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Posts Tagged ‘Life Insurance’
Life Insurance
Life insurance is a big industry today. Many people buy it whether they need it or not. The primary purpose of life insurance is to replace lost income due to a death. If you are single and have NO dependents, you don’t need life insurance. You have no one to protect. About 30 percent of all policies sold are to people in this category. Who gets the money when this person dies? Someone who has not been financially dependent on that person.
If you don’t have enough assets to pay for your own burial and the burden would fall on your parents or another family member, then they would qualify as a dependent that you would need to protect financially in the case of your death. But you would only need a $5,000 - $10,000 term insurance policy, which costs a few dollars a year.
Children are the most over insured group, while they have no need to be. Life insurance should protect children; policies should be on the parents, not the kids. If the death of child would cause you to go into debt or cause a hardship, then it may be appropriate to purchase some cheap term insurance for a few dollars a year. However, only 1 in 100 children between age 1 and 18 will die each year (10.5 per 1000). The odds are definitely in favor of the insurance company.
There are many reasons people feel inclined to buy policies on their children. One is “guaranteed insurability,” a gimmick created by insurance companies. You are told that buying a policy while the child is young guarantees his or her insurability later if the child has an incurable disease or becomes disabled. The odds of this happening are even lower than those of the child dying before reaching the age of 18. The “guaranteed” clause seems logical, which is probably why it’s the biggest reason parents buy insurance on their children.
Buying a policy on your child to cover his or her college education is another gimmick. The cash value probably won’t build up enough to pay for college; besides, why would anyone want to give an insurance company their hard-earned money for 18 years and pay commissions, fees, mortality charges, et cetera, and receive a low rate of return?
Finally, insurance companies may say that buying a policy on a child when he or she is young will lock in low lifetime rates. However, insurance costs on new policies are declining as people live longer and longer. I bought a term policy about eight years ago and am amazed at how much cheaper a new policy is today, even though I’m nearly a decade older.
If you have a policy on your child, the rates won’t be adjusted downward as policy rates in general go down; the investment return on your policy won’t increase, but the investment yield on the insurance company’s investments will increase; and insurance premiums per thousand are decreasing - more protection can be bought today for less, compared with policies purchased years ago.
When buying life insurance, the important question to ask yourself is: what impact would a death have on the money coming in? If the survivors have enough income, then you don’t need insurance. You may want some (for emotional reasons), and that is fine, but you don’t need any (for financial reasons). Please keep this distinction in mind.
With most people, there is always a discrepancy between the maximum insurance wanted and the minimum of insurance needed. Consider comfort level, what you can afford and your needs Life insurance was never intended to fill a permanent need. If you are saving money on a regular basis, putting money into a retirement plan and paying off a mortgage, these factors will change how much insurance you need and at what point you might not need any at all.
Is Getting Life Insurance Really Necassary?
Are you one of those people who think that life insurance is just another extra expense that’s not really necessary? We could always find something else to do with those funds, and the truth is until we have a family of our own and start to accumulate some assets, we really don’t give it much thought at all. Just like homeowner’s and auto insurance, which provides us with extra confidence that we would be covered if something were to happen, life insurance is another policy. We want our loved ones to be covered financially in case we should die. So they can afford to take care of things such as burial or cremation at least.
Fact File- Life Insurance
Life insurance helps your dependents to be financially secured in the event of your death. When you buy life insurance you stipulate the figure you want the policy to pay out when you die - this term is the sum assured. The premium you pay is based on this amount, and on your age and gender. Your payments will also be based on the type of cover you choose. There are two fundamental types of life insurances: term assurance and whole-of-life cover, and there are many variations within these categories. Term assurance is often purchased at the same time as a mortgage, and usually covers the same 25-year period. If you haven’t died at the end of the period, you don’t get anything back. It is a simple insurance with no element of investment which protects your family by paying out a lump sum should you die within a specific time period. There are several types of term assurance. Level term gives the same payout during the whole of the life of the policy which means that you beneficiaries would receive the same amount whether you died on day one of the policy or whether you died right at the end of the term. It is usually bought with an interest-only mortgage, where the debt only has to be paid off on the final day of the mortgage term. Decreasing term assurance is where the payout reduces by a set amount each year, finishing at zero at the end of the term. Since the level of cover declines during the term, premiums on this kind of insurance are cheaper than on level policies. This cover is usually taken out with repayment mortgages, where the debt occurs during the mortgage term. Increasing term assurance means that the potential payout rises by a small amount each year. It is a good way of protecting the original policy amount against inflation. With convertible term assurance, the policyholder has the choice of switching to another type of life insurance for instance a “whole of life” or endowment policy in the future. If a person does take up this option; they do not have to submit any further medical evidence. Instead of paying a lump sum, family income benefit gives the policyholder’s dependents regular payments from the date the policyholder dies to the end of the policy term. Whole-of-life insurance consists of a policy that lasts throughout your life. This means that your dependents are guaranteed to be paid whenever you die. Premiums are considerably higher than for term assurance since you are certain to die while holding the policy. There are various types of whole-of- life policy - some offer a fixed payout from the beginning, others are tied to investments, and the payout will relate to their performance. Unit-linked policies are the most popular investment - linked policies usually tied to funds, and with - profits policies, which give bonuses. Whole- of -life policies are usually reviewable, often after 10 years. At this point your insurer can decide to increase your premiums or lower the cover it offers. Life insurance can be bought on-line or from the high street through insurance companies themselves or from some friendly societies. Many sell directly to the public. Other outlets selling insurance include comparison websites, banks and building societies and mortgage brokers. Factors affecting monthly premiums include the sum assured, sex, age and whether or not you are a smoker. Some companies insist on a medical before offering cover, but this is not as common as in the past. Premiums for life insurance alter over time, and if you do have a policy it might be worth shopping around to find out if you can get a more cost-effective deal. You can normally cancel your existing policy without penalty - but make sure you have another one in place before you do so.