Life Insurance is a simple and, at the same time, a complicated topic of personal finance. Simple because it serves a very simple purpose—to provide for your family and loved ones after you’re gone or even for yourself in case of loss of income etc. And, complicated because we can almost never figure out how to predict how much we’d need in the future to keep us protected from these anticipated losses.
Adam Ginsberg, one of America’s leading internet entrepreneurship and wealth building coaches sheds some light on the various kinds of life insurance and how to choose the right one.
Various kinds of life insurance
Life insurance can be split into two broad categories, i.e., term insurance and whole life insurance.
Term insurance basically guarantees a specific sum of money to be paid to the family of the insured person in the event of his or her death, or in some cases permanent disability as well. Term insurance policies are taken out for a specific period and a specific amount. If the insured person outlives the period of the policy, then the policy expires. In short, term policies are pure insurance in the event of a tragedy, and nothing more.
Whole life insurance, on the other hand covers the insured person throughout his or her life span. These policies include a variable cash value that builds over time along with guaranteed death benefits. However, the premiums for these policies tend to be higher since a portion of the premium goes into making investments on your behalf for that cash value component.
Now this is the tricky part. There are as many points-of-view on how to choose the right insurance as there are people you know. However, each individual’s requirements are as unique as the individual themselves and only you can decide which insurance policies will suit you best. There many of your life’s factors to consider while making this decision and Adam Ginsberg suggests a basic approach to analyzing various factors before making a decision.
Factor #1 – Your Age
Age is perhaps the most crucial factor while deciding on your insurance policies. For instance, if you are young and single or older with grown up, independent children then you may not need pure life insurance at all. However, if you are married and have children with other liabilities like mortgage or auto loans, then you should have at least one term insurance policy.
Factor # 2 – Policy Period
If you have children, then the term period for a life insurance policy should be long enough to cover your children’s college-going age. For instance, if you have children aged 10 and 5, then you should take an insurance plan for a period of 15 years, which will cover your younger child till his or her college years.
Factor # 3 – Insured Amount
This again is a very crucial factor that tends to confuse people while choosing an insurance plan. According to Adam Ginsberg, the ideal insured amount should be the one that covers all your liabilities, like your mortgages and auto loans, and a few times your annual income to help your family tide over in the event of your death, and get back on their feet again.
These are the three basic factors that influence your decision while considering taking out a term insurance on your life and should be analyzed meticulously to help you get the right decision.