Life insurance refers to a type of insurance that is taken to ensure a person’s dependants (beneficiaries) in the event of that person’s death. This is done by signing a contract that allows the person to make regular payments to the insurance company during their lifetime. Upon the person’s death, the insurance company pays a sum of money to the listed beneficiaries. Payments can be made yearly, every quarter, or every month, depending on what the contract states. The person taking the insurance is referred to as the policyholder. A policyholder can choose between different types of life insurance.
Types of life insurance
Term life insurance is life insurance that is limited to a specific time period, say 20 years. The insurance policy can be renewed after these 20 years. Whole life insurance has no time limit, and payments are made throughout the life of the policyholder. In this way, the insurance actually acts as a savings account, and policyholders are usually able to borrow money based on accumulated premium. The last type is universal life insurance. Premium payments for this form of insurance are also made throughout a person’s life. However, payments are made more flexible, and a policyholder can skip some payments.
Life insurance providers have packages that are customized according to a person’s needs. For example, some companies provide additional benefits known as riders. An example of a rider is a premium rider that allows the policyholder to forego premium payments in the event that they fall ill and are unable to work. The money for their premiums comes from the rider. Another example is an accidental death benefit rider where the beneficiaries receive additional money if the policyholder dies as a result of an accident.
Importance of life insurance
While many people may be skeptical about taking out life insurance on themselves, they should highly consider it if they have dependents. Sudden death will leave the beneficiaries without any resources to cater for their financial needs. Older individuals without dependents can choose not to take out life insurance, especially because most of their income comes in the form of pension.
How to determine the cost of the policy
The amount of premium payments that a person should pay depends on one’s circumstances. Insurance agents are often able to approximate the value once they look at certain factors. For example, the person’s income and how much they contribute to the family expenses plays a key role in either increasing or decreasing the premium. Premiums also increase if the policyholder has any debts in the form of loans or mortgages because they will be paid off using the insurance money. If the policyholder wants to provide for their child’s education using life insurance, then the premium payments will also be adjusted to cater for the amount needed. A final consideration should be the person’s possible funeral expenses. Life insurance payments are meant to cover funeral expenses for the bereaved family.
Insurance premium estimations
Insurance premiums can range from around 40 dollars per month to 50 dollars, for young premium holders who are healthy and do not indulge in unhealthy habits. For those who smoke, for example, this figure increases significantly. Insurance premiums for sickly individuals are also significantly high because of the higher likelihood of being paid out before the insurance policy matures.
Insurtech is a technological development that may also see insurance premiums being increased depending on the lifestyle of the policyholder. Insurtech will work by using fitness devices to monitor a person’s lifestyle and collect data about their daily activities. It is expected that people who live unhealthy lives by not working out, for example, will be expected to pay higher premiums. The data is collected using wearable devices like Fitbit and Apple Watch and is synced to mobile devices. Policyholders can then choose to share this information with their insurance company.
The advantage most consumers are looking for is that premiums can be decreased if they prove that they are keeping fit and living active lifestyles. For insurance companies, this also acts as an incentive for their customers. The disadvantage is that the data shared is very personal, and experts have begun raising concerns over whether this data will be secured. It also does not help that these wearable devices tend to be expensive, so they can prove to be an unnecessary burden to individuals who are already trying to pay affordable premiums. The key to all this would be to find a balance between the advantages, and the possible drawbacks.
By Anna Kucirkova
who is a copywriter over 4 years and loves traveling.
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