Life insurance is a beneficial financial tool that most people brush off or just know little of. Those who understand its complexities consider it essential especially for individuals who have children and other loved ones who might benefit from it financially. Read on to realize that there is more to life insurance making it a necessity for those who aim for life’s comfort and security.
What is life insurance?
Life insurance is an agreement between a policyholder (insured individual) and an insurer (insurance provider). The deal guarantees repayments to the beneficiaries of insured in time of death or even in times of an accident. The primary purpose of life insurance is to ensure the dependents of financial protection.
What are the main types of life insurance?
There are many different kinds of life insurance, but the two main categories offered in the Philippines are term life insurance and whole life insurance. Term life insurance usually covers policy for a predetermined period. Whole life insurance provides protection and death benefit that lasts until the insured dies. Most whole life insurance has a cash value component guaranteeing an investment or savings account. With whole or permanent life insurance, your premium remains the same, benefits against death is guaranteed and cash value grows at a specified rate.
The Insurance Commission guards the public against potential abuses by issuing licenses to insurance agents,
general agents, resident agents, underwriters, brokers, adjusters and actuaries.
What should I consider when choosing a life insurance policy?
The type and value of a life insurance policy depend on several factors. Life insurance does not result in impulse buying. Purchasing a life policy does not only consider how much available cash you have at the moment. Several aspects you should significantly think about including the following:
* Dependents – How many people depend on you? Do you have children and parents? People who don’t have kids may not need life insurance. If you are supporting your family, paying for monthly bills, and providing for your kid’s education, then life insurance is vital to cover your financial obligations when you die.
* Debts – Mortgages, loans and other types of debts may not be passed on to your beneficiaries but should be paid by your assets after you die. This means that the majority of the properties you may have invested can be used to pay off your borrowings from different institutions. If this happens, then a life insurance benefit can help your loved ones keep up with financial obstacles even when you are already gone.
* Income – Think of all your sources of income then calculate if you could pay for the monthly cost of a life insurance policy. Some policies become void when you fail to pay for a certain period. Before buying, choose the value which you can afford to pay for a long time. Otherwise, failure to do so may revoke the entire policy and may forfeit what you have initially paid off.
* Age – The age of the policyholder is a critical consideration. Technically, life insurance should be purchased right after birth. Life insurance cost is higher as the years pass. Having a policy at an early age means being able to buy one at a lower price. SWhen you age, the system matures, and you'd be able to use the cash value in various investments.
* Lifestyle – Your lifestyle is also a massive factor in deciding your policy. Smoking and other vices pose a red flag to insurance companies. Some insurers also ask for a medical exam before getting approved for a plan. Others may not do so but would let you pay more. Moreover, people who engage in extreme sports or who may have been hospitalized in the previous years may also need to pay more.
What policy features should I know about?
All policies are bound to provide the death benefit which highly depends on the value of your premium. However, there are also other features that may help you choose the best policy for your needs:
* Premium cost – The amount you need to pay for the policy highly depends on the type of coverage you want. Whole life insurance may be more expensive compared to term life insurance, but the latter provides lifelong coverage.
* Cash value – Some policies provide cash value – your plan also serves as a savings account allowing you to accumulate cash on a tax-deferred basis. You may need to check with your insurer regarding their policies on withdrawals.
* Annual dividends – Insurance companies also offer the opportunity for you to earn from their investment returns. Annual dividends usually refer to your share from your insurer’s earnings. This may or may not be included in your policy so better check with your agent before purchasing.
Life is not guaranteed, but we always have a lot of choices to reduce the unpleasant effects of accidents or death. Having a life insurance policy ensures that your loved ones don’t need to worry about your debts, funeral costs, and other financial obligations. Choosing a plan may seem complicated but getting through that stage would ensure the peace of mind that lasts a lifetime.
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