.
- Easy To Buy. All you need is to determine how much you need (amount of coverage) and how long you’ll need it (the term of coverage) and then you can get an insurance quote from among the Insurance companies in Australia and find a competitive rate.
- Covers A Temporary Need. Term life only covers a specific period such as 20 or 30 years so if you and your spouse have saved a generous retirement stash and your kids are in college or are now working, you might find yourself not in need of life insurance in the future but only require it for a specific period.
- Renewable. Term life is renewable in 1-year increments with increasing premiums so it is much easier to terminate it if you find a much better deal because of this option.
- It has an expiry date. If you find yourself still in need of life insurance after it expires, it might become tougher to get term life as you get older. If you’re not in good health, this might make you ineligible for coverage.
- NO Money Paid Out. Term life expires so if you live past the expiration date ï,¾ or cancel it at any time ï,¾ no money is paid out, you get nothing back.
Whole Life Insurance
Also called Permanent life, Whole life insurance provides you protection throughout your entire life.
- It’s Permanent. Whole life policies NEVER expire, provided that you have paid your premiums regularly.
- Forced Savings. Whole life premiums are not cheap because this type of policy builds up a savings account or “cash value” that grows tax-deferred, and which can be tapped in retirement.
- Fixed Premiums. Though Whole life premiums are much more expensive than term, the premiums stay the same over the life of the policy, which stays in effect until your death, even after you’ve paid all the premiums.
- Guaranteed payouts. The primary advantage of Whole life is the guarantee that your policy will be paid out, unlike a term policy.
- Expensive. Because this type of policy builds up a savings account or “cash value” that grows tax-deferred, it’s premiums are not cheap.
Return of Premium
- It’s a compromise. A return-of-premium policy provides a death benefit that is paid out should you pass away. However, if you outlive the term of the policy, you only get all of your money back dollar for dollar with no interest. So no matter what happens to you whether you die while covered or outlive the policy, money is distributed.
- Affordable. Though a return-of-premium policy isn’t as cheap as term life, it is still much cheaper than whole life. A return-of-premium policy will cost approximately 50% more than a comparable term life plan.
- Easy to Understand and Shop For. Return-of-premium policies are easy to shop for and easy to understand.
- NO return on your investment. If you outlive the initial term, you will only get back what you paid in. If you cancel this policy, you get nothing in return.
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