Life insurance, which can be categorized as either term insurance or whole life insurance, is often considered to be the safest and most risk-averse investment vehicle. The concept of having you and your dependants insured and to whatever level is particularly of concern to a person who is the head of a household; this is the person who best understands what the responsibility of having others depend on him or her for their wellbeing entails.
Heads of households are often caught up in thoughts concerning how the expenses of their dependants will be covered in the event that they are unable to continue being the chief providers thanks to unfortunate incidents like disease, accidents and even death. Taking out life insurance for one’s dependants is widely viewed as a sound means of securing their future, but is it really? Before you go out spending on life insurance it is apt for you to understand the various types of life insurance and how these work if only to establish whether or not this is a worthwhile investment...read on:
1The Definition of Term Insurance
For this type of insurance, premium payments are made annually in return for a death benefit. Term insurance is the cheapest form of life insurance and it cannot be bought as a means of investment. The said death benefit is the only thing that one receives from such a package and this is only when the insured person dies while the policy is active. Term insurance is considered to be ideal for people who don’t believe they’ll need life insurance in their latter years. Basically, the premiums for this policy get higher as one grows older.
Term insurance is mainly intended to protect one’s dependants but because as most people grow older they accumulate finances in the form of retirement packages and/or their dependants become self sufficient, the need for this insurance tends to decrease.
2Whole Life Insurance
This type of insurance is also referred to as cash value or permanent life insurance. Four variants exist under this type of insurance: whole life, variable life, universal life and variable universal. Basically, permanent life insurance offers coverage throughout a person’s entire life and it also features its cash value as an investment. It is only a fraction of the premium payments made on this policy that support the actual insurance. The rest of the premium payments are used by the insurance firm to create an investment referred to as an accumulation account. This is then invested in securities which earn interest.
The said cash value serves to lessen the amount at risk to the insurer and as such the cost of insurance over time is also reduced. The person being insured can access the funds in the cash value in the form of policy loans or other alt...