Insurance World

Purpose of Life Insurance

If you die, life insurance is designed to provide financially for those you have left behind and have listed as your beneficiaries. In buying life insurance you, the insured, enter into a legal contract with the insurance company, also known as the insurer. Basically, the contract states that if you make your monthly insurance payments in a timely manner, your family or other beneficiaries will receive a specific amount of money when you pass on.

Although some may find the idea of life insurance distasteful, it is considered to be essential in protecting the fiscal health of your spouse and children should they find themselves fiscally taxed due to your death.

Types of Life Insurance

There are two primary types of insurance: permanent life and term life insurance. Each provides specific types of protection for your loved ones.

Term life insurance, the simplest form of life insurance, is designed to protect your family for a specified length of time or “term.” Term policies, which range from 1 to thirty years, provide a one-time death benefit but no cash savings. This means term policies only provide benefits as long as the insured has paid the premium, which is the cost of the insurance. Premiums are divided into equal monthly payments that are assessed for the entire period of coverage. If you bought a policy that covered you for a three-year term, then you would make 36 equal premium payments on that policy.

Permanent insurance is designed to offer both a death benefit and an investment return after a length of time. Because this type of insurance offers a long-term savings plan, premiums are higher than those for term life insurance. Common types of permanent insurance are whole life, universal life, and variable universal life.

Term vs. Permanent

Term life insurance is especially appropriate for those who desire coverage for a specific length of time and who have limited funds. Because it is less expensive than permanent insurance, term can offer more coverage for less money. This is useful to people who have children, mortgages, and various types of loans. The right amount of term can cover these expenses and more. However, if you still desire coverage after a term policy’s period ends, factors such as poor health and age will result in higher premiums when you buy a new policy.

Permanent insurance, although more expensive, allows policyholders various benefits, including a premium that will not change as you age or if your health deteriorates. Also, permanent insurance will usually accrue monetary value, offering the policyholder a return on their investment that they can access as worth builds.

Whole or ordinary life is the most common form of permanent insurance. With whole life your premiums and the face amount of the policy are fixed over the life of the policy. Your premiums must be paid regularly. A more flexible policy, where you can pay premiums at any time in just about any amount, is universal life. With this kind of coverage, you’re allowed to modify the death benefit amount according to your needs.

A variable life policy carries both a death benefit and monetary value. The value of this policy is dependent upon the performance of investments. You select the investments for your portfolio and the better they perform the higher the death benefit and cash value of the policy. Some policies offer a minimum death benefit regardless of how your portfolio functions.

Variable-universal life carries elements found in both variable and universal life. You get the risks and possible rewards of a variable policy and the flexibility of universal coverage.

Choosing a Life Insurance Company and Policy

There are some important things to consider when buying a policy. Be sure to shop around before buying life insurance. Consumers can buy insurance directly from an insurance company via the Internet or over the phone. Buying this way is usually cheaper than going through an insurance agent because the agent receives a commission, called a “load,” when they sell a policy.

The life insurance industry is very competitive with hundreds of companies offering policies. This is a benefit for the consumer, because competition tends to aid the buyer; however, this can also be seen as a detriment because the range of choices can make finding the right policy from the best company daunting. Your search will be easier if you consider four basic criteria in making your selection—rates, budget, service, and stability.

Rates: Because it is such a competitive business, life insurance rates vary greatly from company to company. Find three to five policies with attractive rates for the amount of coverage you desire.
Budget: Once you’ve found these policies, be sure the premiums are within your budget. It doesn’t make any sense to go forward with any of these contracts if you aren’t going to be able to afford them.

Service: In determining the quality of each company’s service, you can do two things. If you are going through an agent, you’ll be determining the quality of that person’s service when you talk to them about the benefits of buying specific policies. The same is true if you buy directly from an insurance company without going through an agent. Do they answer your questions clearly? Do they seem to know what they are talking about? Do they leave out important information?

By considering at least three companies and/or agents, you’ll be able to compare their ability to answer questions and to give you their undivided attention. Along with interviewing potential agents and companies, you can check with your state insurance department to see how many complaints, if any, they have received concerning the company and/or agent.

