All you need to know about a life insurance policy is how each policy works and what its types, features, advantages, disadvantages, and principles are.
In today’s world, everyone needs to be secure so that they are assured of living without having to worry. To achieve this, a life insurance policy offers a chance to protect you and your family from unpredictable circumstances in a convenient way. You will not have to break the back when a misfortune happens.
What is life insurance?
Refers to an agreement signed by an insurance company (the insurer) and the policyholder (the insured). The insured is entitled to pay a certain amount of money to the insurer, and in exchange, the insurer commits to compensating when the person dies or after an agreed period. Depending on the terms of the contract, other instances may result in payment from the life insurance cover, such as fatal illness or temporary or permanent disability.
Types of life insurance
Term life insurance
The insurer provides the beneficiaries with a death benefit that pays them throughout a specified period. On expiry of the term, the policyholder may opt to terminate the contract or subscribe to a permanent one.
How it works
Upon buying the policy, the company calculates the premiums to be paid based on your gender, age, and health conditions. Other considerations that can determine the rates are the company’s expenses and the death rates for each age. The insurance company may also like to know others, such as whether or not you smoke, what your hobbies are, what your current medical conditions are, and what your driving records are. When the insured dies, the insurer pays your beneficiaries the policy’s face value. The money paid can be used to pay mortgage debt, funeral costs and other expenses. Compensation is never given if the policy expires before your death. You are still allowed to renew your policy, but the premiums are calculated at your current age when you renew.
Types of Term life insurance
> Level term: You are required to pay a fixed monthly payment for the life of the policy. The premium level is relatively higher compared to that of yearly renewable term life insurance because actuaries are accounted for.
>Decreasing term policy
A death benefit is involved, which is reduced each year according to a set-in-advance schedule.
>Yearly renewable term policy
The payment is yearly, and no evidence is required here for insurability. With the increase in age, the premium also increases.
Benefit
This policy favours young people with children because of its low costs. If the insured dies while the policy is active, the beneficiaries can take the money and replace whatever has been lost.
Whole life insurance
The insurance company covers your entire life once you are insured. It offers a payment of the benefits to beneficiaries in exchange for level, regular-dire premium payments. The policy has a cash value, which is a vital component of whole-life insurance. The policyholder can grow their cash value by paying an extra amount than set to purchase extra coverage. Living benefits to the policyholder, which are offered by cash value, allow the policyholder to access it while the insured is still alive. The insured is able to claim cash reserves through the application of a withdrawal of loans or funds.
Types of whole life insurance
>Limited payments: A limited number of payments is made
>Single premium: The insured pays the premium once with a large amount that caters to life. This policy has many tax consequences.
>Modified whole insurance
It offers lower premiums than a standard policy in the first three years and a higher premium in the later years. It is therefore very expensive.
>Level payment
Constant premiums are paid throughout the contract.
Advantages
(a) Guaranteed death benefit amount.
(b) Loans are not taxed.
(c)Has a lifetime coverage.
(d)Premiums are predictable.
Disadvantages
(a)You’re not allowed to change premiums.
(b)The growth of cash value is slower compared to other policies.
(c)The accumulated cash value makes the policy to be expensive.
(d)Restrictions from changing the original death benefits.
> Universal life insurance
It is a type of permanent insurance that has cash value and covers you for a whole life as long as you pay for premiums. It is also possible to lower or raise your premiums within a certain limit, and this is, therefore, cheaper compared to your whole life.
Advantages
(a)It is possible to lower your death benefit, which will, in turn, lower your premiums. One can also increase the value of death benefits.
(b)You can borrow against accumulated cash value without being taxed.
(c) These loans often have low-interest rates compared to Personal Loans and do not need a credit check.
Disadvantages
(a)Cash value does not earn a guaranteed rate, unlike whole life.
(b)The policy may collapse when one fails to keep watch on the accounts where the cash value reduces to zero.
(c)When one withdraws more than they are paid, they attract taxes.
(d)In case of the death of the policyholder, the insurer benefits with the cash value, and the beneficiaries are only paid the death benefit because the cash value can only be used when the policyholder is alive.
