Affordable Life Insurance Policy Tips

In order to find an affordable life insurance policy, the first step is to determine whether a term life insurance policy or a permanent life policy is needed. The second step is to understand the factors that affect the underlying cost of a life insurance policy. Finally, anyone searching for an affordable life insurance policy should look to online sources, such as permanent life insurance calculators, along with looking within his or her own community to find an agent who will provide the most coverage for the least amount of money.

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Term Life Insurance

Term life insurance is not only an affordable life insurance policy for most young families, it’s also the most easily understood life insurance policy. The premiums are sent to the insurance company for the duration of the selected term. If the policy owner dies during the term, the death benefit is paid to the beneficiary. If the policy owner is alive at the end of the term, the coverage ends without the death benefit being paid. The length of the term and the amount of the death benefit allowed vary among life insurance companies, but the general principle is the same.

Permanent Life Insurance

Permanent life insurance, however, is issued for the policy owner’s entire life. In fact, whole life insurance, which is a type of permanent life insurance, is often described as being in effect for a person’s “whole life”. All types of affordable permanent life insurance contain what is known as an investment component, or cash-building component. A portion of the monthly premium that is paid by the insured to the insurance company is invested in a variety of investment vehicles in an effort to grow tax-deferred savings. Whereas term life insurance is only a life insurance product, permanent life insurance is part insurance product and part investment product.

Whether a policyholder chooses an affordable term or permanent life insurance policy, the death benefit paid to the beneficiary is almost always tax-free. A policyholder usually only need make sure that he or she has named an actual person as the beneficiary and not the estate. And, the proceeds of life insurance policy usually bypass probate as long as the estate is not named as the beneficiary. However, some affordable life insurance policies are more complicated than others and policyholders are always advised to consult with a reputable insurance agent or tax advisor before purchasing a life insurance policy.

What Factors Affect an Affordable Life Insurance Policy

At base, an affordable life insurance policy meets two criteria: The policyholder can make the premium payments without incurring any financial hardship, and the death benefit, along with any accrued value in a permanent policy, is enough to cover the expenses he or she deems necessary to be paid upon his or her death. While the types of affordable insurance policies can be complex, the reasons for purchasing affordable life insurance are usually not. In other words, what constitutes an affordable life insurance policy for one family may not be an affordable policy for another.

Term life insurance policies are usually much more affordable for younger people and couples with small children than are permanent policies simply because the premiums are applied only to the death benefit. Further, affordable term life insurance policies can be issued in amounts that cover not only final expenses such as funeral and burial costs, but can also cover the outstanding balance on a mortgage or a dependent child’s college tuition. But factors such as age, gender and overall health will most certainly affect the cost of any term life insurance policy.

Permanent life insurance is more expensive that term insurance because it costs more for the insurance company to administer. Because a portion of the premium is invested, the insurance company must employ licensed stockbrokers and investment professionals in order to maintain the responsibility of investing a policyholder’s money. Permanent life insurance policies are also subject to additional fees known as mortality expenses.

The amount of the death benefit that is paid to the beneficiary will also affect the affordability of any life insurance policy. Clearly, a million dollar policy, whether it is a term or permanent policy, will cost more than a $250,000 policy.

What is the Most Affordable Life Insurance Policy

For some, a term life insurance policy will be the most affordable. For others, a permanent life policy will be more affordable. Both types of policies assume that the policyholder, not just the insurance company, assumes some risk. In other words, a term life insurance policyholder assumes that he or she will not survive the term of the policy, thereby allowing the beneficiary to collect the death benefit. A whole life insurance policyholder assumes that he or she will live long enough to borrow or withdraw some of the equity that has built up over the years the policy has been in force.

Therefore, the most affordable life insurance policy is the one that the insured believes he or she will get the most out of, or provide the most to his or her beneficiaries.

What Kinds of Affordable Life Insurance Policies are There

It’s important for those looking to find an affordable life insurance policy to realize that many insurance companies offer affordable life insurance. In recent years, term life insurance policies in particular have seen a significant drop in the cost of the premium.

One final consideration when searching for an affordable insurance policy is suitability and risk tolerance. Some life insurance policies that have an investment component are not suitable for those who do not wish to incur investment risk. Some permanent life policies, such as a variable universal policy that invest a portion of the premium at the direction of the policyholder is neither suitable nor an affordable life insurance policy. Variable life insurance is not considered to be affordable for those with little savings or for those who are risk-averse.

The most affordable life insurance policy, then, is the one that provides for the largest death benefit at the lowest premium cost while allowing the policy owner to sleep soundly at night.

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