Life Insurance Gems

Although there is no law that requires people to insure their lives, most people regard life insurance as a way of securing financial stability for their families if they fall terminally ill or die. In the majority of cases, there are subjective reasons that push people to have their lives insured. However, statistics show that people definitely have at least 5 objective reasons to insure their lives:

• When a person dies, his or her estate is spent mainly on mortgage payments, debts, costs of the funeral, medical expenses, or income and estate taxes. Between 15% and 60% of the estate is used up in this manner.
• Critical illness insurance covers terminal or chronic conditions that are expected to last more than 12 months. In the UK alone, there are more than 2.68 million people who are living with coronary heart disease which accounts for almost 40% of deaths and is among the conditions covered by critical illness insurance.
• Amazingly, a third of the population develops one form of cancer at one point in their life. That means that at least one member of a traditional family may develop cancer. The same statistics say that 25% of people actually die from cancer. When you imagine that it can never happen to you and you don’t need a life insurance policy, remember these figures.
• Smoking is a nasty habit but, more importantly, it is a deadly habit. Studies show that 33% of cancer cases are caused by cigarette smoking, which is the most significant cause of premature death in the UK.

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Most people who own an insurance policy, or even those who don’t, probably wonder how insurance premiums are determined by insurance companies. Basically, these premiums will depend mainly on a person’s insurance score.

An insurance score is a rating that is used to forecast the possibility that a person will file a claim. A person’s insurance score is largely affected by his credit report and his history of insurance claims. Computing for the insurance score will vary from company to company, but a number of them use proprietary formulas in calculating the score. Some of the factors used in calculating this score include a client’s outstanding debts, payment history, credit history, account balance every month, and available credit.

In contrast to a credit rating, an insurance score does not factor in a client’s income. By omitting this as a factor, there is a high possibility that the client might be penalized for getting a large amount of loan every month, even if his income more than covers the expenses.

Basically, the logic behind an insurance score is if a client has a high credit score, it would be very likely that he will also have a high insurance score. Thus, in order to achieve a high insurance score, all a client has to look at is his credit score and credit rating. For an insurance company, a perfect insurance score would mean that a person would have the lowest possibility of ever filing an insurance claim. Take note however, that there are several other factors that determine a client’s premiums, it just so happens that the insurance score is the biggest of these factors.

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There are two ways of looking at a life insurance policy. You can look at it as something that creates large fees for the insurer, while a giving the buyer diminishing benefits, or you can look at it as a way of leaving your beneficiaries with money that is tax-free. You can also see it as assurance that money will be available to you and your family in case rainy days come.

Nowadays, a number of financial advisers have started encouraging their clients to buy permanent life insurance as a type of investment, rather than government bonds (which have low interest). Financial advisers have a three-fold argument to this option: first, a permanent life insurance has an ROR (rate of return) of either 3-5 percent; second, the money gained through the policy will be handed down to the beneficiaries tax-free; and third, the policyholders can lend money against the insurance policy without incurring any taxes. If the loan is not repaid, then it will simply be deducted from the policy’s death benefit.

This does not mean that life insurance policies do not have flaws. There are still layers of payments in an insurance policy. Financial advisers will also point out that a life insurance policy will limit the benefits that a person gets on the money that has been invested, and these gains will also decrease the longer the policyholder lives.

With the stock market’s volatility however, coupled with the US Treasury bonds’ low yields recently, there is already an increasing interest in life insurance policies simply because of their steady returns (despite the returns being low).

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When it comes to the subject of a life insurance, many who already have it may think that they already have sufficient insurance to take care of their needs in case death happens. So, how can one really say that they already has sufficient life insurance?

Having sufficient life insurance will differ from one person to another. For a young professional who is still single, sufficient life insurance could mean having a policy that will take care of his medical expenses or burial expenses. For a married individual, sufficient life insurance could mean having a policy that pays out a significant amount to his family in case of his death. For another person, sufficient insurance could mean something that he can avail of temporarily, and then for another, sufficient insurance could be one that will protect him financially in his lifetime.

