Life Insurance Policies

Life Insurance Policies

There is a cliché that says that the only certain thing is death. This cliché underscores the importance of people planning for their demise while still alive. This paper explores the purpose, types, and the dos and don’ts of life insurance.

The Purpose of Life Insurance

Life insurance helps to bridge the gap that may exist between the financial needs of one’s dependents and the amount of money coming from other sources (New York State, Department of Financial Services, 2020). This means that life insurance is not an investment since it only offers a temporal financial reprieve. Life insurance aims at providing financial protection to one’s dependents after his or her death (New York State, Department of Financial Services, 2020). It helps a person’s loved ones to continue with their lives upon his or her demise.

Difference between the Different Forms of Life Insurance

There are two main types of life insurance covers. The first category is the term life insurance. As the name suggests, term life insurance provides death benefits only for a specific period, such as 5, 10, or 20 years (Causey, n. d.). The insured can only get these benefits only if he or she dies prior to the end of the agreed period. There are two major provisions of term insurance policies, and which are guaranteed renewable privilege and conversion privilege. The guaranteed renewable privilege allows the insurer to renew his or her term life insurance cover without having to demonstrate insurability (Causey, n. d.). Under this provision, a person with a term life insurance can renew his or her cover without having to demonstrate that he or she is in good health. On the other hand, the conversion privilege allows the insured to change his or her term life insurance to a permanent cover. .

The other type of life insurance is permanent life insurance. This type of life insurance provides coverage to the insured for his or her entire life, provided he or she continues paying his or her premiums (Causey, n. d.). Permanent insurance has certain features that differentiate it from term life insurance policies. One of these qualities includes cash value. Under the permanent life insurance, the policy allows one to receive a certain amount of money if he or she chooses to cancel his or her policy. Also, the insured can use the cash value as collateral for a loan. The other feature of permanent life insurance pertains to policy loans. An individual who has bought a permanent life insurance cover may borrow a loan against his or her policy and pay it either in installments or lump sum (Causey, n. d.). As such, one’s personal life insurance cover may act as collateral for a loan.

There are different types of permanent life insurance covers. One of them is the traditional whole life, and it covers the insured for the remaining part of his or her life provided he or she keeps paying the premiums (Causey, n. d.). The other type of permanent life insurance is known as the universal life or flexible premium adjustable life. This type of life insurance is flexible since the payments of premiums may vary throughout the period in which the cover is active. For instance, the death benefits may be adjusted easily under the universal life in comparison to the traditional whole life policy. The other category of permanent life insurance is known as the variable life. Under the variable life insurance cover, a person chooses how he or she will pay for the policy’s accumulated value. A person can pay for coverage through his or her investments in money markets, bonds, and stock accounts (Causey, n. d.). As compared to the universal life and the traditional whole life, the accumulated value and death benefits vary in variable life depending on the premium paid as well as the performance of one’s investment options.

The Benefits of Life Insurance

To begin with, death is certain. This means that one is expected to benefit from his or her life insurance policy, although while dead. When a person dies, his or her family faces numerous expenses and challenges. These expenses include paying for mortgages, car installments, child’s college fees, and funeral costs, among others (Causey, n. d.). Things might get even more difficult if the dead person was the breadwinner. Besides, the amount of money dependents get upon the maturing of the insurance cover of a loved one enjoys favorable tax treatment. For instance, death benefits are usually income-tax-free (Gateway Financial, 2019). At the same time, certain life insurance packages enable a policy owner to enjoy certain financial services even while he or she is alive. For instance, some permanent life insurance covers allow a person to take loans against his or her accumulated value (Causey, n. d.). As such, one’s life insurance policy may act as collateral for loans.  Besides, many life insurance policies tend to be exceptionally flexible (Gateway Financial, 2019). This means that an individual can adjust the terms of his or her life insurance policy depending on his or financial needs.

Dos and Donts of Life Insurance

Buying a life insurance policy is a very delicate decision that requires a person to follow certain simple rules. Firstly, a person must think through why he or she needs to buy life insurance according to his or her needs, expectations, and core requirements (New York State, Department of Financial Services, 2020). Also, a person needs to conduct thorough research and receive advice on the various life insurance options available in the market. Also, one must ensure that he or she fills up the insurance proposal and relevant forms completely and truthfully.  At the same time, one should keep one copy of the fully completed life insurance form. The copy can be helpful in resolving the dispute between the beneficiaries of the life insurance policy and the cover provider.

When buying a life insurance cover, one must ensure that he or she does not leave any blank space in the proposal form. At the same time, one must avoid having any individual fills up the form on his or her behalf (Dos and Don’ts for Life Insurance, n. d.).  Also, a person needs to avoid concealing or misstating any facts that could be disputed when the policy matures. Most importantly, one must avoid missing or delaying his or her premium payment.

In conclusion, buying a life insurance policy is one of the most important decisions that a person can make. Various life insurance products exist in the market, and they differ in terms of the maturity period and flexibility in payment options, among other aspects. One key importance of life insurance is to ensure that a person’s loved ones are assisted to go on with their lives upon his life.

References

Causey, M. (n. d.). A consumer’s guide to life insurance.  New York’s Department of Insurance. Retrieved from http://www.ncdoi.com/_publications/consumer%20guide%20to%20life%20insurance_cli1.pdf

Dos and Don’ts for Life Insurance. (n. d.). Retrieved from http://www.policyholder.gov.in/Dos_and_Donts_for_Life_Insurance.aspx

Gateway Financial. (2019). Advantages & Disadvantages of life insurance. Retrieved from https://www.gatewayfinancial.biz/private-clients/advantages-disadvantages-of-life-insurance/

New York State, Department of Financial Services. (2020). The purpose of lie insurance. Retrieved from https://dfs.ny.gov/consumer/cli_purpo.htm