Life insurance is not about LIFE. It’s about LOVE
- November 20, 2018
- Posted by: olinsadmin
- Category: Health Care Ontario, Insurance Toronto, Medical Insurance Ontario
Nobody can guarantee you immortality. That’s why life insurance is not about LIFE. It’s about LOVE. It’s about people who you left behind.
There was an ad about life insurance in an old magazine: no words, just two pictures. On the first picture, there was a family sitting at the dinner table: a father at the head, a mother beside him and a couple of well-dressed kids. The table was full of food, the furniture was expensive and a beautiful crystal chandelier hanging from the ceiling. On the second picture, there were the same kids, the same mother, the same room, the same table full of food, the same crystal chandelier…but the father’s chair was empty … only his portrait on the wall. The message was obvious.
Understanding Life Insurance
Usually, the policyholder pays a premium on a monthly basis. Some other expenses, such as funeral expenses, may be also included in the benefits. Common exclusions are claims relating to suicide, fraud, war, riot and civil commotion.
Some life insurance plans accumulate cash values that may be taken by the insured if the policy is surrendered or which may be borrowed against. If worse comes to worst, you may use this funds for a down payment for your property, for example.
The cost of insurance is determined using mortality tables (statistically based tables showing expected annual mortality rates) calculated by actuaries. Actuaries are professionals who employ actuarial science, which is based on mathematics (primarily probability and statistics). The three main variables in a mortality table are commonly age, gender, and use of tobacco.
The main advantage for the policy owner is “peace of mind”, knowing should you pass away, life insurance can provide sufficient fund for your loved ones that can:
- Replace lost income
- Pay off your mortgage or loans
- Help with home-related expenses, utilities and taxes
- Provide money for college or university fees for your children
- Cover funeral costs, final income taxes and other expenses
There are two major types of life insurance:
- Term life insurance
- Permanent life insurance
Term life insurance
A term life insurance plan provides coverage for a specified term. The policy does not accumulate cash value. Term insurance is significantly less expensive than an equivalent permanent policy but will become higher with age.
Group life insurance (also known as wholesale life insurance or institutional life insurance) is term insurance covering a group of people, usually employees of a company, members of a union or association. There are no medical examinations because group life insurance is uniform in nature. So, individual proof of insurability is not normally a consideration in its underwriting.
Permanent life insurance
Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturation. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.
The three basic types of permanent insurance are:
- whole life
- universal life
Whole life insurance provides lifetime coverage for a set premium amount and has many variations and options. But the main feature of all of them is that premiums and death benefits are fixed.
Universal life insurance is intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. Paid-in premiums increase their cash values; administrative and other costs reduce their cash values. There are several types of universal life insurance policies. Universal life insurance addresses the major disadvantages of whole life where premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. The policy owner can choose to decrease or increase the death benefit.
The endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its maturity) or on death. Typical maturities are 10, 15 or 20 years up to a certain age limit. Some policies also pay out in the case of critical illness. Endowments can be cashed in early (or surrendered) and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it.
Life insurance policies can pay to the beneficiary either a tax-free lump sum cash payment or an annuity.
An annuity is any continuing payment with a fixed total annual amount.