Mortgage life insurance
This is a term life policy that repays mortgage debts when the borrower dies. Unlike traditional policy, the mortgage only pays upon the death of the borrower. The policy is still active, and the beneficiary is the mortgage leader.
Advantages
(a)Anyone is eligible for this coverage, including those who have pre-existing medical conditions, because no medical examination or blood samples are required.
(b)Eliminates the worry of the policyholder on where their family will live upon death or when they cannot work because the coverage always offers them a place as long as taxes and the insurance renewal.
(c) In case you are unable to work all disabled, the coverage can work for you.
(d) the fear of losing a home by your heirs is sorted because, in case of death, the insurance company will pay off the whole mortgage loan.
Credit life insurance
This is a life insurance that is aimed at paying off a borrower’s debt after death. This ensures that you can pay a large loan like a car loan. The policy value decreases with the outstanding loan amount because the loan is paid in a timely manner until the balance is cleared.
Principles of insurance
A. Indemnity
The principle states that the insured will be compensated with an amount that is the same as the value of the loss that has occurred. It is applicable only in marine and fire insurance contracts. The insured is restored to the original financial position he was in before the loss happened; hence, the policy purpose is not a source of profit.
B. Proximate Cause
This refers to the cause that has the major impact in bringing about the loss under a first-party property insurance policy when more than one perils happen at the same time to cause a loss. The verdict on coverage is determined depending on the peril chosen as the proximate course. If the peril chosen is covered under the policy, the court orders compensation and vice versa.
C. Subrogation
It is the act of replacing a person with another upon a debt claim to an insurer. The insurance company pays the insured the loss and later recovers the value of the property or premium paid from the third-party responsible for the loss. The damaged property is then rightfully owned by the insurance company.
Types of subrogation
(i)Subrogation by contract: This is made effective by the use of an instrument. It ensures that the insured collaborates fully in suing the third party involved in the loss and avoids every kind of disagreement that may arise during reimbursement.
(ii)Subrogation constructive contract
The subrogation is based on the receipt issued to the insured and the insurance. It indicates that the loss has been paid in full.
All you need to know about a life insurance policy is how each policy works and what its types, features, advantages, disadvantages, and principles are.
In today’s world, everyone needs to be secure so that they are assured of living without having to worry. To achieve this, a life insurance policy offers a chance to protect you and your family from unpredictable circumstances in a convenient way. You will not have to break the back when a misfortune happens.
What is life insurance?
Refers to an agreement signed by an insurance company (the insurer) and the policyholder (the insured). The insured is entitled to pay a certain amount of money to the insurer, and in exchange, the insurer commits to compensating when the person dies or after an agreed period. Depending on the terms of the contract, other instances may result in payment from the life insurance cover, such as fatal illness or temporary or permanent disability.
Types of life insurance
Term life insurance
The insurer provides the beneficiaries with a death benefit that pays them throughout a specified period. On expiry of the term, the policyholder may opt to terminate the contract or subscribe to a permanent one.
How it works
Upon buying the policy, the company calculates the premiums to be paid based on your gender, age, and health conditions. Other considerations that can determine the rates are the company’s expenses and the death rates for each age. The insurance company may also like to know others, such as whether or not you smoke, what your hobbies are, what your current medical conditions are, and what your driving records are. When the insured dies, the insurer pays your beneficiaries the policy’s face value. The money paid can be used to pay mortgage debt, funeral costs and other expenses. Compensation is never given if the policy expires before your death. You are still allowed to renew your policy, but the premiums are calculated at your current age when you renew.
Types of Term life insurance
> Level term: You are required to pay a fixed monthly payment for the life of the policy. The premium level is relatively higher compared to that of yearly renewable term life insurance because actuaries are accounted for.
>Decreasing term policy
A death benefit is involved, which is reduced each year according to a set-in-advance schedule.
>Yearly renewable term policy
The payment is yearly, and no evidence is required here for insurability. With the increase in age, the premium also increases.
Benefit
This policy favours young people with children because of its low costs. If the insured dies while the policy is active, the beneficiaries can take the money and replace whatever has been lost.
