Types of Life Insurance - Are They All The Same?

Life insurance is a tool that many people use to provide a healthier or more robust estate for their beneficiaries. There are a number of different types of life policies available but they all work in basically the same way. An individual chooses how much money they want to leave behind to their family or loved ones and then pays monthly premiums on a policy until they pass away. At the time of the policyholder's death, the insurance company pays the beneficiaries the amount of death benefits due to them. The vast majority of life insurance works just like this, but there are a few notable exceptions.

Single premium life policies do not require an individual to make a monthly premium payment. These types of policies are paid in full at the outset. An individual can choose to pay just about any amount to open this type of life insurance policy with the caveat being that most insurance companies require a minimum payment of at least $5000. Just because a person has life coverage does not mean that their beneficiaries are guaranteed to get death benefits if that person passes away. In the case of a term life insurance policy, if the individual outlives the term and does not renew the policy there will be no benefits available.

The type of insurance that most financial planners would recommend to their clients is often referred to as permanent life policy. This type of insurance is best suited for individuals that are still fairly young and have the luxury of allowing the policy to mature over time. The typical permanent life coverage takes it least 10 years to fully mature. As long as the policyholder makes their regular premiums, which keeps the account active, they do not need to worry about having their policy expire or seeing their premiums increase.

Not all life insurance policies are designed for the exact same purpose. Certain types of life insurance, like survivorship life coverage, are designed to serve a specific function. A survivorship life policy is purchased by a couple who are usually wealthy as a way of covering any estate taxes that may be due at the time of the final spouse's passing. There is no one size fits all approach to life coverage. Each person must carefully consider their finances, budget, and whether or not there are people depending on them in order to determine exactly which type of life insurance is best and how large of a policy to purchase.

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Evaluating Life Insurance Needs :

People tend to put off buying life insurance. The main reason may be that they do not want to think about their death. More often than not, though, it is also that they do not know how to evaluate their life insurance needs so that they have enough coverage. There are many things to take into consideration when determining what kind and how much insurance you need. It starts by figuring out if life insurance is needed in the first place. The primary purpose of life insurance is to replace the income lost due to your death. Therefore, if you have a spouse, children, or other people who are dependent on you to survive, then you need life insurance.

To determine how much you should purchase, first evaluate the cost of living for your family. Although the goal is to replace the income lost when you pass away, basing the amount of insurance you purchase on your yearly income often leads to buying too little insurance. You will need to buy enough insurance to cover your family's short term needs and long term obligations. This includes making sure there is enough money to pay for funeral, medical, and legal expenses as well as debts that are left behind.

You will also want to calculate what your long term expenses are going to be. For example, if you have children you will want to leave money for college. This can be hard to figure out especially since you don't know where they are going to end up. The best you can do is calculate the average cost of school and multiply by that by the number of children you have. Other long term expenses you may want to consider include family maintenance such food, utility bills, health care, transportation, etc for at least a year.

To avoid buying too much insurance, you should also take into account the resources your family has available to them. Personal savings, retirement accounts, social security benefits, and your spouse's income are all financial resources that your family can turn to for assistance. The total amount should be subtracted from the sum of the short term and long term needs. The difference will be the amount of life insurance to purchase. A lot of thought should be given to evaluating your insurance needs. If you need help, it is best to speak to a qualified insurance agent.or contact us
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Source : articlebase

Term Life Insurance - The Pros and Cons :

Life insurance is a tool that many people use to provide a healthier or more robust estate for their beneficiaries. There are a number of different types of life policies available but they all work in basically the same way. An individual chooses how much money they want to leave behind to their family or loved ones and then pays monthly premiums on a policy until they pass away. At the time of the policyholder's death, the insurance company pays the beneficiaries the amount of death benefits due to them. The vast majority of life insurance works just like this, but there are a few notable exceptions.

Single premium life policies do not require an individual to make a monthly premium payment. These types of policies are paid in full at the outset. An individual can choose to pay just about any amount to open this type of life insurance policy with the caveat being that most insurance companies require a minimum payment of at least $5000. Just because a person has life coverage does not mean that their beneficiaries are guaranteed to get death benefits if that person passes away. In the case of a term life insurance policy, if the individual outlives the term and does not renew the policy there will be no benefits available.

