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Protective Life Insurance
The most protective life insurance plan is difficult to truly define because there is such a wide range of options available and all of them offer distinct advantages and disadvantages. While many of us may be enrolled in some sort of group life insurance plan through an employer this may not be enough coverage to ensure the financial security of your family and loved ones. When it comes to finding the most protective life insurance coverage, it will most likely be necessary for you to purchase a policy outside of work that will be more comprehensive in its protection plan.
Term Life Insurance
Dollar for dollar, the most protective life insurance coverage is a term policy. Term life insurance is purchased for particular blocks of time and in some cases can be renewed at the end of the term with a review of premium pricing. The coverage amount varies along with the duration of the policy with term life insurance and no proof of health or physical exam is required in many cases. However, for large amounts of coverage, there may be a proof of health requirement and this will become more likely the older a person is when they seek coverage. No matter the coverage amount, term life insurance is still the best value for the most coverage.
Issues with Term Life Insurance
Some negatives associated with term insurance policies include:
- Does not build any cash value
- Policy often expires without payout so insured purchased life insurance that they ultimately did not need
- Does not offer flexibility with premium amounts
Return of Premium Life Insurance
Return of Premium life insurance is a type of term coverage where the insured receives a payout one way or the other. Either the insured will die during the term of the policy and the beneficiaries of the life insurance plan will receive the payout—or, the term of the insurance will expire and the insured will receive the cash value of the premiums paid into the policy.
A Return of Premium policy is more expensive than a typical term life insurance plan because there is a cash element similar to that found in whole, universal, or variable coverage. On average, you can expect to pay more than a typical term policy when getting Return of Premium coverage. The additional funds build in value over the course of the policy. However, should the policy expire at the end of the term, payout is typically limited to the total amount paid to maintain the coverage.
Many people object that term life insurance is paid into for years and years with a very real possibility that the coverage would ultimately be unnecessary. Return of Premium solves that problem by giving the insured a guaranteed payout—either the policy holder dies and the beneficiary receives the face value of the policy—or, it expires and all the money paid into the policy is refunded.
Normal term coverage still provides the most protective life insurance policy for the money. Whole, universal, variable, and even Return of Premium policies all involve a cash value component which can make the coverage much more expensive than any standard term coverage.
Although other whole life insurance options often provide the insured with increasing cash value, many policy holders may be better off buying the amount of term coverage they need for financial protection while then considering other investment vehicles. In many cases, the entire first year of premiums merely cover management and account fees. It is common for the insurance policy to actually begin building cash value in the second year—not the first!
Deciding on a Policy
In truth, while term life insurance is a great option with excellent protection and reasonable rates—it may not be the best for everyone. The most protective life insurance plan will depend upon the assets of the insured and the particular type of protection they require. For most people, however, term life insurance tends to be the best way to get the coverage you need at the lowest possible price.
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