Should I Have A Life Insurance?

What Is Life Insurance?

Life insurance is an insurance policy whereby the potential insured and the insurance policyholder signed a contract where the insured agreed to pay a stipulated beneficiary sum of money in exchange for a premium upon his or her death. The insurance company's part of the contract is a guarantee to pay the death benefits of the insured to the appropriate beneficiary stipulated in the contract. The death benefit is promised in consideration for the money paid by the insurer as his or her deposit. What the insurance company pays is the premium of the insured's deposit. 

Life insurance is one of the major insurance policies every family should operate. It is a pillar of personal finance and a way of ensuring that those who are dependent on you for financial support are well catered for after your demise. However, despite its universal applicability, life insurance is one of the things people don't want to talk about or be involved in. The most basic reason for this is, no one wants to talk about his or her death. Talking about engaging in life insurance is more like reminding someone that his or her days on earth are numbered. 

However, with a life insurance policy, you would be guaranteed that your loved ones and others who look forward to you for survival would be well catered for. This is indirectly a way of giving those who are dependent on you a substantial life at the end of your own life.

Therefore, the major aim of life insurance is to provide a means of livelihood or financial support for those who are dependent on the insured. Usually, the money is paid after the death of the insured.

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Steps To Getting A Life Insurance

There are some conditions to consider before putting in for life insurance. This is the most basic of the conditions attached to getting life insurance. An applicant must first analyze his or her financial position and ability. The applicant must also determine the average standard of living for those who are dependent on him or her for financial support.

• Having analyzed this, the person can then proceed to the life insurance agent or broker to purchase a life insurance policy.
• The insurance company assesses the needs of those who are dependent on the insured and educate him or her on the best type of life insurance that fits into the needs already analyzed. 
• There are lots of life insurance policies available for a potential insurer, there is the whole life insurance, universal life, term life, and variable universal life (VUL).
• After purchasing a life insurance policy, it is expected that the insured reevaluate the policy every year especially after some important events like divorce, marriage, the birth or adoption of a child and other significant events like the purchase of a house and so on.

How Insurance Premium Cost Is Calculated

The insurance companies often use risk-related categories to calculate the expected premium cost of an insured. However, this does not affect the policy's length of coverage.

Insurance premium for the insured is determined by some factors including overall health issues, family medical history, and general lifestyle. In the case of a smoker, the premium payment would be more than that of a person who does not smoke. 

Ten Things To Know About Life Insurance

• If anyone relies on you for survival, you need life insurance

This is the first and most necessary thing to note about life insurance. If there are a lot of people who are dependent on you for survival, then it is obligatory that you operate life insurance. This is to ensure that your demise would not lead to the untold suffering of these people. For instance, if your spouse, siblings, children, employees or employers, etc, are dependent on you for financial services, be sure that without life insurance, after your demise, these people might live the rest of their life in penury. Life insurance is, therefore, the best way to plan ahead for them.

• Life insurance is not restricted to the monetary values of a person's life

Most time, people think life insurance equate life with money, but this is not true, what life insurance does is to compensate for the inevitable financial consequence the demise of the insured might cause. It acts as a way to help those that are left behind cover after-death expenses like mortgage, outstanding debt, educational plans. 

Significantly, during the period of an unexpected death, life insurance can help as a way to reduce the financial burden on the family, friends, and acquaintances who are still grieving the loss of the person.

Also, it would help relieve the mind of the policyholder who must have been thinking about what would be the conditions of those who are dependent on him or her after his or her death. This is part of the reasons life insurance is important for the breadwinner of a single-income home and also a stay at home spouse.

• Life insurance is a binding contract between the insurance company and the insurer. The contract is basically referred to as policy

A policy is a contract between the insurance company and the potential insured who is interested in the financial ability of another person or persons after his or her demise. At the demise of an insured, the insurance company calculated the total premium of the policyholder and pays claims to the beneficiary. The claims paid by the insurance company is often referred to as death benefits. The gain of the insurance company is the major difference between the premium taken in and the claims paid out.

• There are four roles in a life insurance policy. 

The four roles belong to the insurer, the insured, the owner, and the beneficiary. The insurance company responsible for paying out claims upon the demise of an insured is the insurer. The owner of the policy is the one who makes a premium payment at the insurance company. The person upon whose life the insurance policy is based is the insured while the beneficiary is the person who would receive the death penalty or life insurance claims upon the demise of an insured.

• Life insurance is not an investment but a risk management tool.

Although some insurance policy has some investment opportunities subsumed within it in other to help grow the insured's money, insurance is hardly or rarely an investment plan. Insurance is only a risk management tool and not for the purpose of making a profit. Life insurance is to help guarantee the financial survival of those who are dependent on you and never an opportunity to grow your money.