Stability: An insurance company’s economic stability is directly connected to their ability to meet their future financial obligations. In other words, you want to make sure an insurance company will be able to pay your death benefit. The following companies rate insurance providers’ fiscal soundness.

A.M. Best
Oldwick, New Jersey 08858
908-439-2200
www.ambest.com

Moody’s Investors Services
99 Church Street
New York, New York 10007
212-553-0300
www.moodys.com

Standard & Poor’s Insurance Ratings Service
55 Water Street
New York, New York 10041
212-438-2000
www.standardandpoor.com

Weiss Research
4176 Burns Road
Palm Beach Gardens, Florida 33410
800-289-9222
www.weissratings.com

After going through these four steps you should be able to compare each company, agent, and policy and make an informed choice.

One more important place to check for affordable life insurance is your employer. Many businesses offer very competitive group rates, usually for term life policies.

How Much Life Insurance is Enough?

Some people will say that you can never have enough life insurance. However a common rule of thumb is to buy at least five times your yearly income. Many policies include a double indemnity clause, which means your beneficiaries receive double the value of your death benefit if you should die suddenly in an accident or due to some violent event.

In asking yourself “how much is enough,” you’ll want to make a list that includes yearly expenses, large debts (such as a mortgage), and long-term or future expenses (such as college tuition). You’ll know you’re adequately covered if your death benefit provides for large debts, with enough left over for at least one year of living expenses and for investing or sheltering for long-term or future expenses.

Finally, you need to decide what you want to get out of your life insurance. Is it simply a specific period of coverage with a large death benefit or do you want your life insurance to be part of your long range fiscal planning? Considering and answering all of these questions will help you find the policy that’s right for you.

You know what it is sometimes like trying to find your financial documents. You file them away in a safe place, thinking you will know where they are. But the one day that you need them you cannot remember where they have been hidden.

It can often be the case that they actually become permanently lost.
It is understandable how this can happen with the very nature of something like life insurance. But here is an interesting fact about life insurance policies. There are in fact about Ј2 billion pounds worth of them that remain unclaimed.

The reasons for this are wide and varied, but here are some.
People forget or do not know that their loved ones took out one of these policies in the first place.
Or if someone has not left a will, the relatives have no evidence to show there was a life insurance policy paid for.
Another reason is that when one in 16 people move house, they forget to tell the financial companies they have moved. So they basically just fall out of communication.

In fact, in the second half of the 20th century, many of the life assurance policies that were sold doubled as savings vehicles and as a result were very popular.
Many of the companies offering these policies have since been bought by those larger than themselves. The company that someone took the policy out with might no longer exist, but there is still money there waiting to be claimed in some account somewhere.

So if you have a life policy and the company does not exist anymore, you need to track it down because the money is, after all, yours.

Start by looking on the internet. A suggestion is that you can put the company’s name into ‘google’ and see what comes up. Your search might lead you to a website which will reveal the company that took over the firm with which you took out your insurance policy.

Next call the Association of Friendly Societies on 02072167436 or look on its website, which is www.afs.org.uk.
Basically, this organisation is a trade body which keeps old records relating to friendlies and mutuals from the past.

Another place to call the Mutual Societies Registration (ph 0207066 4916), now part of the Financial Services Authority. This organisation will also tell you what has happened to the company with whom you had your life insurance policy. Ask for the best person at that company to contact.

Just because you cannot remember the name of the company which you had that policy with it is still no reason to panic. Something called the Unclaimed Assets Regsiter (www.uar.co.uk ph 08702411713) holds information about all of the unclaimed investments from dividends to life policies. You have to pay Ј18.50 to find this information, but if you can provide certain details, like your date of birth etc, the organisation could be hugely helpful. Those asking for the information must be either the policy holder or have power of attorney of another’s finances.

The financial experts suggest to policy holders or powers of attorney to collect as much information as possible before embarking on the search for the company that holds your funds. And stick with it - even it costs a small sum of money to find your fund. It is out there somewhere.