5 key figures of every life insurance that you must know
Life insurance is a type of insurance whereby you pay some money to a company when you are still walking on Earth and the same company then gives beneficiary chosen by you when you are in heaven (or hell or the next incarnation).
The longer a person lives, the more profit the insurance company gained. But the shorter a person lives, doesn’t really mean he profits.
Who need life insurance the most?
Obviously, the average Joe on the street with heavy family responsibilities and little wealth must have adequate life insurance cover. Bill Gates and Warren Buffet have multi-billions dollars assets for their descendents and life insurance cover doesn’t really make a difference to them.
However, purchasing the wrong type of life insurance is very detrimental to a person’s wealth, especially if it overprotects or got little real value to your overall financial plan.
Whatever type of life insurance, with whatever fanciful names, there are 5 basic figures you need to take note of and written down on a separate piece of table for comparison before reaching a good economic decisions on which specific policy to purchase.
Premium. Put it simply. It is the amount you pay to an insurance company for a given death benefit. The premiums can be paid in either in 1 lump sum or some periodic installments like monthly, quarterly or annually.
Even if you have a sum of money for 1 lump sum payment, it is advisable and wise to pay in monthly terms due to the time value of money.
Death Benefit. This is basically the amount paid to your chosen beneficiary should something unfortunate happens to you, i.e. death. It can be either in 1 lump sum or some periodic installments. Most but not all life insurance also covers the remaining mortgage of your primary residence in addition to a sum of money. This is commonly known as the face value of the policy.
Policy Term. This is a time period in which the insurance company will only pays you if you die within this time period. The term have a wide range from 1 year to a lifetime. If you die 1 day after the policy expires, too bad, you won’t get a cent. Your beneficiary won’t get a single cent.
Fees and commissions. This is like investing in individual stocks or unit trusts, the money to offset some administrative and selling expenses incurred by the company. It is usually a percentage of the premium value.
Surrender charge. Life is unpredictable. Sometimes, you need to change to another policy by another company and cancel the current plan by this company. Surrender charge is the amount of money retains by current company if the policy is canceled before reaching the policy term. Usually, only policies with investment plans got such charges.
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Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
I have noticed lately that there are alot of concerns about life insurance policies and the fact that you have to keep them for at least a year or whatever the term says before you can actually bank on the policy. So if you get a life insurance policy and you die in 2 weeks, then you do not get the life insurance payoff because you died too fast (no matter what the reason is). It is important to check out the life insurance company you are going to be dealing with on this aspect.
To life insurance girl,
This is an important point which most probably insurance agents will not tell you.