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What Is The Best Type Of Life Insurance?

There are basically 2 categories for life insurance or 2 types of life insurance to choose from. Which type is better is largely dependent on individual needs - while one type may be better suited to one person, it may not be as beneficial for another.

It is therefore important to weigh up the personal pros and cons for each type of insurance in order to determine which is best for you.

1. Whole Life Insurance

Whole life insurance is traditional insurance and the more common of the 2 types. These policies provide cover for your entire life and will payout a lump sum to your family or selected beneficiaries upon your death as long as the premiums or monthly payments are up to date.

Your premium is invested by the insurer into a fund. This fund is then used to pay for claims upon the death of a policy holder. 

You can opt for balanced cover which will ensure that you pay the same premium throughout life in order to receive the stated benefit upon death. Alternatively, you can select comprehensive or maximum cover where your premiums will be reviewed on a regular basis and an increase in premiums may be expected or the reduction or increase in benefit may also be likely.

Some whole life insurance policies provide a cash value benefit where a portion of your premium is invested in a different fund. You can then access this cash value during life rather than only benefiting from the policy upon death. However, any amount withdrawn from the cash value will be deducted from the death benefit and interest will be charged on the amount. It is not recommended to cash in a whole life policy early.

2. Term Life Insurance

Unlike whole life insurance policies, term policies do not provide cover for you entire life but rather for a specified or selected term. Commonly these policies have terms of between 10 and 40 years. The longer the term of the policy, the more it will cost. 

While the policy is in force, your beneficiaries will receive a full payout upon your death. However, once the term has expired, the benefit will cease and therefore your beneficiaries will receive no payout after death. Term life insurance can therefore be a bit of a gamble but has considerable benefits depending on the intent of the policy.

Decreasing term insurance is where the death benefit or total payout that your beneficiaries will receive upon your death decreases throughout the term of the policy while your premiums remain the same. Increasing term insurance is where the benefit increases over the term of the policy while your premiums remain unaffected . Term life policies have no cash value and therefore cannot be cashed out before the expiry date of the policy.

Term life insurance is far more affordable for most people. Many whole life policy holders are cashing in their insurance and using the money to invest in a term policy. However, this is not always the better option. Evaluating both the short and long-term needs of your family or beneficiaries is important to deciding which is the best option.
Posted 10:00 AM

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