Deciding the Right Term Insurance for You

erThe amount of life insurance cover you go for is a very important decision you will make. Inadequate life insurance defeats the purpose of going for it. When you are calculating your insurance needs keep in mind the liabilities you have. Ideally it should be enough to payout all your loans and payable still keeping enough for your family to maintain themselves without compromising on the standard of living.

People buy term loans with an objective of generating a reliable asset that would help fulfill their pending responsibilities if they die untimely. Generally, if a sole bread winner of a family dies the surviving family gets into a deep financial trouble. The situation is worse if the person dies with pending loans. Your term policy should be strong enough to leave enough money with your dependents to survive after paying your loans. Also, one should take account of inflation when deciding the sum assured. An insurance cover of INR 60 lacs would be the same value of INR 30 lacs of today 10 years down, considering the modest level of inflation.

For example: Mr. Mahatre a chartered accountant in his early 30s died of a stroke and was backed up by a term plan of mere Rs.15 lacs out of which Rs.6 lacs went to pay for his car loan. With the remaining Rs. 9 lacs how long his family is expected to survive? It is a typical case of under insurance.

When comparing term insurance policies one must consider the following three criterion.

Sum Assured: The maximum sum assured or amount payable in case of death of a policyholder during the tenure of the policy is generally 20 times of the annual income of the policyholder at the time of taking the policy. With age the eligibility shrinks to 15%, 10%, 7% etc. Ideally one should go for the maximum sum assured as per one’s eligibility. The sum assured chosen once cannot be increased later on. Generally people go for a second term plan if and when their annual income increases to enjoy a greater cover for family.

Age Cover: Different insurance companies have different maximum coverage periods. Some cover for 30 years with a maximum coverage till 65 years of age others provide coverage of as long as 50 years and cover till the age of 85 years. It is always in the favor of the policyholder to go for maximum coverage as chances of mortality increase multi fold in the advanced age. As per study people dying in the age bracket of 70-75 years is 2.5 times more than the people dying in the age of 65-70 years. It is always better to be covered for a longer period.

Claim Settlement Ratio: When comparing plans of different companies one must favor a company having a better track record of settling claims. Your years of paying premium would be futile if your claim is not sanctioned to your nominee when the need arises. So, always go for a company that fare better when it’s the question of settling claims. A claim settlement of closer to 100% is always a go to choice. You wouldn’t want your heirs to struggle at the time of claims.

Term plans also come with certain additional benefits called riders. These riders add to the premium payable. Some of the popular ones are.

Accidental Rider: This rider is applicable only in case of death due to an accident. The insurance company pays the nominee the amount up to twice of the sum assured if the policyholder dies because of some accident. “Accidents” run the gamut from abrasions to catastrophes but normally do not include deaths caused due to non-accident-related health problems or suicide.

Critical Illness Rider: Under this rider the insurance company pays a lump-sum amount if in case the policyholder contracts a lethal disease like cancer, stroke, heart attack etc. Critical illness riders may also provide a feature of waiver off premium as it is understood that a person suffering from a critical disease might be compromised to work and it would be hard for him to pay premiums.

Apart from these some companies come up with features like monthly income plans which pay a monthly income for a specified period apart from paying the lump-sum sum assured. With the market getting more competitive there is always a space for innovation with the features that the companies are bringing in. Thus, it is very important to compare and study plans of various companies to get the most desirable plan at the cheapest rates. Compare wisely for a smart purchase. A term plan is generally a long commitment and therefore it needs a good amount of homework to choose a worthy plan.

2 Very Important Reasons to Buy Life Insurance

cjSimply put, life insurance is a contract with an insurance company that exchanges a lump sum of money upon a policy holder’s death in exchange for premium payments.

Realistically, however, life insurance is safety-net between personal tragedy and having time to make important readjustments in your family.

The main reason to own life insurance is to give cash when most needed.

One of the most important functions of life insurance is to give immediate non-taxed cash with proceeds from the policy. The death of a husband, wife, mother, father is devastating and it brings on immediate major financial adjustments within the family.

Not only does life insurance protect a spouse and children from potential financial loss, but it also gives needed time to consider carrying on without their family member.

Of immediate concern is the need for a family to keep up their lifestyle. Enough changes will begin to surface, so it’s important that survivors have time to make tough decisions.

Secondary concerns are selling a home, relocating closer to other family, or preparing to enter the workforce.

During this period of family loss, decisions happen in an emotionally charged. Time is critical for proper recovery when suffering through a loss.

