Types of Life Insurance Policies
Life insurance is grouped into three basic types:
- Term Life Insurance is a low-cost insurance that covers the insured for a specified period of time, typically one, five, or 10 years. Depending on the consumer's unique needs, variations of basic term life insurance can be purchased, including conversion to a cash-value policy. If premiums are paid as scheduled during the specified term, and if the insured dies during the term, beneficiaries will receive the allowed death benefit.
- Whole Life Insurance covers the insured person for his or her entire life. This type of policy develops cash value in the form of returns on the investment of a portion of monthly premiums by the insurance company. Several variations are available, and certain tax advantages apply.
- Universal Life Insurance provides for a death benefit as well as a method for developing tax-deferred savings, which may be used to pay premiums.
Where You Can Buy a Life Insurance Policy
Life insurance can be purchased from insurance company agents or independent agents as well as directly from some insurance companies by mail, telephone, or across the Internet. As well, distribution channels for term life insurance have developed in banks, professional groups, financial advisors, stockbrokers, and in the workplace.
When working with life insurance agents, be prepared to ask questions to verify that the products offered meet your needs without your becoming unnecessarily covered. Know generally what financial requirements beneficiaries will need and how long it will probably take until their finances become stabilized. It is important to be cautious of becoming over-insured.
Live Healthy and Safe to Earn Reduced Rates
Catastrophic events can occur, sometimes when least expected. But, by living a healthy, active, and safe lifestyle a person can guard against untimely death and promote his or her insurability at lower rates.
Factors that insurance companies consider when determining a person's insurability are personal and family medical history and whether he or she smokes tobacco, eats a balanced diet, gets adequate rest and relaxation, exercises regularly, and avoids putting themselves in harm's way. But, even a person who follows all known precautions can have an accident or suffer an unexpected fatal health issue.
Insurance rates are charged in proportion to the amount of risk the insured person appears to embody. Based on actuarial data, the greater the risk posed by the insured, the higher the policy premium will be. Actuaries are professionals who develop mortality tables that are statistically derived from demographic data and lifestyle behaviors. Mortality tables summarize the probability of how long people having similar characteristics may be expected to live.