The best approach to understanding life insurance is by asking incisive questions that help you gather relevant and useful data that enhances your understanding of the concept of life insurance, how it works, what are the exceptions and how to maximize its value.
- How should I calculate how much life insurance I should purchase?
- Can life insurance benefits be collected in case of a suicide?
- Which one would work better for me: Term life or Whole life?
- How many beneficiaries can I list?
- How is my premium amount arrived at by the insurance company?
- What happens if I outlive my policy?
- What happens if the beneficiary dies before me?
- What I need money urgently? May I surrender my policy?
- May I own multiple life insurance policies?
- What happens if I default on premium payments on my life insurance policy?
Now while there is fixed rule of thumb here, a rough guide would be to multiply your annual salary by 7. But this is not quite accurate. There are other incomes and expenses to be considered. Your spouse’s income, other sources of income like investments in stocks etc would raise your incoming cash. On the other hand, running expenses like food, clothing and loan payments, mortgage payments, educational expenses etc will form the outgoing cash. By referring to your annual family budget, you can prepare a rough estimate of how much cash your family need for the next 10 years assuming you are not there. After all your
Life insurance aims to replace your monetary value in the family.
Most policies insist that if the suicide occurs within two years of buying the policy, it is not valid, but if the suicide occurs after 2 years, the benefits may be paid. The reasoning here is that people should be discourages to buy insurance while already planning a suicide. Another thing to note is that suicides are usually followed by an investigation by police and the benefits will only be released when the death is proven to be suicide.
There is no universal answer here – whichever works best for you. To determine which one is better, you need to consider your affordability factors first. Are you well off? Can you afford to put aside a decent sum regularly to pay for whole life insurance? If the answer to these questions is yes, then you should certainly opt for whole life. Whole life helps to build up a good cash base against which you may borrow money from a bank. You also get the benefit of receiving dividends which you may reinvest or claim as a check.
Term life will be a better choice if your cash flow is restricted or your income levels do now allow you to pay for higher premiums towards whole life. If your financial situation improves later, you can always convert the term life into a whole life policy.
Technically, you are entitled to name as many beneficiaries as you want in your policy with the endowments distributed as you like. But always confirm with your insurance agent.
There are some inputs that determine the premium rate. These can briefly be described as your age, your health, the type of policy you want (term or whole life), the amount that the policy is insuring you for and your insurability level. Insurability level refers to your risk levels of an early death like smoking, drinking or obesity.
This is typically a situation that is relished by both the insured as well the insurance provider. They don’t have to pay out thousands of dollars on your death which hasn’t happened yet and you get a choice on what you could do with that money. One would be to extend the policy, another would be surrender it and ask for cash value instead. But keep in mind that you are much older now so if you were to set about purchasing a policy, you would pay a fat premium.
Either you may outlive your beneficiary or you may die together. The solution is to name multiple beneficiaries in your policy. In case you outlive the primary beneficiary, the benefits will go to the secondary beneficiary. In case there is only a primary beneficiary and this was irrevocable, then in case of his or her death, the benefits would go to your estate on your death.
You may opt for a cash value or cash-surrender settlement in lieu of your policy. This means that if you voluntarily give in your policy, you will be paid cash which will be substantially less than the final benefit amount. This is not recommended unless you have no other option.
Yes, you may as long as you have full details of one policy in the application form for the other. Many people prefer purchasing multiple policies for different aspects of coverage. Just remember to be upfront and honest when you declare the details of one policy on the form of another.
Every life insurance policy has a dormant winnow period in which your policy is available but is not active usually because you have defaulted on the premium payment. The best recourse to take when you know there is a difficult coming up is to tell your insurance company about it. They all know that this is common enough and will suggest some course of action. Otherwise you might end up with an invalid policy or attract a fine.
These are just some examples of questions that may arise in your mind as you set about organizing your life insurance. You might several more when you read through all the sections of your policy. Make an appointment with your insurance agent or with a counselor from the company and list down all your FAQ that you wish to know about. Remember, buying life insurance is a long term decision and the knowing about it changes an educated guess to an informed choice.