The type of insurance that most financial planners would recommend to their clients is often referred to as permanent life policy. This type of insurance is best suited for individuals that are still fairly young and have the luxury of allowing the policy to mature over time. The typical permanent life coverage takes it least 10 years to fully mature. As long as the policyholder makes their regular premiums, which keeps the account active, they do not need to worry about having their policy expire or seeing their premiums increase.

Not all life insurance policies are designed for the exact same purpose. Certain types of life insurance, like survivorship life coverage, are designed to serve a specific function. A survivorship life policy is purchased by a couple who are usually wealthy as a way of covering any estate taxes that may be due at the time of the final spouse's passing. There is no one size fits all approach to life coverage. Each person must carefully consider their finances, budget, and whether or not there are people depending on them in order to determine exactly which type of life insurance is best and how large of a policy to purchase.
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Source : articlebase

Life insurance is a basic need :

Life insurance is a basic need. It's the first step in financial planning. However, life insurance is not just for financial protection in the event of untimely death of the breadwinner. It can also be a comprehensive wealth accumulation solution.

Whether you are young or old, rich or poor, employed or a business person - you can get a plan tailor-made for you. In a way, all investments are insurance against financial risk and all insurance is investment for a better tomorrow . Many Life insurance plans have savings component that earn returns just like in any other investments (e.g., fixed deposits, bonds or mutual funds). But the main difference is that Life Insurance really is a long term investment .

You must look at Life Insurance beyond 5-10 years to get the right benefits. It also locks up your funds for future needs so that you do not fitter away and miss your long term financial goals. Life insurance is an investment option that offers specific products tailor-made for different life stages (phases of life).

It thus ensures that the benefits offered to you reflect your needs at that particular life stage, and hence ensures that the financial goals of that life stage are met. Life insurance gives two types of benefits: financial and behavioural. Financially, the first and the most important one is protecting the family against the "cash flow" risk of the untimely death of the bread-winner . This is a real risk most of us underplay. Everything does not go as planned.


Life insurance scores over others:

Life throws up nasty surprises. The only way to some-what reduce the pain of death in the family is to make sure that at least financially the family is secure. Once this risk is taken care of, you need money for things you wanted to do in your life. Educate children, build a nice home, have peaceful retirement , meet the wedding expenses of your children and so on. To meet these financial goals you need both Money and Planning. This is where the behavioral advantage of life insurance scores over others .

Life insurance helps you plan early, save regularly, think long term and protect against downside risks. When, you save through life insurance, your behavior changes subtly. You become more cautious, caring, systematic and disciplined with your savings. As you pay your premiums regularly, your savings ac-cumulate steadily and locked in for a specific purpose in future.

Life Insurance also gives tax breaks on the premiums paid and benefits received. Amounts payable by life insurance on death are always guaranteed. Amount payable on maturity of the plan are also guaranteed in a traditional endowment plan. In Ulips, the amount invested and the return you get on your savings are not guaranteed but benchmarked to the market returns .

Why insurance is a matter of necessity rather than choice :
Depending on debt or equity or a mix of both you may choose as your fund options your returns may vary between 6-10 % on a long term basis. You should note these are indicative and not assured returns. The actual returns depend on market conditions and you may check the benefit illustration for estimated returns. When you invest for the long term, market volatility evens out and you are likely to receive higher returns than in guaranteed plans.

All funds invest in the market only and no one can offer a guarantee higher than what's delivered by the market without running the risk of insolvency. So while providing the guarantee, they go conservative and fix the guarantee at less than the market potential return. When you take inflation into account, an assured rate of return may not give much real return. If you do proper financial planning, you may put some money in fixed-income securities like bank deposits and bonds and balance in Ulips and mutual funds.

A balanced portfolio like this has a greater chance of reducing your overall risk and giving you higher returns to meet your financial goals. Remember, life insurance acts like a ceiling above your head providing you shelter and protection from any untoward incident. With life having become fast-paced , there are very few things we can hold on to. Our life's pleasures have become momentary now and if we want to enjoy them for a prolonged time, we must ensure that the little necessities of our life are well insured.
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Source :ET

Basic concept of insurance :

What is life insurance?

