Life Insurance: Back again to BasicsPosted by Espersen Neville on May 18th, 2021 Life Insurance: A Slice of History The modern insurance contracts that we have today such as life insurance, comes from the practice of merchants in the 14th century. It has also been acknowledged that different strains of security arrangements have been 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 ago 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 against the hazards of cruel-crippling calamities and sudden economic shocks. Insurance is no longer a rich man's monopoly. Gone are 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 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 of man. The love of parents. The love of wives. The love of children. And even the love of business. Life Insurance as Financial Protection A life insurance policy pays out an agreed amount generally known as the sum assured under certain circumstances. The sum assured in a life insurance policy is intended to answer for your financial needs plus your dependents in the event of your death or disability. Hence, life insurance coverage offers financial coverage or protection against these risks. Life Insurance: General Concepts Insurance is a risk-spreading device. Basically, the insurer or the insurance provider 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 really a contract whereby one party insures a person against loss by the death of another. An insurance on life is really a contract by which the insurer (the insurance provider) for a stipulated sum, engages to pay some money if another dies within the time tied to 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 policy contract is between the policy holder (the assured) and the life insurance company (the insurer). In return for this protection or coverage, the policy holder pays reduced for an agreed time period, dependent upon the type of policy purchased. In the same vein, you should note that life insurance is really a valued policy. Therefore it isn't a contract of indemnity. The interest of the individual insured in hi or someone else's life is normally not susceptible of an exact pecuniary measurement. You merely cannot put a price tag on someone's life. Thus, the way of measuring indemnity is whatever is fixed in the policy. However, the interest of an individual insured becomes susceptible of exact pecuniary measurement if it is a case involving a creditor who insures the life of a debtor. In this specific scenario, the interest of the insured creditor is measurable since it is based on 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 apart from the ones mentioned above. For instance, an annuity can very well provide an income throughout your retirement years. Very existence and endowment participating policies or investment linked plans (ILPs) in life insurance coverage policies bundle together a savings and investment aspect alongside insurance protection. Hence, for the same amount of insurance plan, the premiums will cost you more than purchasing a pure insurance product like term insurance. Insurance 2000 SW15 of these bundled products is they tend to build-up cash over time plus they are eventually paid out after the policy matures. Thus, if your death benefit is coupled 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 generally in most countries is the marketing of bundled products as savings products. That is one unique facet of modern insurance practice whereby area of the premiums paid by the assured is invested to develop cash values. The drawback of the practice though may be the premiums invested become put through investment risks and unlike savings deposits, the guaranteed cash value could be less than the total amount of premiums paid. Essentially, as a future policy holder, you must have a thorough assessment of your needs and goals. It 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 have chosen meets your protection needs first. Real World Application It is imperative to maximize from the money. Splitting your life insurance on multiple policies can save you more money. In the event that you die while your children are 3 & 5, you will require a lot more life insurance coverage protection than if your kids are 35 & 40. Suppose your children are 3 & 5 now and when you die, they will need at least ,000,000 to live, to go to college, etc. Instead of getting ,000,000 in permanent life insurance, which will be outrageously expensive, just go for term life: 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. If you die and the kids 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 from then on, they still get 0,000 for final expenses and funeral costs. That is perfect for insurance needs that changes as time passes because because the children grow, your financial responsibility also lessens. Because 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 global run by the dictates of money, everyone wants financial freedom. Who doesn't? But most of us NEED financial SECURITY. Most people lose sight of the important element of financial literacy. They invest everything and risk everything to create more and yet they find yourself losing most of it, if not all- this is a fatal formula. The best approach is to take a portion of your cash and invest in financial security and then take the rest of it and spend money on financial freedom.Like it? Share it! More by this author |