Life insurance: back to basics
Life insurance: a part of the story
The modern insurance contracts that we have today, such as life insurance, originated in the practice of merchants in the 14th century. It has also been recognized that different types of security agreements have existed since time immemorial and are in some ways similar to insurance contracts in their embryonic form.
The phenomenal growth of life insurance from almost nothing a hundred years ago to its current gigantic ratio is not one of the outstanding wonders of business life today. Essentially, life insurance became one of humanity’s felt needs due to the relentless demand for economic security, the growing need for social stability, and the clamor for protection against the dangers of cruel and devastating calamities and sudden shocks. economical. Insurance is no longer the monopoly of the rich. Gone are the days when only the social elite had their protection because in this modern age, insurance contracts are plagued with the assured hopes of many families of modest means. It is woven, so to speak, in the very nook and cranny of the national economy. It touches the most sacred and sacred ties in the life of man. The love of parents. The love of wives. The love of children. And even the love of business.
Life insurance as financial protection
A life insurance policy pays an agreed amount generally known as the sum insured in certain circumstances. The sum insured in a life insurance policy is intended to meet both your financial needs and those of your dependents in the event of death or disability. Therefore, life insurance offers financial coverage or protection against these risks.
Life insurance: general concepts
Insurance is a risk-sharing device. Basically, the insurer or insurance company pools the premiums paid by all of its clients. In theory, the set of premiums is responsible for the losses of each insured.
Life insurance is a contract by which one party insures one person against loss due to the death of another. Life insurance is a contract by which the insurer (the insurance company) for a stipulated sum, agrees to pay a certain amount of money if another dies within the time limited by the policy. The insurance money payment depends on the loss of life and, in its broadest sense, life insurance includes accident insurance, since life is insured in either contract.
Therefore, the life insurance policy contract is between the policyholder (the insured) and the life insurance company (the insurer). In exchange for this protection or coverage, the policyholder pays a premium for an agreed period of time, depending on the type of policy purchased.
Along the same lines, it is important to keep in mind that life insurance is a valuable policy. This means that it is not an indemnity contract. The interest of the insured in his life or that of another person is generally not susceptible of an exact pecuniary measurement. You simply cannot put a price on a person’s life. Therefore, the compensation measure is the one set in the policy. However, the interest of an insured person becomes susceptible to exact pecuniary measurement if it is a case involving a creditor who insures the life of a debtor. In this particular scenario, the interest of the secured creditor is measurable because it is based on the value of the debt.
Common life insurance policies
In general, life insurance policies are often marketed to serve retirement planning, savings, and investment purposes in addition to those listed above. For example, an annuity can provide income during your retirement years.
Whole and endowment life policies or Investment Linked Plans (ILP) in life insurance policies combine a savings and investment aspect along with insurance protection. Therefore, for the same amount of insurance coverage, your premiums will cost you more than buying a pure insurance product like term insurance.
The advantage of these packaged products is that they tend to accumulate cash over time and eventually pay off once the policy expires. Therefore, if your death benefit is combined with cash values, the latter is paid after the insured dies. However, with term insurance, you cannot build cash value.
The common practice in most countries is the marketing of packaged products as savings products. This is a unique facet of modern insurance practice in which part of the premiums paid by the insured is invested to build up cash values. However, the downside to this practice is that the invested premiums are subject to investment risk and, unlike savings deposits, the guaranteed cash value may be less than the total amount of premiums paid.
Essentially, as a future policyholder, you must conduct a thorough assessment of your needs and goals. It is only after this step that you can carefully choose the life insurance product that best suits your needs and goals. If your goal is to protect your family’s future, make sure that the product you have chosen meets your protection needs first.
Real world application
It is imperative to get the most out of your money. Dividing your life insurance into multiple policies can save you more money. If you die while your children are 3 and 5 years old, you will need much more life insurance protection than if your children are 35 and 40. Let’s say your children are 3 and 5 years old now and if you die, they will need at least $ 2,000,000 to live, go to college, etc. Instead of getting $ 2,000,000 in permanent life insurance, which will be outrageously expensive, simply opt for term life insurance: $ 100,000 for permanent life insurance, $ 1,000,000 for 10-year term insurance, $ 500,000 for a 20-year term insurance, and $ 400,000 for a 30-year term. Now this is very practical as it covers everything you need. If you die and the children are 13 and 15 years old or younger, they will receive $ 2 million; if they are between 13 and 23 years old, they receive $ 1 million; if they are between 23 and 33 years old, they receive $ 500,000; if after that, they still get $ 100,000 for final expenses and funeral costs. This is perfect for insurance needs that change over time because as children get older, their financial responsibility decreases as well. As the 10, 20 and 30 year term expires, the premium payment expires as well, so you can choose to use that money to invest in stocks and take risks with it.
In a world ruled by the dictates of money, everyone wants financial freedom. Who doesn’t? But we all NEED financial SECURITY. Most people lose sight of this important facet of financial education. They invest everything and risk everything to do more and yet end up losing most, if not all, this is a fatal formula. The best approach is to take part of your money and invest in financial security and then take the rest and invest in financial freedom.
Ultimately, your financial plan is constantly evolving because it is constantly evolving. You cannot set a plan and then forget about it. You need to keep an eye on your money to make sure it’s working hard because that money should fuel you for the next 20-30 + years that you will be in retirement. You have to know how to feed your money now so that it can feed you later.