Sunday, August 16, 2009

LIFE INSURANCE

Life Insurance.jpg
Life insurance may be defined as a contract where insurer pays certain sum of money either on the death of the insured or on the expire of the fixed period in consideration of premium undertaking. Life insurance contract is not a contract of indemnity because life of a person cannot be measured in terms of money. In life insurance, insurer promises to pay certain sum of money to the insured person on the expire of policy or to the nominee on the death of insured which ever is earlier. As such life insurance provides financial protection against the risk of early death and at the same time life insurance is a good investment. Let us see an example, if an insured person dies before the maturity of the policy, the insurer provides financial protection to his dependents. But if the person lives up to the maturity of the policy, the insurer replaces the certain sum of money to him. So life insurance is no only a protection against the uncertainty of life, life insurance is an investment too.Life Insurance.jpg The life insurance contract can also describe as ‘contingent contract’ because the loss of the life cannot be compensated and only a specified sum of money is paid, if the insure die.

Life insurance is designed to cover the final expenses, including funeral expenses and bills, of the policyholder upon his death. Life Insurance can also provide a means for a policyholder to provide for his heirs financially. Life insurance is issued either as a term policy, which
life insurance.jpgdoes not build equity but which generally has lower premiums, and whole life insurance, which does provide equity the policy holder can borrow against. Whole life policy premiums are generally more expensive than term insurance. For most people, the purpose of life insurance should be to replace the financial contribution made by a family member. Life insurance can be pure insurance, which pays only on the death of the insured, or cash value insurance, which also has a savings vehicle. Most people who need life insurance are better off with pure insurance and saving for retirement through other vehicles. Proceeds from life insurance cover three types of expenses: replacement of the policyholder's income or work, estate taxes, and burial costs. When you consider the amount of insurance to buy, consider the following:
1. Most of the life insurance should be on a family member whose salary is important to the family budget.

2. Consider a relatively small life insurance policy on a stay-at-home parent to cover child care and other expenses.

3. Don't buy life insurance on children. Instead, buy life insurance on other family members for the benefit of children.

4. Consider reducing the amount of life insurance you have as you build more financial assets.

5. Pass on credit life insurance and mortgage life insurance if you can. These plans are restrictive and expensive. Buy more general life insurance instead if you feel a need.

6. Pass on life insurance altogether if you are single and don't have anyone depending on you. At most, get a small policy to spare your family burial expenses.
You should buy about 12 times the amount of money you would need annually to replace what the family member is contributing. For example, if you would need $50,000 a year to replace the death of an employed member, you would need a $600,000 policy.

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