Regardless of a person’s status in life, sufficient life insurance should be something that can offer assistance not only to himself, but also to his family. Those who are still young, single and can afford to get a policy at that stage should get one. It would be advantageous to him to get a policy in the early part of his life because eventually, there will come a time when he will want to build his own family. By then, insurance policies will have gotten significantly more expensive and it would be a strain on the budget to get a policy that has wider coverage. By starting early, a person can slowly build his policy until such a time that his life insurance is sufficient to cover not only him, but his family as well.

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To sell a life insurance policy in exchange for immediate cash is what is referred to as a life settlement. Life settlements have always drawn out strong reactions from people, both positive and negative ones. These reactions are considered normal and are taken by the insurance industry as part of the business. Even life settlements have good and bad sides.

A negative side of a life settlement was practiced in previous years and is what is called a “viatical settlement.” This is a kind of settlement where a policyholder sells his life insurance for only a percentage of the policy’s face amount. The policyholder has no choice but to settle for the amount because he needs immediate cash due to a critical, or terminal, illness. Fortunately, however, most insurance companies today have made it unnecessary for this kind of policy sale. This is because most current policies have a no-cost rider. This allows for a considerable portion of the policy’s face amount to be paid to the policyholder in the event of a terminal illness (after presenting the required documents).

A good side of a life settlement would of course be the availability of immediate cash once the life insurance policy is sold. There are instances where deciding to take a life settlement would be a good option rather than keeping the life insurance policy. For instance, if the premiums are getting to be too expensive and it is becoming a burden to pay. In that particular situation, exchanging the insurance for a life settlement would not be a bad idea at all.

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Nowadays, an increasing number of people are deciding to cancel their life insurance policies for one reason or another. It could be because of the recession that they feel they need the money to cover their present expenses, or it could be that they feel they do not need it anymore. However, cancelling your life insurance plan should be a decision thought over a number of times because you might end up realising that the decision you made was a costly mistake.

One mistake about a life insurance plan is when people think that they do not need the added expense of paying premiums to be prepared for something that might or might not happen in the near future. A number of people in the middle-income level believe that a life insurance policy covers the policyholder’s lost income (in case of death) in order for the dependents and beneficiaries to be supported financially. When a person thinks of it that way, what comes to mind is the possibly large premiums that come with a policy that pays out 10 times the breadwinner’s salary. This could lead him to think that he does not need that much expense and decide to cancel his plan. This decision can be disastrous when the person dies, leaving nothing to cover future expenses.

Another mistake one makes about an insurance policy is not talking about it. People feel uncomfortable talking about death and topics that are related to it, which include life insurance plans. However, talking about insurance policies, especially a life insurance plan, helps a person become enlightened and realize that he does need to protect his loved ones, if not himself.

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The Internet has become an online marketplace for just about any product possible and available. For most, Internet shopping is more convenient because shoppers will not have to leave the comforts of home just to buy the things they want. One of the in-demand products online are insurance policies, particularly the life insurance.

A number of life insurance brokers can be found working online. These brokers can be found in sites that provide a lot of information about insurance policies and similar topics. These websites also allow prospective policyholders to shop or apply for an insurance policy at any time that they want. Online insurance policy marketing is easier to deal with, as shoppers will not feel pressured to give an answer immediately, as compared to actual insurance brokers who knock at the door, sell insurance and then wait for your answer right then and there.

Online insurance marketing are equipped with tools that are helpful in making a decision over what kind of insurance will be best for specific circumstances. One example of this helpful tool is the “quoting calculator”, which helps a shopper have an idea how much payment will be needed. Other sites feature other applications like easy and quick forms that shoppers can fill-out and then receive quotes while he wait.

When filling out an insurance form, it is important to provide only what is correct. For fields which you find will  difficult to answer, stick only to what you believe is true. In order for the company to not create an erroneous profile, it is important to tell all the necessary facts about yourself. An erroneous profile will definitely lead to frustrations to both the  insurer and the insured, regardless of whether the product is taken or honored.