Your life is worth insuring
Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependants. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance.
It is not necessary that the insurer is the sole beneficiary of the policy. In most of the cases the relative of the insurer/business partners of the insurer have certain interests in the policy.
What is life insurance?
Life insurance is a contract between an insured (insurance policy holder) and an insurer, (Insurance company) wherein the insurer promises to pay a designated beneficiary a sum of money (the benefits) upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits.
Life insurance is a form of insurance that pays monetary proceeds upon the death of the insured covered in the policy. Essentially, a life insurance policy is a contract between the named insured and the insurance company wherein the insurance company agrees to pay an agreed upon sum of money to the insured’s named beneficiary, so long as the insured’s premiums are paid current.
Though human life cannot be valued, life insurance products provide a definite amount of money to the dependants of the insured in case the insured dies during his active income earning period or becomes disabled on account of an accident causing reduction/complete loss in his income earnings.
Why you should insure your life
People take out life insurance policies for a number of reasons. Such insurance provides security to family members upon the loss of a loved one. For instance, if the primary wage earner dies in his or her prime, the death benefit received from the policy will assist the surviving family members in overcoming the burden of the tragic loss. The proceeds can also help pay for funeral costs when the death is unexpected.
People take out life insurance policies for a number of reasons. Such insurance provides security to family members upon the loss of a loved one. For instance, if the primary wage earner dies in his or her prime, the death benefit received from the policy will assist the surviving family members in overcoming the burden of the tragic loss. The proceeds can also help pay for funeral costs when the death is unexpected.
File photo: A victim of an explosion
Advantages of a life policy
The advantage of a life policy is peace of mind, in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders.
The advantage of a life policy is peace of mind, in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders.
Also, it is possible for life insurance policy payouts to be made in order to help supplement retirement benefits; however, it should be carefully considered throughout the design and funding of the policy itself.
Types of life policies
Life insurance may be divided into two basic classes; temporary and permanent; or the following subclasses: term, universal, whole life and endowment life insurance.
Life insurance may be divided into two basic classes; temporary and permanent; or the following subclasses: term, universal, whole life and endowment life insurance.
Term insurance
Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered ‘pure’ insurance, where the premium buys protection in the event of death and nothing else. Three key factors to be considered in term insurance are; face amount (protection or death benefit); premium to be paid (cost to the insured), and length of coverage (term).
Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered ‘pure’ insurance, where the premium buys protection in the event of death and nothing else. Three key factors to be considered in term insurance are; face amount (protection or death benefit); premium to be paid (cost to the insured), and length of coverage (term).
Permanent life insurance
Permanent life insurance is life insurance that remains active until the policy matures, unless the owner fails to pay the premium when due. The policy cannot be cancelled by the insurer for any reason except fraudulent application, and any such cancellation must occur within a period of time (usually two years) defined by law.
Permanent life insurance is life insurance that remains active until the policy matures, unless the owner fails to pay the premium when due. The policy cannot be cancelled by the insurer for any reason except fraudulent application, and any such cancellation must occur within a period of time (usually two years) defined by law.
A permanent insurance policy accumulates a cash value, reducing the risk to which the insurance company is exposed, and thus the insurance expense over time. This means that a policy with a million dollar face value can be relatively expensive to a 70-year-old. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.
The four basic types of permanent insurance are whole life, universal life, limited pay and endowment.
Whole life coverage
Whole life insurance provides lifetime death benefit coverage for a level premium in most cases. Premiums are much higher than term insurance at younger ages, but as term insurance premiums rise with age at each renewal, the cumulative value of all premiums paid across a lifetime are roughly equal if policies are maintained until average life expectancy.
Whole life insurance provides lifetime death benefit coverage for a level premium in most cases. Premiums are much higher than term insurance at younger ages, but as term insurance premiums rise with age at each renewal, the cumulative value of all premiums paid across a lifetime are roughly equal if policies are maintained until average life expectancy.
Part of the insurance contract stipulates that the policyholder is entitled to a cash value reserve, which is part of the policy and guaranteed by the company. This cash value can be accessed at any time through policy loans and are received income tax free. Policy loans are available until the insured’s death. If there are any unpaid loans upon death, the insurer subtracts the loan amount from the death benefit and pays the remainder to the beneficiary named in the policy.
Universal life coverage
Universal life insurance is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payment, along with the potential for greater growth of cash values. A universal life insurance policy includes a cash value. Premiums increase the cash values, but the cost of insurance (along with any other charges assessed by the insurance company) reduces cash values.
Universal life insurance is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payment, along with the potential for greater growth of cash values. A universal life insurance policy includes a cash value. Premiums increase the cash values, but the cost of insurance (along with any other charges assessed by the insurance company) reduces cash values.
Universal life insurance addresses the perceived disadvantages of whole life – namely that premiums and death benefit are fixed. With universal life, both the premiums and death benefit are flexible. Except with regards to guaranteed death benefit universal life, this flexibility comes with the disadvantage of reduced guarantees.
Limited pay
Another type of permanent insurance is Limited-pay life insurance, in which all the premiums are paid over a specified period after which no additional premiums are due to the policy in force. Common limited pay periods include 10-year, 20-year, and are paid out at the age of 65.
Another type of permanent insurance is Limited-pay life insurance, in which all the premiums are paid over a specified period after which no additional premiums are due to the policy in force. Common limited pay periods include 10-year, 20-year, and are paid out at the age of 65.
Endowment policy
Endowments are policies in which the cumulative cash value of the policy equals the death benefit at a certain age. The age at which this condition is reached is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier. Endowment insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15 years) or a specific age (e.g. 65)
Endowments are policies in which the cumulative cash value of the policy equals the death benefit at a certain age. The age at which this condition is reached is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier. Endowment insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15 years) or a specific age (e.g. 65)
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