Most people don’t immediately consider the benefits of life insurance until a certain stage of life. Sure, medical coverage and automotive insurance are mandatory, not to mention incredibly beneficial at almost any age, but very few want to think about the funds that only come into play after their death. Aside from that intimidating concept, the very action of purchasing life insurance can seem complicated, at least at first. But it doesn’t have to be and, like all insurance, it becomes easily understood once you begin to shop around.
The most important aspect to look at first when researching what life insurance policy works best for you, and would provide the peace of mind you’re truly seeking, is understanding how premiums work. Here, we will look at the two standard forms: “Stepped” and “Level” premiums, and how they both can help make your final decision the very best to suit your needs.
The Advantages of Stepped Premiums
If you’re just beginning your research into life insurance, you may want to first look at the benefits of Stepped Premiums. These premiums tend to begin with lower rates, making them more attractive to younger buyers. As you grow older, however, the premium is adjusted to match your senior years and can get more expensive. To many, the major benefit of a Stepped Premium is its initial affordability. However, if you have the foresight to be thinking about your future with the very idea of life insurance, you may also want to consider the increased price as the years go on. In some cases, Stepped Premiums can become the most costly when, generally, people tend to need to need it the most.
The Advantages of Level Premiums
Unlike the Stepped Premium option, Level Premiums have the main advantage of remaining at a fixed rate for your whole life. This means that the price you agreed upon at the beginning of the policy will never increase with time. However, while this means you’ll always be aware of the price, there are two factors to consider; such a policy tends to cost more right from the start, and may still increase if lifestyle factors shift over the years. Aside from the potential averse effects to health and wellness, it is highly recommended to reconsider taking up dangerous habits or hobbies, such as extreme sports or smoking. To put it plainly, any activity that would cause a change into your initial insurance policy’s validity would also have direct effects upon the cost of your life insurance policy as well.
As can be the case with the stepped insurance option, many older carriers begin to look into changing their own lifestyles in order to meet the financial need of their insurance, for example, researching how reverse mortgages work or remaining active within their careers until past the retirement age. If a person has it in mind that early retirement is a goal, they will want to consider the effects that their life insurance policy will have on their future plans. In general, however, a Level Premium is capable of remaining at its fixed rate, with only small increments of inflation remaining as variable you should expect.
Which option is best for you?
As is the case with all forms of insurance, your final decision will ultimately come down to your unique needs. Often when purchasing a life insurance policy, the most common (and important) question is, “How long will I be holding this policy?” Most younger people will find that the Stepped Premium is more within their budget, and just having the peace of mind that they are covered is key. However, if budget allows, many expects recommend a Level Premium, primarily due to the savings that could accrue over time.