Q: What is the difference between term and whole life (or permanent) insurance?
A: Term life insurance is the most basic: the insurance company pays if the insured individual dies during the time period of the policy, generally from one to thirty years. Whole life (or permanent) insurance pays whenever the insured individual dies. Those that are younger generally purchase whole life insurance because they generally have a longer life expectancy when they purchase the policy. However, older individuals that purchase a life insurance policy generally purchase a term policy, the length of the term being determined by the individual’s age.
Q: What are the different types of whole life (or permanent) insurance?
A: There are three basic types of whole life insurance: traditional, universal, and variable. Traditional plans have the insured individual pay set premiums throughout his or her life until death, when the balance of the policy is given to the policy’s beneficiaries. Universal plans are characterized by flexible premiums that can fluctuate through the lifetime of the policy holder. Variable plans include regular premiums, much like a traditional plan, but flexible investing options. There are several variations on these basic three plan types, including plans that can be bought in one lump sum.
Q: Can more then one policy be purchased, and, if so, is that too much?
A: It is becoming common practice today to have supplemental life insurance policies in order to pay for the rising costs for medical bills and funeral arrangements. These supplemental policies could be viewed as excessive; this is not always true, but in any case it is up the person or persons that the policies cover. Insurance companies that provide supplemental insurance may ask for a medical exam to prove that there are no imminent dangers or life-threatening illnesses. This is a standard procedure, and it allows an insurance company to protect its interests.
Q: Why do I need to take a medical exam before an insurance company will offer me life insurance?
A: Medical exams are important to insurance companies to help them make calculated risks. Calculate risk refers to the risk versus reward factor of different people. A short medical exam helps provide information on a person’s current situation as well as information about that person’s medical history. If a person is diagnosed with several illnesses or physical problems, then an insurance company is less likely to approve that policy, or the company will charge a higher premium.
Q: When is the best time to buy a life insurance policy?
A: A general rule of thumb is to purchase while you are young. There are a few reasons for this: first, a person is generally in better shape and will get a much better premium price as well as interest rate; second, the older one gets, the higher the premium and the harder it is to lock down that premium. Insurance companies will give much better rates to the young because they are expected to live a little longer. Ultimately, the decision is private and different for each person. Some believe they can wait; others enjoy the peace of mind of having it.