Life insurance is a contract between an individual and an insurance company in which the insurance company promises to pay a lump amount if a specific event occurs, such as death, serious illness, or incapacity, in exchange for premium payments. You can use a life insurance policy to save for the future. Life insurance policies are divided into three categories: term, whole life, and endowment.
Whole life insurance is a burial policy with additional benefits that provide coverage for the policyholder and other family members for the rest of their lives.
Term life insurance provides coverage for a set period. This policy pays out benefits if the insured event occurs within the specified time frame.
Endowment policies let you save for the future while simultaneously giving death benefits. Whether or not a policyholder survives the specified period, an endowment policy pays a benefit.
What factors should I consider while selecting a life insurance portfolio?
With so many life insurance alternatives available, deciding which policies would provide appropriate coverage can be difficult.
Consider the situation of Tom, a 26-year-old who is just starting his career. He wants to get married, have children, and operate a home in addition to having a successful profession. He aspires to provide the best possible living for his family and all of his dependents.
He could live a long and healthy life and die at 70. On the other hand, he may leave this world sooner than expected. In all cases, some needs must be considered when choosing the best portfolio of life insurance plans. If he lives a long time, he may face financial difficulties due to serious illness or handicap, as well as the death of other dependents. If he dies younger, on the other hand, he leaves his family with a significant financial burden.
To begin, Tom might consider purchasing a term life insurance policy with a sum assured equal to multiples of his annual salary (between 5 and 10 times) to protect himself throughout the most vital era of his life, his working years.
Secondly, suppose he has dependents such as a spouse, parents, in-laws, or other extended family members whose deaths potentially affect his income. In that case, he may consider moving that responsibility to an insurer by purchasing whole life insurance on their lives, such as a burial policy.
He might then look into an endowment policy that will meet his medium- to long-term saving goals (often a minimum of 5 years) at a premium he can pay.
What to think about when obtaining a life insurance policy
- Examine your existing financial circumstances.
- Determine how much insurance you’ll need.
- Choose the policy portfolio that best suits your needs.
Prepare for the application process by having all of the information you’ll need about your policy on hand. Certain policies may require you to take a medical exam depending on the sum necessary.
In conclusion, individual life insurance is a goal, not a means to an end.
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