Money 101: Life Insurance
Ten percent of American families with minor-aged children do not own a life insurance or do not have any life insurance protection. A life insurance policy is probably the cheapest and simplest methods of safeguarding the future security of you and your family. Just imagine what your dependents will do if something unexpected happens to you?
What are the
Two main types of insurance?
1. Life Insurance pays you as the policy holder or your beneficiaries a certain sum of money in case of your death. Since the insurance coverage is more than a year, you have to pay the premium either every month, every three months or annually. Risks involved: are: your premature death, your source of income during retirement or in case of your illness. Its main products include: life-time policy, endowment, investment-linked, life annuity plan, and medical and health purposes.
2. General insurance is your protection from damages or losses excluded from the life insurance. Coverage period is yearly so your payment is made on a single-basis only. Risks involved are: loss of your property in cases of thief, fire, etc., payment for injury or damage you have inflicted to a third party and your death or injury due to accident. Its main products are: motor insurance, fire insurance, personal accident insurance, medical/health insurance and travel insurance.
Benefits of life insurance
Benefits from both life insurance and general insurance are significant not only for your peace of mind but the future of your family as well. The primary advantage is the cash value coverage during your life-time. Many individuals choose to buy insurance while they are still young since they can make use of its cash value by borrowing or drawing from it during their lifetime. Another benefit is that, it is tax-free for no tax is paid on any interest or earnings attached to cash value accounts.
What are the types of Life Insurance?
1. The two types of policies are term life insurance and whole life insurance. Term policies are restricted to life coverage only. Upon your death, the face value of the policy will be paid to your beneficiaries. You have the option to buy terms from one year to 30 years. Whole life insurance includes with the life insurance an investment component as investment in bonds, money market or stocks. Both term life and whole life insurance pay the same monthly premiums for coverage of the policy.
2. In his speech during the 19th Pacific Insurance Conference in 1999, the then Deputy Prime Minister Lee Hsien Loong said "about 90% of life insurance business is sold through the traditional means of insurance agents. Low productivity and high turnover of agents render this one of the most costly distribution channels. Its dominance gives credence to the cliche that life insurance is sold, not bought." The reason is that agents or underwriters are selling insurance from door-to-door; people do not go out of their way to buy insurance.
3. Between the term life and whole life, the whole life policy is more expensive. But many prefer buying the latter type for they expect to profit as well. As a result, payments can be so high which are no longer affordable. Consequently, they buy a lower-priced policy where they are under-insured.
4. Many underwriters and companies always present the positive side of whole life policies which they based merely on assumptions. The ROI quoted are not realistic.
5. Do not combine investment and insurance for they serve two entirely different purposes. There are more promising kinds of investment than the one you expect from whole life policies.
6. If you must get an insurance policy, buy one that is adequate to cover your needs. Security for yourself and family does not have any room to scrape. You can look for affordable policies that are within your budget.
7. Determine the reason for buying the policy: is it until the time your dependents are old enough to look after themselves or for the financial security of your retirement? Knowing your priority, you can now opt for the one that suits your needs.
8. The best time to purchase a policy is when you are at the pink of health. The older you get and the poorer your health, the higher are the insurance rates. Do not even wait for the time when you have dependents, get yourself covered as soon as possible.
9. Honesty is needed when you file your policy. Lying will get you nowhere if your purpose is just to get a lower premium. Be aware that the veracity of filer’s claim is investigated by the company.
10. The Web is the best place to search for life insurance. The Internet will make your work easier, simpler and more reliable. You can select the best rates plus avoiding the services of pushy agents.
These guidelines will clarify questions about life insurance.
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