Personal Life Insurance

Personal finances: The benefit of an early start with life insurance.

Running a small business can be one of the most challenging pursuits in adult life. The ongoing demands of both the core business activity and all the marginal issues that also crop up can amount to a significant pressure on resources. Perhaps the most precious resource is time, and there is often little of this left for personal considerations after the demands of the business are met. Personal finances, and in particular life insurance provisions, are often left at the bottom of the 'to do' list. This is particularly true with younger, healthy people who have yet to worry about mortality.

However, if you are to apply the same rigorous logic that a successful business life demands, the priority for life insurance should be to make arrangements sooner rather than later. At the most basic level, this is about the cost of life insurance premiums. Some life insurance providers offer the cheapest premiums to younger people. Not only are younger people generally healthier (and therefore less likely to suddenly die), the sooner they start paying towards life insurance, the longer they will potentially contribute to the pot before triggering a claim. Understandably, the later you leave it before taking out life cover, the closer you are to the possibility of death and a claim on the policy, meaning that the cost of premiums must be set higher by the life insurance provider.

At this point it is perhaps helpful to make the distinction between the two main types of life insurance. The expensive type is whole life insurance, or life assurance. Provided that you don't void the policy through an act like suicide, or dying during some risky sporting activity not covered in your policy, whole life insurance will pay out in the end. Thus the claim is assured to happen at some point. The combined funds collected through whole life insurance premiums, which are generally invested by the insurance company, must amount to enough to cover the average cost of claims in any given year.

Those looking for cheaper life insurance have the option of a term life policy. The term is a clearly defined period during which the life insurance contract is active. When the term ends, you will hope to still be alive, and the insurer will hope for this longevity too, as they will avoid the expense of a claim on the policy. Thus, there is an element of wager involved in term life insurance, and statistically, the younger you are the better chance you have of surviving the term. This all means that regular premiums for term life insurance can be offered at a much cheaper rate than those required for whole life insurance policies, especially if you start young.

Term life policies are generally used to provide cover for crucial debts like the mortgage. If you die before the mortgage is paid off, the term life cover can be arranged to meet this debt, ensuring that your dependants are not left homeless. The term of the policy should generally be set to end when the mortgage is scheduled to be paid off, as the shorter the term, the more affordable the life insurance.

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