Life insurance gives a family both time and choices, providing cash to pay off debts, meet ongoing mortgage payments, and cover other living expenses. This cushion of time is critical for allowing loved ones to sort their way through a permanent lifestyle change.

Another job of life insurance is to replace income when a family members dies. When choosing an amount of insurance to buy, people often think only of covering assets and paying expenses, and not that a lifetime of income is lost.

There will, of course, be some sources of income in the way of savings, social security, spousal benefits from a job, and others after a loved one’s death. But, these have a way of quickly drying up and seriously fall short of a lifetime in earnings.

Here are three quick examples to underscore this point.

Assume a young family of two earners forced to recover from the death of one spouse, who was earning $60,000 a year and was 30 full years from retirement.

The minimal amount of life insurance needed to replace this salary over the lost lifetime of the earner would be $1,384,000.

Pretty sobering thought to consider, that in addition to all the other issues the remaining spouse is wrestling, over one million dollars will be lost from the family.

For someone earning less, say $30,000 per year, the income lost over 30 years would be $461,000 or close to a half million dollars.

Considering a person closer to retirement, say earning $90,000 and 15 years from retiring the income lost would be $1,185,000.

‹Regardless of personal circumstances, the fact is a lifetime of income is lost when a family member dies. During the readjustment period, life insurance helps recover some of this lost income.

Take-Away

When you really get down to it, we can do without a lot of things when faced with family misfortune, but recovery time is something we can’t do without. Life insurance makes recovery time possible by providing immediate non-taxed cash for the family.

I have been an active investor for over 35 years. My lifelong interest in personal finance has led to teaching community classes to a variety of groups. Retirement activities include travel and serving as a volunteer site coordinator with the VITA Tax Program.
My investment experience is in Equities, REITS, Oil & Gas Royalties, Utilities, and Varied Fixed Income.
JG is not a registered investment representative. The opinions of the author are not recommendations to either buy or sell any security. Prior to investing, please conduct your own due diligence and talk to your financial advisor or security professional.

Ignoring A Life Insurance Cover Could Be Fatal

c44Many of us feel that investing in a life insurance cover is a big burden. This info is especially for them. Statistics suggest that one in four breadwinners in the UK does not have a life insurance. This is an alarming ratio as the families would be left to live a financially unstable life in the event of the breadwinner’s death. That means almost one fourth of British families live under the risk of facing an economic crisis. As a solution, the support from NHS or other government schemes could be taken. However, all government support may not be enough for the education of kids, rentals, medication for critical illness or other basic facilities.

Find here some of the myths associated with buying a life insurance policy:

Life insurance is for the man!

A survey suggests that 45% of British men and 38% women are insured for a life cover. Again, both the percentages are quite low. Moreover, its general psyche that women who do not earn do not feel the pressing need of an insurance. It was observed by Cancer Research that more than 130 women die every day due to breast cancer. With such an increasing number of women health issues, women should not keep themselves without a life insurance cover. Again 1 in 3 people is likely to suffer from critical illness. This way, life insurance cover is vital for both men and women. Ignoring a life insurance cover could prove fatal as your family would be left with many financial burdens.

Contents insurance is enough!

Contents insurance is enough! This is another misconception. While we get our car, house, laptops and other accessories insured, we tend take for granted the most important part of the family i.e. its members. Losing a family member especially if one was a breadwinner may result in a sudden financial crux. Your loved ones may need to manage for money required for the daily needs. Thus, even if you have contents insurance it is always important and urgent to buy yourself a life insurance cover. You never know the future but can certainly prepare yourself for the worse.

Mortgage cover would do!

Mortgage is a common thing in the UK. People who have a mortgage should also go for a life cover so that in case of their accidental death, the insurer would pay the remaining mortgage amount. The facts do not point to any such awareness in the Brits. According to statistics, nearly 50% of people have a mortgage with no associated life cover. All these facts and figures bring out the importance of life insurance. Be it an existing mortgage, a critical illness or death, a life cover helps the beneficiaries to manage the economic situation easily and comfortably. The lump sum amount received from insurer helps in paying for the funeral cost, mortgage, debts or other family expenses.

Reasons for a life insurance cover:

  • To support you in case of a critical illness
  • To support the family in the event of the breadwinner’s death
  • To manage funeral and other expenses
  • For financial support to the family in the future
  • For paying educational expenses of the kids
  • For mortgage payments

Who needs life insurance cover?

