When looking for life insurance in Austin, Texas there are many different options to choose from, and it can be very confusing to know which one is right for you. We will discuss the three most common types of life insurance policies, we will explain what each policy covers and help you decide which one is the right policy for you.
What is a Term Life Insurance policy?
A term life insurance policy is the simplest form of life insurance: You pay a premium for a period of time usually between 10 and 30 years. If you die during that time frame a cash benefit is paid to your beneficiary.
How does a term life insurance policy work?
1. It's a contract
Term life is a basic life insurance policy, a term life policy is an agreement between the person who owns the policy and the insurance company. The owner agrees to pay a premium for the specific term they choose usually between 10 and 30 years. In return, the insurance company promises to pay a specific death benefit in cash to the beneficiary upon the death of the insured.
2. There is an application process
Before the insurance company can give you a policy, the provider needs to assess how much of a risk you are to insure. This is called the “underwriting” process. They will typically ask for you to do a medical exam to evaluate your health, and want to know more about your occupation, and your lifestyle. Certain hobbies like scuba diving or sky diving are deemed risky to your health, and could raise the rates. Having a dangerous occupational environment could also raise the rates. For example, working on an oil rig.
3. You need to choose the term length
What to ask yourself before purchasing a term life policy is how long do I need coverage for? If you have children, a good rule of thumb is to choose a term long enough to see them out of the house and through college. The longer your contract term is the more you’ll pay each month for a given amount of coverage. It's usually better to get a longer-term policy than a shorter term because you just never know what the future holds. It's also easier to get insurance when you are younger and in good health.
4.Decide how much of a death benefit you want
When deciding on how much of a death benefit you want you should really consider getting enough coverage to care for your family’s needs. We can tell you a few different ways to figure out how much that is. Whatever the coverage amount is you need, it will likely cost less than you thought.
5. Name your beneficiary
Did you know that It doesn’t all have to go to one person? You could give half to your spouse and divide the remaining between your children. Beneficiaries are typically family but don’t have to be. You could choose to leave some or all of your benefits to a trust, a charitable organization, or even a friend.
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What is a whole life insurance policy?
Whole life insurance also referred to as permanent life insurance refers to life insurance policies that are meant to last until death and have an investment aspect.
How does a whole life policy work?
As long as the policy holder pays the required premiums, the insurance policy will provide a death benefit when the person dies. The premiums for a whole life insurance policy goes towards the guaranteed death benefit and an investment account. The investment part of the premiums can build value overtime. Did you know that the policy holder can take money from the cash value of the investment account during their lifetime? But this can reduce the death benefit for the beneficiaries. Depending on the terms of the policy, the cash value of the policy may either go to the beneficiaries or the insurance company when the policy holder dies. Whole life insurance, given its lifelong death benefit guarantee, can be expensive compared to other policies.
Universal life insurance is a type of permanent life insurance. Unlike term life insurance, which is meant for a specific period. Universal life insurance is in effect for the rest of your life unless you stop making premium payments. Some forms of universal life insurance also offers a cash value component. You can take money out of cash value or loan.
When you die, the insurance company will reduce the death benefit payout to your beneficiaries by the amount of any withdrawals or outstanding loans.
There are a few different types of universal life insurance policies to choose from and they are also quite different.
Guaranteed Universal Life Insurance
A insurance policy that offers a death benefit and premium payment that will not change over time. You select an age at which the policy ends, choosing a higher age will increase the premium.
Indexed Universal Life Insurance
Indexed universal life insurance is permanent, which means it will last your entire life and builds a cash value. This type of life insurance policy allows for some cash value growth through an equity index account. Like with all universal life policies, once you've built up enough cash value you can use it to lower or potentially fully pay for your premium without lowering the death benefit.
Variable Universal Life Insurance
Variable universal life is a type of permanent life insurance policy with a built-in savings component that allows for the investment of cash value. Like standard universal life insurance, the premium is flexible.
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