Buying Life Insurance

A Simple Guide to Purchasing Life Insurance

A contract of insurance is a risk distributing tool that provides for an agreement between a person known as an insured which can be the originator of the insurance or a beneficiary and an entity known as an insurer. The agreement provides that the former will pay premiums on installments at specified periods of time which will last for a specific number of years or months while the latter undertakes to pay the former for loss, damage or liability upon the occurrence of an unknown or contingent event. Life insurance on the other hand is a specific form of insurance wherein human life is insured either by the insured himself or herself or by a beneficiary in behalf of the insured.

This article endeavors to discuss the process as well as the advantages and reasons to purchase life insurance. This is done in as simple a language as possible and thru the use of examples when possible.

If you want to purchase life insurance, it would start with looking for the right kind of life insurance from the right provider. The next step is to identify the beneficiaries of the insurance. The third step is to determine the amount of premiums to be paid, the length of time for the payments and the specific period of payment. Fifth is the determination of the exclusions and last is to purchase life insurance.

Term Insurance provides coverage for a specific term or number of years provided the policyholder continues making premium payments.  Depending on the type of term insurance one of two things will occur. First, in case of death within the term then the beneficiaries get the payout but in case the insured outlives the term then a specific percentage of the premiums, usually 100% is given back to the insured. Second, in case of the death of the insured the beneficiaries collect the insurance payout but if the insured outlives the term he or she and the beneficiaries get nothing. Of course in some cases the insurance company may allow the extension of the term.

Permanent Life insurance is a type of insurance that continues until either the insured dies, the policyholder discontinues premium payments or the policy lapses and the insured is still alive.  This can either be a universal life, whole life or a limited pay and endowment. Advantages of a permanent life insurance is the fact that the policy can be surrendered for cash, can be borrowed upon and/or upon lapse of the policy provide for a lump sum return of a specified amount or percentage of premiums.

Beneficiaries of a life insurance must be named in the policy itself and in case of the death of the insured acquires the right over the insurance proceeds. The Beneficiaries can either be the policyholder who insures the life of another or a third person upon the assignment.

Premiums are regular payments made to an insurance company and which gives birth to the policy and allows it to continue. The amount of the premium depends on the type of insurance, the age and health of the insured, the amount of insurance return, the types of allied risks, etc.

Exclusion means events that allow the insurer to negate payment of the insurance proceeds. Generally there are specific lists of exclusions to the different types of insurance policies that can be modified upon agreement. For example, a usual exclusion to life insurance is that an insurance company will not be liable to pay the beneficiaries if the death of the insured was due to gross negligence or suicide of the insured.

Now let us discuss the advantages of life insurance or why individuals should buy life insurance.  The person who can buy life insurance is either the insured himself or herself or certain individuals allowed by law to purchase life insurance for another, such as the immediate family of the insured.

• First, Life insurance gives the insured originator peace of mind in case of his or her untimely death. This is because the life insurance payout is substantial enough to allow the bereaved enough time to recuperate from the loss or to continue the same standards of living they have been used to.
• Second, in case it is the beneficiary or third person who contracts for the life insurance it allows him or her substitute avenue for financial stability. This is especially true if the deceased is a principal breadwinner of the family.
• Third, Life insurance can be like a sort of time deposit account which will mature after a specified period of time and provide a huge lump sum to the insured if he or she outlives the policy.
• Fourth, Life insurance can be a type of savings account wherein after a specified number of premium payments are paid, the insurer allows the policyholder an option of withdrawing a particular amount of money.
• Fifth, if the originator is a business or employer then it allows the same the ability to financially manage the loss of a key employee.
Sixth, the policyholder can buy life insurance to aid in the payment of estate tax and other tax liabilities or at the very least save on tax liabilities upon the death of the insured.  This is because life insurance payouts are tax preferred or even exempt in certain cases.

We can go on and on about the advantages of Life insurance for the Insured, Policyholder, or beneficiaries, that is how important life insurance is. Really, the most important question when it comes to life insurance is not “Whether or not to buy life insurance?” but it is “What type of life insurance works best for me?” That question can be easily answered by a local insurance agent or by online insurance providers.  Just remember that before committing or signing a life insurance policy it is important to research the type of insurance as well as the provider that best suits your needs. Also do not forget to read the entire policy. No question is a stupid question when it comes to contract terms and conditions; therefore; list your questions and make sure they are answered in writing and are annexed to the agreement.