Life insurance is an agreement between the policy holder and the insurer. The insurer will pay the beneficiary upon the death of the policy holder; the real benefit will depend on the agreement. The insurer may also pay the insured in case of serious illness depending on the terms and agreements guiding the contract. Life insurance gives policy owner rest of mind in case of any unforeseen death.
The insured will have access to the money after the death of the policy owner to pay their existing bills. I.e. Life insurance helps beneficiary to live their normal life after the death of the policy owner. The policy holder pays premiums to Life Insurance Company Monthly. Quarterly or yearly base on the contract signed. The insurer has the right to decline the payment of compensation in case of ; If the policy holder commits suicide, riot, disaster and war. All the these losses are unpredictable. Life insurance is a legal agreement that gives the insurer the right not to pay the insured if any of the above losses reveal. They are not normal as the losses concerned are mostly massive.
Why life insurance is necessary
Many people always think they do not need life insurance coverage, because they are still young or they do not have a wife and children to benefit the claims. While other think, life insurance is a professional practice of exploiting peoples’ incomes. They believe they will continue paying premiums, without immediate or nearby future benefiting from the claim. However, the need for life insurance goes beyond quick or immediate benefit from the insurance company. A life insurance policy should provide benefit to the insured after the death of the policy holder. If life insurance is meaningless to you, after reading the below reasons, you will find life insurance compulsory and not an option.
(1) To care for dependants after policy holder’s death
If you have dependants in your household, you need life insurance policy. The need to provide a decent life and standard education for your dependents are extremely important. Though no one pray to die early, but the future is uncertain. Any breadwinner of the family, who think about his dependents, needs life insurance coverage with a reputable insurer. If you are considering the cost of taking up life insurance policy, we have different types of life insurance policies, which vary in costs. You get policy that suit your income to avoid any financial mess that may arise in paying your recurring monthly bills. The benefit (claim) of the contract will enable dependents to live their normal life after the death of the policy holder.
(2) If you do not have a wife or children in your household, you may need life insurance policy to protect your family members or the cost that may arise should the policy holder die suddenly. Taxes, funeral expenses, unpaid rent and bank loan, are the general financial need that surface after the death of most people in society. If you do not have a life insurance policy in place to cover such expenses, it automatically becomes a burden to the family members.
(3) Provision of cash benefit
The holders of some types of life insurance policies have the option of borrowing from their accrued premiums paid. Though you do not have to see this as the main reason for buying life insurance contract, but if an unexpected need arises, life insurance contract may assist insure out of the financial mess or obligation. Whole life policy and term life insurance provide a cash benefit Inform of loan, which attract interest at the time of repayment.
Parties to life insurance
Ordinarily, two main parties are involve in life insurance, if the beneficiary is different from the policy holder. Three parties will be involve. In most life insurance contracts, beneficiaries of the claim are different from the policy holder. Parents buy life insurance to protect their children from any financial obligation, which may arise after their death.
This is the insurance company that accepts the burden of life contract in case of policy owner’s death. The policy holder pays the premium in exchange for compensation to the insured in case of death. The insurance company will determine the premium base on the number of dependants or beneficiaries of the compensation.
(ii) Policy holder
The policy owner is the initiator of the contract. He buys life insurance for the benefit of the insured. Insured may be his wife, children or relatives. The life insurance policy will enable the beneficiaries to pay his rent, school fees of children and other expenses after the death of the policy holder.
This is the right beneficiary of the claim, after the death of the policy holder. The policyholder may also be the insured if he buys the policy on his own life. He will be the person responsible for the premiums and also claims the compensation. However, if he buys the policy on another person’s life, he is the policy holder while the beneficiary is the insured.
Difference between insurance and assurance
The term insurance refers to the provision made to prevent any loss that may happen. The occurrence is not certain, Though we insured them to get compensation (indemnity) from the insurance company. We buy insurance policies to prevent against fire, theft, accident, health and casualty insurance.
Assurance is the provision to cover the loss that is certain or guarantee to happen. The only insurance type that fall in this class is life insurance. Policy holder that insured his personal life, the claims will matured, but he is not sure of the period and the time of maturity. The insured will benefit the claims from the insurance company after the policy holder’s death. Many insurance brokers merge assurance and insurance together to avoid confusion.
Types of life insurance
Term life insurance provides coverage for a period. If the policy holder died within the period, the insurer pays cash to the beneficiary. However, if the loss did not occur within the coverage period, the contract will expire. The policy holder will decide to renew it back or stop the coverage. Term life insurance is straightforward because both parties understand the rules guiding the contract. Before insured can benefit the compensation after it has expired, the policy owner must renew the contract.
There are many types of term life insurance, but all of them cover a defined period. It is advisable to carry life insurance forward till your last child reaches 18 years. You can go for term life insurance that covers 15 years or an annual renewable term. You compare the two and choose the best one. Here, are all types of term life insurance available in the market, convertible term, renewable term, annual renewable term.
Universal life insurance
This policy has the features of whole life insurance. It provides considerable flexibility in term of premium payment. It protects the policy holder till death. The holder can not terminate it until he seized to exist. The policy provides the opportunity for the holder to adjust his premiums, he may reduce or increase the premium base on his discretion. It also provides the opportunity to save money for personal withdraw. However, all withdraw must be returned, or the benefit will reduce. It gives the holder free chance to adjust or control their premiums saving for the entire lifetime.
This policy accumulates the premiums over a certain period. The payment age is call endowment age usually 65 years. All benefits are refund to the insured on maturity. The endowment is more expensive than other types of life insurance coverage because the payment date is short compare to whole life and universal insurance.
Permanent life insurance
Whole life insurance covers policy holder till maturity date. The policy owner will continue paying the premiums till his final day on earth. Whole life policy covers the entire life of the holder. The insurer will pay the face value of the policy to insured after the policy holder dead. Whole life policy reduces the risk of the insurance company because its premiums spread over a long period. Insurance will pay the policyholder the benefit, if he is still alive usually after his 100 year birthday on earth.