Many people feel life insurance is a luxury that they can do without. But when someone dies the first question we ask is how much insurance he had? We are not sure how long we are going to live yet we are not prepared to answer the question “What will happen to my family tomorrow if I die tonight?”
Life Insurance is the only product in the market place that will produce a known sum of money for a family or business at some unforeseen future date namely the death of insured. Nothing else can do that.
The cash in the bank and other investments may not be available to your family immediately because the probate court and other taxing authorities may seize them till they decide. Life Insurance proceeds they cannot, not even the creditors.
When you need Life Insurance you must make a very important decision. How much insurance you need? What kind of insurance will suit your needs? From whom you should buy? Are there important questions you should consider. ’
To determine the amount of insurance that you should buy. You must work out your future needs. You must do the Financial need Analysis. Your agent will help you to do that. Reg. the type of Insurance again you must keep in your mind your needs. Your Life Insurance may be one of the most important assets you will ever own. The chances are you will live a long time. It is important that you select the right kind that will best accomplish your objectives.
Basically there are only two kinds of Insurances, Permanent Insurance & Temporary Insurance.
Temporary Insurance:
It pays an agreed sum (the face amount) if the insured dies during a specified term period of year, 5years, 10years,l5years, 20years or to age 65 male and age 68 female. (This is a pattern with most of the companies). Protection is provided during the term period. One must be able to buy a new policy at an older attained age to continue insurance protection after the term period. Again evidence of insurability may be required. This all means higher premiums. This is because the chances of dying during the term period increases with age. Eventually the premiums for Temporary Insurance become prohibitively expensive. Most of the companies do not renew after age 70.
Because most temporary insurance is bought by young people whose chances of surviving the term period are very good, few term policies result in death claims. Only 1% of the policies purchased resulted in death claims.
On the other hand temporary insurance can be acquired in large face amounts for a relatively small initial cost.
Temporary insurance is the best way to provide insurance protection for a limited time if you have substantial fixed period short term obligations. It is a good way if your present means are limited. The death benefit is tax free like Permanent Insurance.
Permanent Insurance:
Lifelong coverage’s give whole life insurance its name. The premiums are based on the certainty of death and the guarantee that the beneficiary will receive the face amount, no matter when death occurs. Premiums for whole life insurance may be payable for life for a stated number of years or until a specified age.
Since unlike term insurance every whole life policy will ultimately become a claim. A “reserve’ must be built up so the full face amount can eventually be paid to the beneficiary. This reserve comes from premiums and interest. This reserve makes it possible for one to buy lifelong insurance protection for a level premium. When policy owner decides to discontinue a whole life policy, the reserve is no longer needed for an eventual future claim. The policy guarantees that a portion of the reserve, called the Cash Surrender Value is available to the owner.
The cash surrender value of a whole life policy increases annually. The increase is free from Federal, State and city income taxes. Money can be borrowed against these cash values or utilized for old age pension — (To Be Continued)
Article extracted from this publication >> February 8, 1985