      Life insurance ensures that your family will receive financial support in your absence. Put simply, life insurance provides your family with a sum of money should something happen to you. It protects your family from financial crises.

      In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme.

Why do I need life insurance?

Who will take care of my family if tomorrow something unfortunate happens to me?” If this question bothers you, then Life Insurance is the answer.

Of course, under any circumstances, the loss of a loved one is a traumatic experience. But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. A Life Insurance plan ensures that your family is financially secure even if tomorrow you are no longer around to care for them.

Key Benefits of Life Insurance

Life insurance, especially tailored to meet your financial needs

Need for Life Insurance

Today, there is no shortage of investment options for a person to choose from. Modern day investments include gold, property, fixed income instruments, mutual funds and of course, life insurance. Given the plethora of choices, it becomes imperative to make the right choice when investing your hard-earned money. Life insurance is a unique investment that helps you to meet your dual needs - saving for life's important goals, and protecting your assets.

Let us look at these unique benefits of life insurance in detail.

Asset Protection

From an investor's point of view, an investment can play two roles - asset appreciation or asset protection. While most financial instruments have the underlying benefit of asset appreciation, life insurance is unique in that it gives the customer the reassurance of asset protection, along with a strong element of asset appreciation.

The core benefit of life insurance is that the financial interests of one’s family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation proposition. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer.

Goal based savings

Each of us has some goals in life for which we need to save. For a young, newly married couple, it could be buying a house. Once, they decide to start a family, the goal changes to planning for the education or marriage of their children. As one grows older, planning for one's retirement will begin to take precedence.

Clearly, as your life stage and therefore your financial goals change, the instrument in which you invest should offer corresponding benefits pertinent to the new life stage.

Life insurance is the only investment option that offers specific products tailormade for different life stages. It thus ensures that the benefits offered to the customer reflect the needs of the customer at that particular life stage, and hence ensures that the financial goals of that life stage are met.

How much insurance do I need?

Before buying an insurance policy, it is always important to find out the amount of life insurance cover you need. The following factors should be considered before buying a life insurance policy:

    * Your age and number of dependents

    * Your annual income and annual expenses

    * Your outstanding liabilities like home loan, car loan, etc.

    * Your investments / savings

    * Your lifestyle expenses

    * Monies you would require in future

As a thumb rule, it is suggested that you should have an insurance cover of around 5 to 10 times of your annual income. A good financial advisor in your neighborhood can help you ascertain your appropriate insurance cover.

What is your Human Life Value?

Beyond all doubt, your life is invaluable. Yet, there is a certain worth that can be attributed to the financial support you offer your parents, spouse or children. This worth is referred to as Human Life Value (HLV). In the future, if your family does not have the protective blanket of your presence, they will no longer be able to enjoy the benefits of the income you earned. Put simply, Human Life Value is the present value of your future earnings.

Why should you calculate your Human Life Value?

You should calculate your Human Life Value so you can accordingly invest in insurance plans that provide your family with adequate finances and hence security even in your absence.

How do you determine your Human Life Value?

Your Human Life Value is determined by 3 factors:

1. Your age

2. Current and future expenses

3. Current and future income

As a thumb rule, if you are 30 years of age, you should insure yourself for an amount approximately 8 times your annual income. At 35, your investment should be close to 6 times your income. Of course, the exact amount of your investment should be determined by the number of people who depend on you, your existing investments and your life stage. For example, if you are 30 years of age and have two children and parents to provide for, the amount you invest should be reflective of your requirements.

Calculate your Human Life Value NOW

Use our quick and easy Human Life Value Calculator to determine your Human Life Value and the corresponding amount you should invest. Start right away!

What are the tax benefits available?

      Life Insurance as a tax saving tool, offers savings under various sections of the income tax act. Some of the key tax benefits offered are as follows:

          o

           Life insurance plans are eligible for tax deduction under Sec. 80C.

          o

           Pension plans are eligible for a tax deduction under Sec. 80CCC.

          o

           Health insurance plans/riders are eligible for tax deduction under Sec. 80D.

          o

            The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D),

            subject to norms prescribed in that section.