Less than 40% of the working population in the United Kingdom invests in life insurance. Luckily, the value is on the rise because the information related to insurance policies reached more people in the past year. The providers of a family handle spending related to groceries, tuition fees, loans, bills, house mortgage or rent, medical expenses and many others. When a family provider passes away, the family will take a while to adjust to the new financial conditions.
Even so, the lifestyle that the members of that family will follow from this point forward won’t be the same. Life insurance keeps families protected by offering them the needed resources to adjust to the absence of the provider. Ultimately, life insurance is about taking care of loved ones by creating a source of savings. It offers the needed peace of mind that is paramount when a difficult life event occurs.
It is highly important to understand what type of life insurance you need to get the best out of this investment. This article will present the differences between term life and whole life insurance. The information included here should help you make a decision regarding what type of insurance policy to choose.
What benefits do you obtain from each type?
Each type of life insurance policy comes with certain features, and this is why you should compare the offers you get before finally making a decision. There are considerable differences between term life insurance and whole life insurance.
Whole life insurance is sometimes called universal life insurance. To put it simply, term life only offers death benefits for your beneficiaries, while universal life insurance offers death benefits plus an investment account that your family can use after your death. Here is a comparison:
- Term life. Term life insurance policies cover funeral expenses, as well as the family’s annual living expenses for a certain period of time, as mentioned in the insurance policy. For a certain number of years, the insurance covers mortgage payments. The children’s education expenses are covered entirely. The term life insurance policy covers debts accumulated on credit cards and outstanding loans.
- Whole life. Whole life insurance covers everything mentioned above, with some differences. It also covers the cost of living in retirement for an anticipated number of years, as well as living expenses for the needed amount of time. Besides these death benefits, the family also receives an investment account. This investment account could be useful for children, who might follow a university in the future.
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When it’s the best time to invest in life insurance?
Even though people believe it would be better to invest in life insurance when they are older, this is not the best option. As you get older, life insurance gets more expensive and the final quantum is not as generous.
Setting up an insurance policy in your 20s can be quite difficult considering the modest income that new employees have, but the rates are low and convenient. At this point, life insurance packages might be offered by companies. These packages are not enough in the long run, but you can wait until you reach your 30s to purchase a separate life insurance policy.
During your 30s, the rates for life insurance are still convenient and this might be the perfect moment to start investing in it. College debt should be paid by now, income is on its way up and – as an adult – you are more conscious of the importance of life insurance. If you wait until your 40s, the rates will suddenly go up, as life insurance comes into your focus.
The amount is still affordable, compared to when you reach your 50s and the rates start going through the roof. The rates reach £50 per month for a person who decides to opt for a life insurance policy during his 50s. As for the last part of your life, insurance can cost you up to £150 per month, as you may have serious health concerns.
What keeps people away from investing in life insurance?
First of all, people overestimate the cost of life insurance. A study showed that the average person believes that a life insurance policy costs 213% more than it actually costs in reality. This would be the principal reason why people won’t try gathering more information in regard to this topic. Other factors intervene as well:
- Income shifts. Income shifts are probably the biggest inconvenience that a person encounters in terms of finances. Income shifts occur due to changing jobs often, being a freelancer, moving from one part of the world to another and other similar situations. Dealing with financial oscillations is definitely not easy and adding a recurrent payment to the list of things you need to pay at the end of the month doesn’t seem a good idea. The decision of people who suffer from income shifts is understandable, but a cheap life insurance policy should still be a priority.
- Debt. Debt can be considered both a reason why people don’t get insurance and a reason why people desperately seek life insurance policies. If a person doesn’t invest in life insurance, the debt may fall on the shoulders of other members of the family. On the other hand, people who need to pay off their debt postpone life insurance investments, which can be a mistake in the long run.
- Delaying life milestones. Another issue is delaying life milestones such as having a baby or buying a house. These milestones become a priority and insurance falls to the last place. People start directing their financial resources toward reaching these milestones.
Even though these people might want to invest in insurance, their current situation does not allow them. The only criterion they should keep in mind is that life insurance gets more expensive as a person ages, and waiting for too long could lead to more obstacles in the way of getting insurance. A small life insurance policy of around £10 a month should calm the concerns of people who come from financially-difficult environments.