Whole life insurance
The insurance company covers your entire life once you are insured. It offers a payment of the benefits to beneficiaries in exchange for level, regular-dire premium payments. The policy has a cash value, which is a vital component of whole-life insurance. The policyholder can grow their cash value by paying an extra amount than set to purchase extra coverage. Living benefits to the policyholder, which are offered by cash value, allow the policyholder to access it while the insured is still alive. The insured is able to claim cash reserves through the application of a withdrawal of loans or funds.
Types of whole life insurance
>Limited payments: A limited number of payments is made
>Single premium: The insured pays the premium once with a large amount that caters to life. This policy has many tax consequences.
>Modified whole insurance
It offers lower premiums than a standard policy in the first three years and a higher premium in the later years. It is therefore very expensive.
>Level payment
Constant premiums are paid throughout the contract.
Advantages
(a) Guaranteed death benefit amount.
(b) Loans are not taxed.
(c)Has a lifetime coverage.
(d)Premiums are predictable.
Disadvantages
(a)You’re not allowed to change premiums.
(b)The growth of cash value is slower compared to other policies.
(c)The accumulated cash value makes the policy to be expensive.
(d)Restrictions from changing the original death benefits.
> Universal life insurance
It is a type of permanent insurance that has cash value and covers you for a whole life as long as you pay for premiums. It is also possible to lower or raise your premiums within a certain limit, and this is, therefore, cheaper compared to your whole life.
Advantages
(a)It is possible to lower your death benefit, which will, in turn, lower your premiums. One can also increase the value of death benefits.
(b)You can borrow against accumulated cash value without being taxed.
(c) These loans often have low-interest rates compared to Personal Loans and do not need a credit check.
Disadvantages
(a)Cash value does not earn a guaranteed rate, unlike whole life.
(b)The policy may collapse when one fails to keep watch on the accounts where the cash value reduces to zero.
(c)When one withdraws more than they are paid, they attract taxes.
(d)In case of the death of the policyholder, the insurer benefits with the cash value, and the beneficiaries are only paid the death benefit because the cash value can only be used when the policyholder is alive.
Mortgage life insurance
This is a term life policy that repays mortgage debts when the borrower dies. Unlike traditional policy, the mortgage only pays upon the death of the borrower. The policy is still active, and the beneficiary is the mortgage leader.
Advantages
(a)Anyone is eligible for this coverage, including those who have pre-existing medical conditions, because no medical examination or blood samples are required.
(b)Eliminates the worry of the policyholder on where their family will live upon death or when they cannot work because the coverage always offers them a place as long as taxes and the insurance renewal.
(c) In case you are unable to work all disabled, the coverage can work for you.
(d) the fear of losing a home by your heirs is sorted because, in case of death, the insurance company will pay off the whole mortgage loan.
Credit life insurance
This is a life insurance that is aimed at paying off a borrower’s debt after death. This ensures that you can pay a large loan like a car loan. The policy value decreases with the outstanding loan amount because the loan is paid in a timely manner until the balance is cleared.
Principles of insurance
A. Indemnity
The principle states that the insured will be compensated with an amount that is the same as the value of the loss that has occurred. It is applicable only in marine and fire insurance contracts. The insured is restored to the original financial position he was in before the loss happened; hence, the policy purpose is not a source of profit.
B. Proximate Cause
This refers to the cause that has the major impact in bringing about the loss under a first-party property insurance policy when more than one perils happen at the same time to cause a loss. The verdict on coverage is determined depending on the peril chosen as the proximate course. If the peril chosen is covered under the policy, the court orders compensation and vice versa.
C. Subrogation
It is the act of replacing a person with another upon a debt claim to an insurer. The insurance company pays the insured the loss and later recovers the value of the property or premium paid from the third-party responsible for the loss. The damaged property is then rightfully owned by the insurance company.
Types of subrogation
(i)Subrogation by contract: This is made effective by the use of an instrument. It ensures that the insured collaborates fully in suing the third party involved in the loss and avoids every kind of disagreement that may arise during reimbursement.
(ii)Subrogation constructive contract
The subrogation is based on the receipt issued to the insured and the insurance. It indicates that the loss has been paid in full.
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