Life insurance is easily misunderstood yet; it is such an important part of personal finance. Not a few would rather avoid talking about having a life insurance especially since it brings up the topic of their own death. However, if you have the right information, it is something that your household would benefit from.
In this article, we would go over the top 8 things you should know about life insurance
- If people depend on you, you need life insurance
From spouses to dependent children, people who depend on you financially should not have to suffer financially if you were suddenly to be no more. The death of a loved one can cause a lot of expenses to be incurred. These expenses were unforeseen and money may not have been left out to take care of them. Also, after spending so much on the death of a loved one, they need to carry on with their lives, and they can hardly do this if nothing has been specially left for them. However, if you are much older and you do not have a spouse, children or siblings who depend on you, then you would not need life insurance.
- Life insurance is not just about the money
A lot of people assume that life insurance is simply about the monetary value attached to a person’s life. It is much more than that. It is compensation for a person’s inevitable demise. Many times, life insurance has helped people lessen the burden and financial costs that may have been left behind by the person who died. Also, as we know that death is no respecter of persons, life insurance also helps you put your mind to rest because then, you know that you have made plans in case of unforeseen circumstances.
- Life insurance is not an investment
As with any other type of insurance, life insurance is not an investment. Rather, it is a risk management tool. It is important to note this because a number of people make wrong decisions off the notion that life insurance is an investment. Life insurance can be very expensive and is hardly for you if you do not have a steady paycheck and/or live from hand to mouth. Life insurance should be taken when you have enough to provide for you and your family, save away and still have excess. On no account should life insurance replace your savings.
- Life insurance comes in two main types
There are two main types of life insurance: Term and permanent. The Term Life insurance is usually the least expensive and mostly patronized. Here, the insurance company bases the insurance on the probability that you, the insured, will die within a stated time/term. This term is usually 10, 20 or 30 years. Also, this means that you may pay your premiums for this stated term, and get nothing out of it eventually because you did not die, which we suppose is a good thing, except if you think otherwise. The permanent life insurance allows the life insurance policy to exist permanently or for a person’s whole life.
- The life insurance is a policy
A policy is a contract between a life insurance company (insurer) and someone who is financially interested in the livelihood of another called the policy holder. So, the insurance pools the premium of policy holders and this is what is used to pay out claims. So involved in this contract is usually the insurer, the insured, the owner and the beneficiary. The insurer is the insurance company contracted in making the life insurance and paying out claims in case of death. The insured is the person upon whom the life insurance policy is based. The beneficiary is the person who is to receive the claim upon death of the individual insured. The owner is the person responsible for paying out the premiums. Usually, the insured and the owner are the same person.
- Premiums paid on life insurance
Premiums paid on life insurance is dependent on the risk of the insured dying. We mentioned above that life insurance can be pretty expensive. However, it can also be inexpensive. For example, a healthy person without any risky behaviours may pay a low amount of money and receive benefits in millions of naira. A person with so many risky behaviours like smoking will pay double the premium to receive the same benefit. A person with known health problems will pay even triple.
- Cancelling an existing life insurance policy
When cancelling a life insurance policy, it is important that you do not leave money or coverage on the table. For instance, if a particular policy isn’t appropriate for you anymore, it would be best to not cancel the policy until you have a new one with a more appropriate coverage. Also, if you do not wish to have a policy anymore, you simply stop paying premiums and inform the insurance company appropriately. Then, you will not have any more coverage. You can also cash in on a permanent life insurance policy if you feel you do not need it again.
- How to calculate the best life insurance policy for you
Online tools exist which can help you calculate the ideal policy for you. You can also contract an insurance agent who can help you through the process. Most of the time, premiums given by insurance companies are the same whether application was made online or with an agent. A dedicated insurance company can also help you save money by choosing the best policy for your situation. Also, the insurance company would want to know how much of a risk you are, and may also evaluate your current health, past health and the health of your family. It is important to answer truthfully. This is how they would be able to evaluate how much premium the owner is to pay on the life insurance.
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