Life Insurance – A Risk vs Benefit Analysis

Life insurance is perhaps the most financially versatile insurance product available. All forms of life insurance have the same basic structure: In exchange for a set periodic payment (“premium“), the insurer agrees to pay your pre-designated party (“beneficiary”) a specific sum in the event of your death. Most people obtain life insurance to enable their families to meet financial obligations and various final expenses if they die unexpectedly.

Term Life Insurance
All life insurance policies are not the same, however. Term life insurance is the least expensive, and functions as most other insurance does. If a loss occurs during the term of the insurance contract, a set benefit is paid. A primary determinant of the insurer’s degree of risk is your age. Therefore, premiums usually increase each year, until they ultimately become cost-prohibitive.

Whole Life insurance
Whole life insurance includes a savings feature whereby part of each premium paid is invested by the insurer on your behalf. Thus, whole life policies accumulate “cash value” over time, which you can borrow against, withdraw, or use to pay future premiums. For this reason, whole life premiums are higher than term life premiums, which merely provide loss protection. Although initially higher, whole life premiums generally don’t increase as you age. They remain constant for your whole life.

Level Term Life Insurance
Level term life insurance combines the low cost of term life premiums, and the stability of whole life premiums. The premium is guaranteed to remain unchanged for a specified “term” – most commonly for 10, 15, 20, or 30 years. At expiration of this term, you may usually renew at a guaranteed rate.

The benefits of level term life insurance are relatively low-cost premiums which remain stable for a long time, and a fixed cost for future coverage. You should carefully review any contract before signing, to make sure that renewal is guaranteed, and no proof of lifestyle or health conditions will be required when you do renew. With a reputable carrier and advance planning, you can truly “rest assured”!