Life Insurance: Back to BasicsPosted by Espersen Neville on May 18th, 2021 Life Insurance: A Slice of History The modern insurance contracts that people have today such as life insurance coverage, originated from the practice of merchants in the 14th century. It has additionally been acknowledged that different strains of security arrangements have been completely in place since forever and somehow, they are comparable to insurance contracts in its embryonic form. The phenomenal growth of life insurance from almost nothing 100 years back to its present gigantic proportion isn't of the outstanding marvels of present-day business life. Essentially, life insurance coverage became one of many felt necessities of human kind as a result of unrelenting demand for economic security, the growing need for social stability, and the clamor for protection contrary to the hazards of cruel-crippling calamities and sudden economic shocks. Insurance is no longer a rich man's monopoly. Gone will be the days when only the social elite are afforded its protection because in this modern era, insurance contracts are riddled with the assured hopes of several families of modest means. It really is woven, as it were, into the very nook and cranny of national economy. It touches upon the holiest & most sacred ties in the life span of man. The love of parents. The love of wives. The love of children. And also the love of business. LIFE INSURANCE COVERAGE as Financial Protection A life insurance policy pays out an agreed amount generally referred to as the sum assured under certain circumstances. The sum assured in a life insurance coverage is intended to answer for the financial needs as well as your dependents in the event of your death or disability. Hence, life insurance coverage offers financial coverage or protection against these risks. Insurance 2000 : General Concepts Insurance is a risk-spreading device. Basically, the insurer or the insurance company pools the premiums paid by all of its clients. Theoretically speaking, the pool of premiums answers for the losses of every insured. Life insurance is a contract whereby one party insures an individual against loss by the death of another. An insurance on life is a contract by which the insurer (the insurance provider) for a stipulated sum, engages to pay a certain amount of money if another dies within the time limited by the policy. The payment of the insurance money hinges upon the loss of life and in its broader sense, life insurance includes accident insurance, since life is insured under either contract. Therefore, the life insurance coverage contract is between your policy holder (the assured) and the life insurance company (the insurer). In return for this protection or coverage, the policy holder pays a premium for an agreed period of time, dependent upon the kind of policy purchased. In the same vein, it is very important note that life insurance is really a valued policy. Which means that it is not a contract of indemnity. The interest of the individual insured in hi or another person's life is generally not susceptible of an exact pecuniary measurement. You merely cannot put a cost tag on someone's life. Thus, the way of measuring indemnity is whatever is fixed in the policy. However, the interest of a person insured becomes susceptible of exact pecuniary measurement if it is an incident involving a creditor who insures the life span of a debtor. In this particular scenario, the interest of the insured creditor is measurable because it is using the value of the indebtedness. Common Life Insurance Policies Generally, life insurance policies are often marketed to cater to retirement planning, savings and investment purposes in addition to the ones mentioned above. For example, an annuity can perfectly provide an income throughout your retirement years. Very existence and endowment participating policies or investment linked plans (ILPs) in life insurance policies bundle together a savings and investment aspect alongside insurance protection. Hence, for the same amount of insurance plan, the premiums can cost you more than purchasing a pure insurance product like term insurance. The upside of the bundled products is that they tend to build up cash over time plus they are eventually paid out after the policy matures. Thus, if your death benefit is in conjunction with cash values, the latter is paid after the insured dies. With term insurance however, no cash value build-up can be had. The common practice in most countries may be the marketing of bundled products as savings products. That is one unique element of modern insurance practice whereby part of the premiums paid by the assured is invested to build up cash values. The drawback of this practice though may be the premiums invested become subjected to investment risks and unlike savings deposits, the guaranteed cash value could be less than the total amount of premiums paid. Essentially, as another policy holder, you must have a thorough assessment of one's needs and goals. It really is only after this step where one can carefully choose the life insurance coverage product that best suits your preferences and goals. If your target is to protect your family's future, make sure that the product you've chosen meets your protection needs first. Real World Application It is imperative to maximize out of your money. Splitting your life insurance on multiple policies can save you more money. If you die while your children are 3 & 5, you will require a lot more life insurance protection than if your children are 35 & 40. Let's say your kids are 3 & 5 now and if you die, they'll need at least ,000,000 to live, to go to college, etc. Rather than getting ,000,000 in permanent life insurance coverage, which is outrageously expensive, just choose term life insurance: 0,000 for permanent life insurance coverage, ,000,000 for a 10-year term insurance, 0,000 for a 20-year term insurance, and 0,000 of 30 years term. Now this is very practical as it covers all that's necessary. In the event that you die and the youngsters are 13 & 15 or younger, they will get M; if the age is between 13-23, they get M; if between 23-33, they get 0,000; if after that, they still get 0,000 for final expenses and funeral costs. That is perfect for insurance needs that changes as time passes because as the children grow, your financial responsibility also lessens. As the 10, 20, and 30 years term expires, payment of premiums also expires thus it is possible to opt for that money to purchase stocks and take risks with it. In a world run by the dictates of money, everyone wants financial freedom. Who doesn't? But we all NEED financial SECURITY. Most people lose sight of the important facet of financial literacy. They invest everything and risk everything to make more and yet they end up losing most of it, if not all- it is a fatal formula. The very best approach is to have a portion of your money and spend money on financial security and take the others of it and spend money on financial freedom.Like it? Share it! More by this author |