How Is a Term Insurance Policy Beneficial?

In order to understand how a term life insurance policy can be beneficial to us, we first need to understand, what it actually is? In simple terms, an insurance policy that insures you for a fixed term or a fixed period of time is called a term life insurance policy. Here, the term is your life and the insurer insures you with a financial backing against loss of life. Such an arrangement is necessary for people who are responsible for the financial needs of others and need to ensure that they keep them provided even when they are not around. Hence if you take up a term insurance policy and unfortunately there is loss of life, the sum insured would be paid to your family or beneficiary. This way you can ensure that you take care of their financial needs even after you are not with them. A typical term insurance is cheaper in comparison to other insurance products and hence do not even put much of a strain on your pockets.

Term insurance is a little different from any other life insurance product. Most life insurance products cover you financially for life as well as promise you a fixed sum of money at the end of the agreed period. In case of a term insurance you get the financial coverage, but no money is earned at the end of the insurance term. The benefit of a term insurance here is the fact that a term insurance is the cheapest form of life insurance. The choice here is between an insurance that gives you a better coverage at a lesser cost and a policy that costs you a lot more but ensures a fixed sum of money after a fixed period.

Term Insurance comes beneficial for people who don’t look at insurance as an investment, but as a security provider. Even when it doesn’t earn you anything at the end of the policy’s maturity, it provides security to your family and loved ones. Moreover, the fact, that it is the cheapest form of insurance; it doesn’t strain your pocket much and leaves with more scope to invest into other financial products. With some intelligent planning, one can have a good mix of investments in term insurance and other money earning products like ULIPS, mutual funds etc. The benefit of such a combination of financial products is that one has a good income from investments during his/her lifetime and in case of loss of life, the family and dependents get the secured amount from the insurance company.

However, one needs to be extremely careful in investing in any policy. A thorough research on all plans available is mandatory. Some points to consider before opting for a policy includes:

1. Reputation of the Insurance Company – one should go only for a reputed and government recognized company to be sure of getting the claims settled legally

2. Clams Settlement Ratio – Also ensure that the Company has a good track record to settling claims. Companies that take too long to settle claims or reject too many claims should be avoided.

The best policy to go for is always the one that gives you the maximum benefits for the least amount of premium. Go for a good balance between low premiums and required coverage amount.

Who Can Be a Beneficiary on Your Life Insurance Policy?

It’s true. When you apply for a life insurance policy you must choose a primary beneficiary with an insurable interest in you if you want to get your life insurance policy approved by the underwriters. Insurable interest is generally broken down into two types of loss-emotional and financial. In order to have an insurable interest in your life, your beneficiary must fall into one of these categories.

Insurable Interest: Financial Loss

There are many individuals and businesses that could suffer a financial loss if you were to die. Your lenders many not get loans repaid in the event of your death, your spouse might not be able to support him or herself without the assistance of your income, your children may not be able to go to college. In addition, your parents, spouse, or siblings might not be able to afford your funeral expenses. Your business partner or boss may no longer be able to run the business properly and could suffer financially without your knowledge, image or experience.

When naming a primary beneficiary that will experience a financial loss at your death, no justification is required when that beneficiary is an immediate family member. If the beneficiary is a lender, business partner or boss, then additional documentation and letters of explanation may be necessary.

Insurable Interest: Emotional Loss

There is an undeniable group of people who would suffer an emotional loss upon your death. Your immediate family-parents, spouse, children and siblings would certainly feel a tremendous emotional void if you were no longer around. While this emotional loss does not necessarily result in a financial need, it does set up an acceptable environment for the issuance of a death benefit.

Unless you are naming a far removed family member as your primary beneficiary, there should be no need for a justification of the choice that you make. Be sure to be very clear about the amount that you want each beneficiary to receive if you are naming multiple beneficiaries. If you are leaving the benefit to a minor, consider setting up a trust in the event that he or she should receive the benefit before reaching a financially mature stage in life.

Exceptions to the Rules

There are always exceptions to the rules. If you want to leave your death benefit to a funeral home, although they would gain financially from your death, you can do so. This is acceptable because it simply avoids awarding funds to a middle man (such as a parent or spouse) who will only turn the funds over to the funeral home anyway. However, it is important to note that they will receive the entire death benefit when you do so.

If you have no family and no creditors, you may decide to leave your death benefit to a friend. In this event, it is generally preferred that you leave the funds to your estate and simply leave a will with instructions for the distribution of your estate assets. While this will result in your life insurance proceeds going through probate, it is a faster way to get your death benefit approved.

Once your policy is issued, the question of insurable interest no longer has any bearing and you can change your beneficiary to anyone that you would like. Just contact your insurance company and find out how you need to submit the beneficiary change information. Some insurers might have a form you need to complete while others might just request a letter. If you are not the owner of your own insurance policy, remember that it is the owner who must sign off on any beneficiary changes. Once your change is complete, let your beneficiaries know and keep a copy of the submitted change request with your policy to help avoid any confusion after you are gone.

Insurance Policy-Taking

Insurance can be regarded as an arrangement between an individual or group of persons or a company with a particular kind of company called an insurance company in which the insurance company gives financial protection against loss or harm such as illness or theft.

This service is not free but is given at a cost. A form of payment known as premium is paid by whoever is taking the insurance policy to the insurance company. A premium is the payment made to the insurance company in other to obtain the insurance coverage bought.

Insurance provides financial protection against a loss arising out of happening of uncertain event. Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.

All insurance policies cost money and there are so many of them to choose from. It is very advisable to read a policy carefully and make sure that the terms and conditions are well understood as well as the coverage and costs before buying it. Until you are sure and comfortable with the coverage and until you are also sure that you need it, do not sign on the dotted line.

The uncertainty of what will happen tomorrow is one of the few certainties of life. To guard against this, we have to consider what could happen tomorrow and the subsequent consequences. As a result of this, the need for insurance is very critical to each and every one of us.