• The two broad varieties of life insurance

There are basically two broad varieties of life insurance you should be aware of before choosing the one to operate. These two types of life insurance include term and permanent.

Term life is the simplest and least expensive type of life insurance. It is also the most widely used. Term-life works on the probability that the insured would die within a stipulated period of time say 10 or 20 years. It is designed to provide financial protection for the stipulated period of time. This implies that the premium works for the length of the time stipulated on the contract if the insured lives beyond the stipulated time, then maintaining the premium becomes cost-prohibitive or you can just decide to let it go. The premium payment would generally increase.

Advantages

Term life proceeds can be used to cover lost income during working years. It can also be used to provide a solid financial net for the beneficiary and to pay off any debt that might subject the beneficiary to a life of penury.

Disadvantages

The disadvantage of this type of life insurance is, you might end up paying a premium for years without getting anything out of it. But in this kind of situation, the good news is that you are winning against life.

Although term-life can be used to cover years of financial losses, the insurance benefit is not paid bit by bit like a paycheck, rather it comes in a huge sum and paid at once.

Permanent life insurance also works with the same probability of death calculus. However, it includes a saving mechanism in its operation. The saving mechanism is often referred to as the cash value and designed to aid the continuous existence of the policy. There are three subcategories under this life insurance policy. 

• Whole life
• Variable life 
• Universal life.

Whole life is designed with an investment component that works the same way CDs or bonds work. However, the investment component is backed by the insurance company. Also, the policy premium in whole life insurance is generally fixed. Also, unlike term life insurance, whole life insurance has a cash value that performs the function of a saving component. It might grow tax-free until the demise of the insured.

Variable life is designed with an investment component like mutual funds.

Universal life is designed as a less expensive type of permanent life insurance. It also entails some added flexibility that makes it easier for the insured to lower or increase his or her premium rate. However, interest rate risk tends to increase for the owner of the policy.

One benefit of universal life insurance is that it provides additional designs that help to provide both death benefits or claims and at the same time build the value of cash.

• Life insurance can be both expensive and inexpensive at the same time.

When you apply for a plain life insurance policy, the price is relatively low in comparison to some other types of insurance policy under permanent life insurance. For instance, in plain life insurance, a healthy, non-smoking, 30-something male might be required to pay an annual fee of less than $500 for an insurance policy of 20-year term with million-dollar death benefits or claims. However, in another whole life insurance policy, the same individual might be required to pay 10 or 20 times more of the same amount and with the same benefits and duration. What usually attracts people to this type of insurance policy is the size of the premium. 

Note: for every insurance policy, a smoker or someone with health issues might be required to pay twice or triple the initial price.

• Choosing an insurance policy does not have to be a complicated decision.

In choosing life insurance for the benefit of those who are dependent on you, the most important thing to consider is the needs of your household or beneficiary. Do not base your decision on the complexity of life insurance, rather choose based on what you want and what you can comprehend. A household would be better cared for by channeling your premium on the most important things the house would need for a stipulated period after your demise.

• Consider using someone who is alive to help plan your insurance policy. 

Although there are lots of online tools that can be used to calculate how much money you would have to pay for the policy of your choice, it is advisable to seek the help of a professional. The insurance agent would help walk you through the underwriting and application process. 

A dedicated and knowledgeable insurance agent or broker would help you save more money compared to using an online tool. This is because the agent would know how to direct you into choosing the best policy for your particular situation. 

Underwriting in a life insurance policy in most times is where many lose out. This is a very tedious process in which the insurance company determines how much of a risk you are. The determining factors are your current health challenges, past health challenges, and family health challenges. The session is often filled with questions that might reveal more than you want and increase your premium payment. It is expected that all your answers should be nothing but the truth but this must also be very succinct.

• Know your available options so that whenever you are backing out of a life insurance policy, you don't leave coverage or money on the table. 

Let assume you have a life insurance policy that does not tally with what you want or you don't need an insurance policy anymore, it is advisable that you tread with caution.

First, assuming you have an insurance policy that does not portray what you really want but have already overpaid in the insurance policy, it is advisable that you don't cancel the policy until you complete the necessary requirements of the new one. This is because, most time, on the verge of opening a new insurance policy, people often discover a health complication that might make them not eligible for the new policy. If before discovering this, you have already canceled the previous policy, then you would be left with no insurance coverage. 

If you have a life insurance policy you are no longer in need of, you can simply stop making any further payment into the policy and it will go away. However, if there is substantial cash value in your insurance policy and you are no longer in need of the policy, you should analyze both the present and expected future investment, as well as any necessary tax payment before cashing it out. This can be done by simply requesting an “in-force illustration” and a “cost basis report” from your agent.