Why Buy or Not Buy Cheap Policies from Life Insurance Companies

Foremost, you need to learn the different types of insurance policies to determine the benefits and drawbacks of cheap insurance policy. The types of life insurance can generally be categorized into Permanent Insurance and Term Insurance.

Permanent Insurance

This type of insurance provides long-term protection for the family. The policy never ends as long as the premiums are paid religiously. Furthermore, permanent insurance allows cash accumulation over a long period of time, which can be further sub-categorized into whole life policy and universal life policy.

Term Insurance

This type of insurance is the cheapest form of policy coverage. Term life policy is time bound hence expires after the length of contract. No payout is given to the beneficiaries should the policyholder outlives the expiry of term. Unlike the permanent insurance, term life policy does not accumulate cash value in relations to the premiums made. Clearly speaking, this type of insurance has only one function: to endow specific lump sum to the designated beneficiary upon the death of the policyholder. For instance, the policy was worth $150,000, the insurance company pays the exact amount of $150,000 to the beneficiary as death benefit. To answer whether or not cheap policy is worth buying, there are several factors to consider including:

Income/Salary. Basically, since term insurance is the cheapest, minimum to average income earners may settle with this type of policy. If (for the meantime) you cannot afford the premiums for a permanent policy, then you may opt for a term insurance. After the expiration of the term you can and at such time you have achieved financial leniency, then you can shift to a permanent policy.

Term insurance cannot apparently support a huge family. Although this may depend upon the beneficiaries’ lifestyle, they may still find the payouts insufficient.

Health Condition. There is a relevant relationship between health condition and term life insurance. If you have pre-existing medical conditions such as heart and lung ailments, the term quotes that you may be paying will be substantially higher.

Length of time you need to be covered. Here is where you have to consider the age of your children. If your beneficiaries are your children, a 20-year term policy might be enough. But if you want to cover their college fund, 25 to 30 years may sound better. Or perhaps if you can afford to pay higher premiums, permanent policy is the best option to get your kids on their feet in the utmost need for money. Calculate how long they would be financially independent from you.

Buying life insurance is a vital step to ensure your family of financial security upon your untimely death. This is not really a requisite but rather an option to safeguard your surviving family from dealing with financial crisis in due time. For some families, obtaining cheap policy is better than not having any insurance at all. Nevertheless, the choice of buying Term or Permanent Insurance is all up to you.