The reasons that would make your mind think about the necessity of life insurance can be many, ranging from your age to your earnings. To determine exactly whether you need any insurance or not, you need to carry out some introspection. The purpose for which a life insurance needs to be purchased depends largely on your age and the kind of work that you do. Another factor that determines the purpose of insurance is the number of members that are dependent on you for their needs. If you are an earning member of your family, you would have members in your family who are dependent for fulfillment of their necessities. Thus, if anything wrong happens to you, they would lose their source of necessities. Thus, you need an effective insurance policy to keep their life going in tough times. If you are a kid, you don’t need any life insurance, the reason being that children obviously have a longer life span than adults, leaving aside some exceptional cases. If you are planning to raise a family, then you are the one who has the utility of life insurance to the most because your children would be dependent on your income. As you would grow older, you would be charged with a higher premium. If you are a single adult, the only reason for which you need a life insurance is to incur your own funeral’s cost, which sounds a little absurd.
Why premium is charged?
There are no free lunches in the world. This saying is quite obvious in the case of life insurance too because the companies that would insure you do not exist for serving you for free. They do charge premium on the basis of what kind of policy you would choose. For example, a young individual of 21years desires to get insured. If he is suffering from any disease that would not let him complete even 30 years of his life, then the insurance company would see a higher risk in insuring that individual and thus, would charge a high premium from him. The level of premium that would be charged from any individual depends on the level of risk associated with that individual. The higher is the risk, the higher would be the premium. Well, the level of risk can be estimated by the companies in two ways. Either they carry out a complete medical checkup of the individual who demands insurance or they use the concept of longevity charts.
Medical examination before purchasing life insurance is a step that many insurance companies take, in order to judge the level of risk associated with a person. You may be asked about your medical history or your family’s medical history. The family’s medical history is being asked for because in certain cases, there are some hereditary reasons owing to a particular ailment or disease. Thus, when any such ailment is found out, it results in an increase in the level of risk. You would also be asked to generate information about your smoking or drinking habits, if you have any. If you are a frequent smoker or drinker, chances of charging a high premium by companies are more. Apart from acquiring information related to your medical history, you may also be required to undergo some checkups like blood tests and urinary tests. The second method that insurance companies apply for risk measurement is a longevity chart. A longevity chart is a representation of the mortality rates of men and women. This chart assists the companies in knowing the approximate ages of different individuals at which they die. For example, suppose a longevity chart depicts that a woman has a lesser life span than a man then the risk associated with the insurance of a woman is more than compared to the insurance of a man.
The determination of your insurance need and the calculation of premium are based on your medical checkup, and analyzing your occupation, which usually takes around three to four months. But, this time may differ according to the extent of proceedings across the different insurance companies. A few of the insurance companies do not even ask for any medical tests and they just rely on the information that you provide.
Time period for which you would be charged:
Generally, an insurance policy covers you for a particular period of time. But, when you go for availing whole life insurance, you would be allowed to avail an insurance cover for your entire life. A whole insurance policy is comprised of three choices and you can choose the one according to your needs. The available options are a traditional whole life insurance policy, a single premium insurance policy and an interest sensitive insurance policy. A traditional policy would allow you to avail a guaranteed rate of return on the cash value (the cash value is a return on a portion of the premium). A whole life insurance policy with a single premium is one that would be beneficial for an individual that has accumulated wealth to a large extent. The tax benefits on this policy would be the same as in the conventional policies. When you go for an interest sensitive whole life insurance policy, you have an advantage of increasing your death benefit without any increase in the premium. This would depend on the rate of return on the portion of your cash value. The interest sensitive whole life insurance policy is considered to be more flexible as compared to the other whole life insurance policies.
The basic advantage of availing a whole life insurance policy is that the premium remains constant throughout the period. In conventional policies, this is not the case. Also, a portion of this constant premium would be added to the cash value. With such an addition, the entire policy can be paid off within a minimum number of years. Thus, going for a whole life insurance is beneficial for you as compared to other policies.
