An Analysis of Life Insurance in Today’s World

Losing someone is a challenging experience for family members and friends. However, the impact of this loss on the dependents of the deceased individual is financial as well as emotional. More specifically, their lifestyles may change dramatically as the support they received from the person who died ends. Fortunately, life insurance may offer them a renewed sense of hope. A Life insurance policy refers to a unique kind of contract between an insured individual and an insurer. In this case, the policyholder pays a premium to the insurance company periodically. Then the insurer agrees to pay a lump sum amount to the people listed as dependents by the insured person. The insurance firm will make this payment when the policyholder dies.


It is worth noting that the insurer may facilitate this payment in other cases as well. For example, critical or terminal illnesses may trigger these payouts. However, this kind of facilitation differs remarkably from one insurance company to another. Therefore, examining the terms of your contract is critical before you sign the dotted line. Unfortunately, many people fail when it comes to analyzing their agreements with the insurer leading to misunderstanding and legal disputes. Others forgo life insurance because they do not research about it. For example, approximately 44% of millennials in the US overestimate the cost of this policy by five times.


Knowing the following things about life insurance is an excellent idea.

• Types of Life Insurance

Term Insurance

This insurance policy covers you for a specified period. It will expire as soon as this period ends. Fortunately, renewing a term insurance policy is possible generally with an increased in premium. Many people choose the Term Insurance option for many reasons. One of them is that it is an inexpensive way of obtaining a life insurance coverage. Another one is that it offers valuable protection during periods over an insured life when they are incredibly vulnerable.  For example, when an insured has dependent children, and or mortgage payment and available income is insufficient, to cover these expenses when the protected dies the term policy provides affordable protection over the required period. This type of insurance plan is no longer needed when children become independent adults, and the mortgage expenses are paid in full by the insured


Permanent Insurance

As the name suggests, there is no expiry date on this policy. More specifically, it covers the insured person until his or her demise if the insurance premiums are paid while he or she alive. Interestingly, most permanent insurance policies have a cash value component attached to them. This component grows over time and making premium payments or borrowing loans against it possible. Another interesting fact about permanent insurance is that it exists in three primary categories. They are Whole Life Insurance, Variable Life Insurance, and Universal Life Insurance. Other minor classifications exist for Universal Life Insurance. They include Indexed Universal Insurance, Variable Universal Life Insurance, and Guaranteed Universal Life Insurance.


Whole Life Insurance, Universal Life Insurance, & Variable Life Insurance

As mentioned above, these policies are categories of Permanent Life Insurance. However, they differ when it comes to premium payments and cash components or policy cash value. For example, Whole Life Insurance entails a fixed premium payment throughout the lifetime of the coverage. Similarly, the cash component grows at a specified rate. This policy matures when the insured person lives past the maturity age or die. The maturity age is usually 100 or 120 years.


Universal Life Insurance is coverage that sets maximum and minimum payments on your premiums. You can pay any amount as your premium as long as this figure lies within these limits. That means you can adjust your premiums based on your financial situation or aspiration. It is worth noting that the cash value component takes care of shortfalls in premium payments. Consequently, low remittances result in the weakening of this cash value component and vice versa.


The premiums can vary or remain fixed in Variable Life Insurance. Read the contract carefully because it will specify whether the remittances will change or stay constant. This form of Permanent Life Insurance is ideal for experienced investors. More specifically, it allows them to choose an investment path from a list of possible options. Therefore, it gives policyholders significant levels of control over the use and disbursement of their cash value components.


• Factors Considered In Determining Premiums for Life Insurance

Payments for this policy differ from one individual to another based on several factors. One of them is the age of the policyholder. More specifically, premiums increase with age. For example, the periodic payment for a 45-year old man is $1,125 on average for a 20-year policy that has $1 million in coverage. At 47 years, the same man would pay as much as $1,345 for the same cover.


Insurance firms consider the health of the policyholder as well. For example, conditions such as obesity, cancer, and diabetes result in higher premiums than those paid by people without these conditions. Your lifestyle is of concern to the insurance firm as well. In fact, insurers ask for higher payments from smokers because smoking is detrimental to the smoker’s health.


Finally, insurers examine the gender and occupation of the insured individual. For instance, women live longer than men do. Therefore, their payments are lower than those of men are. Different professions have different survival rates as well. For example, being a receptionist is not as risky as being a skydiving instructor is. Therefore, differences in premiums reflect these differences in occupational risks.


• Insurers Withhold Payouts in Some Cases

Insurance firms have safeguards in place to protect their businesses from fraudulent activities. For example, payouts to the listed dependents in a policy are unlikely if the information provided by policyholder was dishonest or inadequate generally with the first two years from a policy issue date or within two years from the date of a policy reinstatement. Moreover, insurance firms withhold payouts to safeguard the interests of the dependents named in a life insurance contract. For example, making payments to beneficiaries who fall below the age of eighteen years is a highly uncommon practice in the insurance industry. Instead, insurers make these payments to trustees named by the insured person. Insurance firms discourage dangerous and unnecessary behavior among its clients in other cases. This behavior may include suicide, traveling to hostile countries, and extreme sporting activities.