Life insurance is essential. While it can never replace you when you pass away, you know that your death won’t leave your family struggling financially. They can use the amount they receive towards expenses of everyday life as they continue on without you.
Types of life insurance premiums
There are three general types of life insurance: term, whole life, and variable. Let’s take a closer look at these.
Term life insurance covers you for a specific period of time. This can be as short as five years or as long as 30 years.
Whole life insurance, on the other hand, ideally covers you for your whole life. By ideally, we mean that it covers you until age 100. If you’re one of the lucky few that manage to live beyond this, the policy matures and you’re awarded the full amount of the face value of your whole life insurance policy.
The last type of life insurance is what’s called a variable life insurance. This kind of life insurance is relatively new. The reason why it’s variable is that your family doesn’t just get the face value of the policy. Variable life insurance policies have investment options attached to them. That means that whatever investment your policy gains while you’re living will also be given to your family. This is the reason why variable life insurance policies are becoming extremely popular.
Cost of life insurance premiums
Aside from the coverage, one of the most important things to talk with your life insurance advisor is your insurance premiums.
Insurance premiums are what you pay to the insurance company to keep your policy active and continue covering you. The thing with life insurance premiums is that they usually go up every year on your policy’s anniversary date. That’s because your insurance premiums are affected by three factors:
The first factor that will affect the cost of your insurance premium is your age. That’s because as you get older, your chances of dying increases. As a result, you’re seen more as a risk by the insurance company.
Another thing that insurance companies look at is whether you’ve taken out any claims in the past. For example, if your insurance policy has a provision to cover your hospitalisation expenses, the insurance company will check if you’ve filed a claim for this within the year. If you did, there’s a good chance that your new premium will increase.
The last factor that can affect your premium cost is inflation. If your benefit amount increases with the current inflation rate, you’ll bear a higher premium to keep the higher benefit.
Leveling your insurance premiums
While it may seem impossible to control any of these factors that can affect your premium cost, there’s still hope. In fact, you can fix your life insurance premiums so that they remain level over the course of your policy.
How? By choosing level premiums.
How it works
When you choose level premiums, you pay a higher initial premium than what you’ll usually pay with graduated premiums. But since the premium amount remains constant throughout the entire policy, you’re actually saving a lot long-term.
Since the premiums start at a higher rate than they otherwise would, make sure to study your options very carefully. For example, if you’re planning to use your life insurance specifically to cover mortgage payments, level premiums may not be a good option, unless you want to have those mortgage payments for a very long time.
On the other hand, if you want your life insurance to cover any outstanding debts and funeral expenses, then level premiums can be the best choice. That way, you aren’t faced with steeply rising insurance costs at the time when you’ve retired and your income has dropped.
One final tip
Talk to your insurance advisor about incorporating level premiums into your overall insurance coverage in order to balance maximised coverage with affordability. It’s never really fun to think about leaving our loved ones behind, but knowing that they are adequately protected truly is a huge relief.
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