  • Anybody who has dependents
  • Married people
  • Newly married couples
  • Parents with a new born child
  • Every family that plans for the future
  • A retiree with a dependent partner
  • If you have a mortgage

Types of life insurance covers:

There are different types of life insurance policies in the UK. Depending on the age, health and occupation, the life covers are categorised into the following types:

Term insurance: This cover gives your life assurance for a pre-decided and specified interval of time. If the policyholder dies within this time frame then the beneficiaries would get a lump sum amount. Otherwise, the policy will lapse.

Group life cover: It is provided as part of a complete employee benefit package. This cover is for people who die while they are working with the employer. It is not required that the death should have happened during the work hours or in the office premises.

Critical illness cover: This life insurance cover is bought if one has a particular medical condition. If you die due to any other disease or ailment then the policy would lapse.

Over-50 plans: Specially designed for people who have crossed the 50 year mark, this cover pays money that can be used for various financial needs of the beneficiaries. As the policy is taken after 50, one can expect higher premiums.

Whole of life plan: Offers you cover for entire life. It is the best cover to meet your debts or can be left to a loved one when you die.

Reasons why people do not buy life insurance cover:

Lack of awareness: If you think that a certain illness or cancer cannot happen to you then you are living in an illusion. With an increasing risk of sickness and critical ailments, one cannot afford to think that ‘this won’t happen to me’. This is lack of awareness and such a biased optimism may turn out to be fatal. A life cover works well for everyone and is much needed by healthy individuals with dependents.

Too expensive: The premiums would feel nothing when compared with the cost of your life and the amount of damage your death can cause to your family. A small monthly investment as premium would give lump sum amount in case of the policyholder’s death. The return on investment is much higher as far as life cover is concerned. So, there is no point thinking that it is costly.

Government support is enough: Many of us think that NHS and other government schemes would be enough to facilitate the dependents. Well, please check with the friends and family of people who have lost a loved one and who are living on the Government’s support. You will quickly realise that this help is not enough for all the financial expenses of the family. If your partner is suffering from critical illness then the NHS service may not be enough and so, a personal insurance is a must.

Better save than insure: Few of us have a mind-set of savings. In their opinion a decent amount of saving can replace a life insurance cover. Savings may not be the best idea as it takes a longer time to accumulate a big chunk of money. For life insurance covers, we may need to pay monthly or yearly premiums but the total amount received in return is much higher than the premiums paid. This way, insurance gives much more return of investment than savings.

Considering the pros and cons, a life insurance cover seems much more reliable than any other way of ensuring the wellbeing of the dependents and loved ones. If you have not insured yourself yet then it is high time to get yourself insured so that your demise may not prove fatal for the family. Therefore, do not ignore buying a life insurance cover as it would be the best help to the family in the event of your permanent absence. Isn’t it?

How to Find a Life Insurance Company

s3Ratings on Companies

Many people wonder how to go about choosing a life insurance company. In truth, there are several factors that can determine one’s decisions to pick one company over another. More often than not, the deciding factor comes down to the price of the monthly premium.

The premium needs to be affordable enough for one to pay it off each month without it making a huge dent in their finances. A good life insurance company does not want to bankrupt their clients with each premium – quite the contrary in fact.

Insurance companies want to keep their clients as happy paying customers so that they actually have a business to run. If there is no one paying the premiums, then there is nobody to insure.

Thus, life insurance companies will do everything they can to convince a prospective customer that they are the best possible choice.

Be Wary of Life Insurance Scams

However, keep in mind that companies that bend over backwards and offers great premiums may not actually looking out for one’s best interest. In order to avoid scams, read the fine print of their policies. Will loved ones receive the policy without due? Does it take a while for a claim to be filed? One should read reviews and comparisons of life insurance companies in order to weed out the bad ones. This will be easy to find because insurance companies are not like other holders as they are regulated by each state via a special commission. Thus, finding the truth about a company is actually quite easy. One can trust the sources and reviews found through the commission because they are an unbiased organization that was created to help people looking for life insurance policies.

The records are public, but it helps to understand how to read them in order to understand the reports. If a company looks like it has many issues, then one should also look at the number of claims it has handled. If the number is relatively low compared to the overall claims, then the chances are it is not a scam company.

The insurance commission is designed to help weed out bad companies that just exist to take advantage of people during delicate situations. There is no need for anyone to worry about picking a company that is fraudulent because most likely it will not happen. One just needs to trust their instinct.

Now, What is Next?

In conclusion, finding a life insurance policy that is both affordable and comprehensive is not so difficult after all. As long as one researches their top choices and considers them carefully, then there is nothing that they should worry about. A good life insurance company will not take one’s family for a ride should the need ever arise to make a claim. People can rest easy knowing that their family is well taken care of should anything ever happen to them. However, one should not worry about that as life still needs to be lived