As you enter the established years of adulthood, you take on more and more responsibilities. Instead of the relatively carefree days of high school or college, you now have to make your way through the stresses of the working world. Rather than being single, many choose to find their special person and get married. Living in a bachelor pad or sharing a home with roommates is often replaced with strapping on a mortgage after you buy your first home.
One of the biggest changes comes if you decide to have children and raise a family. With all of these new developments, it becomes increasingly important to look out for and care for the ones you love. Should you encounter this stage of life, the best gift for your grandchildren can often be life insurance. The desire to provide even during the worst of times leads most of us to research and buy life insurance. If you’re at that stage in life, here are some things you should know before you take out coverage.
Insurable Interest
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When you are looking to purchase a policy, one of the first things that have to be considered is whether the buyer of the policy has an insurable interest in the individual being covered. You must show that the holder of the policy would experience significant financial hardship if the covered person were to pass away. Close family typically qualifies for this provision.
In the case of a two-income family, a spouse or partner would clearly suffer hardship if one were to die, and they were left with only a single income. You’ll also find that business partners might insure each other, since the passing of a key executive or investor could bring devastating financial hardship to an organization or partnership. If you would like to learn more, you can review a guide that looks at this topic and answers other important questions.
Term Life Insurance
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One of the two major types of policies is term life. This coverage lasts for a specific number of years and then expires at the end of the term. If an individual dies during the time the coverage is in force, then the death benefit goes to the designated beneficiary. This type of coverage is simple. Each premium you pay contributes to the death benefit, which could be paid out as an annuity, in a lump sum or in monthly payments over time. Generally, term life is far more affordable than other types of coverage. There is no cash value and this is not used as an investment.
Whole Life Insurance
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The other major type of policy is whole life. This is categorized as a permanent policy because there is no expiration date. As part of the coverage, there is a death benefit component and also a cash value portion, which accumulates interest at a fixed rate. It also functions as a sort of tax-deferred savings account. When the premium is paid each month, a certain part of it goes into the cash value section, which continues to grow over time. These types of policies can cost much more that term offerings. In addition to building up value over time, you can also take out loans against the cash value.
