BY: FAZAAD BACCHUS
Buying life insurance has become a complex purchase. From not knowing how much to buy or what type to buy has become quite a task when faced with the buying decision. Many years ago, it was a simple choice where you either bought a permanent or term plan, but today there are various types of permanent and various types of term plans. Today we will deal with what types of life insurance are available and what might be right for you.
The simplest life insurance you can possibly buy is a term insurance. Generally, this form of insurance only covers you for a period of time and has no cash values. Let us say, for example, you buy a house with a 20-year mortgage, you might wonder what would happen to my family should I pass away. Well, most times the bank would have offered mortgage insurance, but for this particular reason, you would be better off buying a 20 year term policy. When the mortgage is over, you can choose to cancel or continue the policy.
Term policies are also good when you have responsibilities and you don’t have a lot of disposable income. Let’s take someone who is just starting out in life, married and has a child. They may be saving for a down payment on a home, have car installments and daycare fees etc. They might think that insurance might be too expensive, but probably don’t know that they could purchase a 10-year term to cover their needs for less than $25.00 per month. Isn’t it worth it then to consider same?
Term to 100 also known as a universal life policy is a really good policy to start when you are young. Due to your age, the premiums are quite low and you can choose a level or escalating premium design. Typically, this type of policy has an investment component, this means that cash values will build up and can be used for emergencies or can be part of your retirement strategy. The investment inside the policy grows tax-deferred and in the event of death, the lump sum is paid out tax-free. This lump sum can be your sum assured only or your sum assured and your cash value in one.
Probably the policy which everyone would love to own is a permanent life policy. This policy pays out the full sum assured in the event of death, has a guaranteed premium payment, and never expires. This type of policy is most useful if you want to leave a legacy for your children, your church or a favourite charity. When you own this policy, you are guaranteed that this policy will pay out whenever you die. However, because of the benefits of this type of policy, it is usually more expensive than a term policy.
And if you would like a permanent policy that grows a significant cash value, you could look into a permanent policy participating in dividends also know as a par policy. This might be a good choice for younger kids as a gift, especially as there are options where you only pay for 20 years, and the policy continues to be in force.
There are lots of choices, talk to an advisor today.
