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Before buying an life insurance policy, decide
how much protection you need, what you can afford, and the
type of insurance policy
to buy. With
so many different types of life insurance policies to choose
from,
it can be
confusing
which
type is
best for
you.
Compare similar policies and coverage from
different companies to find which is the best value. A simple
rate comparison is
not
enough.
Also ask if premiums and benefits are fixed or vary from year
to year. One
step towards comparing life insurance policies is
to understand the most common types of life insurance available
and the terminology used. Other life insurance
policies are
variations of the policies listed below.
Term Life Insurance Policy
Term life insurance is the traditional life insurance. A "term
policy" provides coverage for a specific period of time.
It only pays benefits if the policyholder dies during the coverage
period and premiums are paid. Term life insurance policies does not accumulate cash value. However, it has a low initial
premium,
providing more life insurance coverage for your premiums dollars
in the early years. It is most suitable for parents with young
children and for people
with
large financial
obligations
- such as home buyers.
With term insurance, the coverage ends after the term specified
in the policy. Some term insurance policies may be renewable
without having to provide proof of health but premiums
will be higher due to your age. Term insurance policies may
be convertible - exchanging the policy for a whole life policy
without providing evidence of good health.
Whole Life Insurance Policy
Whole life insurance, also referred to as "permanent
insurance",
provides coverage for the entire life of the policyholder.
A whole life policy pays benefits upon death of the insured
or on the maturity date. The face amount is locked in after
purchase and coverage can be increased with the purchase
of an additional policy, through additional riders or dividends.
The cash value accumulates from premiums paid and increases
over the years.
Life Insurance Policy Terminology
Premium - the amount you pay to
continue your life insurance coverage. The insurance premium
amount is usually based on your age when you signed up, the
life insurance policy you select, mode of premium payment and
policy term.
Term - the duration in years that you want
to be insured for. The
life insurance policy
can have a term of 5 years to a maximum
55 years. Different life insurance companies may offer varying
terms.
Term of premium payment - the number of years you pay
premium on your policy. Usually the term of premium payment
is the
same as the policy term. However, some policies allow you
to select a term of premium payment lesser than the policy
term.
Sum Assured - the minimum amount that your
family receives in the event of your death while covered
under the policy. Depending on the policy selected, your family
could get more than the sum assured amount. Bonus - is declared as a proportion of the sum assured, by
the insurance company each year. Although declared every year,
the bonus is a lump sum payment made to the insured person
upon maturity or to his family upon death, in addition to the
sum assured.
Maturity - is also known as survival benefit. It is the amount
of money you receive from the insurance company if you survive
the policy term.
Cover - is also known as death benefit. It is the amount of
money your nominee receives from the insurance company upon
your death. This usually covers the sum assured plus the bonus.
Returns - the amount of money realized at
the end of the term of the policy calculated in percentage
terms every year. It
is akin to the annual rate of interest that you receive on
money that you have invested in a fixed deposit or a mutual
fund or any other instrument.
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