Showing posts with label Life Insurance. Show all posts
Showing posts with label Life Insurance. Show all posts
Sunday, July 20, 2008
Certificate of Insurability
A certificate of insurability is an insurance company's verification that you are entitled to receive insurance coverage. For life insurance, a certificate may require that you complete a health condition questionnaire and pass a health exam.
Term Life Insurance
A term life insurance policy provides a death benefit for a specific term, generally measured in years. Unlike permanent life, there is no buildup in cash value. When the coverage term expires, the policyholder buys a new term that matches his insurance needs. Since the policyholder is older, they will pay a larger premium to reflect their shorter life expectancy.
Term life insurance vs permanent life
The two main categories of life insurance are term and permanent life insurance.
Term life insurance policies are sold for a fixed number of years that matches your needs. Term life policies are often sold for terms of 10 or 20 years.
You may decide that you and your spouse will have enough income from Social Security and retirement pensions when you retire in 10 years. As a result, you decide you only need a policy in case you die in the next 10 years.
A term life insurance company underwrites your policy, using historical data on insurees with similar risk characteristics to calculate a premium. (Relevant risk characteristics include your health history, age, and gender. You complete a health condition questionnaire and physical exam in order to obtain a certificate of insurability.)
Term life insurance policies are sold for a fixed number of years that matches your needs. Term life policies are often sold for terms of 10 or 20 years.
You may decide that you and your spouse will have enough income from Social Security and retirement pensions when you retire in 10 years. As a result, you decide you only need a policy in case you die in the next 10 years.
A term life insurance company underwrites your policy, using historical data on insurees with similar risk characteristics to calculate a premium. (Relevant risk characteristics include your health history, age, and gender. You complete a health condition questionnaire and physical exam in order to obtain a certificate of insurability.)
Policy rider
A policy rider is a provision or modification to an existing insurance policy that provides additional coverage to an insurance policy. Generally, policy riders are sold separately from insurance policies.
Examples of riders include buying coverage to pay an accelerated death benefit, add your children to a life insurance policy, or to protect against an accidental death. A double indemnity rider pays twice the amount of the policy if you die accidentally.
A waiver of premium rider is a rider that lets you stop paying premiums for a policy if you become disabled for a sustained period of time before reaching age 60 or 65. The rider keeps your policy active by paying premiums for you. (In normal cases, a term life policy lapses when you stop paying premiums.)
Another example of a rider guarantees additional life insurance coverage without first having to obtain a certificate of insurability. (A certificate is often issued after you pass a physical exam.) This kind of policy rider is often called a guaranteed insurability rider.
You should evaluate whether a policy rider offers additional protection that you deem worth the extra expense. In some cases, a life insurer offers free rider coverage.
Examples of riders include buying coverage to pay an accelerated death benefit, add your children to a life insurance policy, or to protect against an accidental death. A double indemnity rider pays twice the amount of the policy if you die accidentally.
A waiver of premium rider is a rider that lets you stop paying premiums for a policy if you become disabled for a sustained period of time before reaching age 60 or 65. The rider keeps your policy active by paying premiums for you. (In normal cases, a term life policy lapses when you stop paying premiums.)
Another example of a rider guarantees additional life insurance coverage without first having to obtain a certificate of insurability. (A certificate is often issued after you pass a physical exam.) This kind of policy rider is often called a guaranteed insurability rider.
You should evaluate whether a policy rider offers additional protection that you deem worth the extra expense. In some cases, a life insurer offers free rider coverage.
Premium
The amount an insurance policyholder pays periodically to maintain insurance coverage. Bonds: A price more than the face value of the bond. A $1,000 bond that trades for $1,050, for example, trades at a premium of $50.
Cost-of-living adjustment (COLA)
The U.S. government pays a cost-of-living adjustment (COLA) to qualified federal employees and to all Social Security beneficiaries. COLAs are used to equalize cost-of-living differential and to protect against inflation. COLAs are based on the change in a widely used price index. For 2008, Social Security beneficiaries will receive a COLA of 2.3% for their benefits. This increase in benefits is based on the change in the consumer price index in the year ended in September 2007. Federal workers in Hawaii, Alaska, and the U.S. territory of Guam receive a salary COLA to compensate for the higher-than-average cost of living in those places.
Death Benefit
A death benefit is the payment you receive as a beneficiary of a life insurance policy. The death benefit may be paid as a lump sum or annuity.
If you receive an annuity, the amount you receive may be either a fixed or variable annuity.
A death-benefit annuity may include a cost-of-living adjustment (COLA) to protect against inflation. In most cases, a death benefit is paid monthly.
If you receive an annuity, the amount you receive may be either a fixed or variable annuity.
A death-benefit annuity may include a cost-of-living adjustment (COLA) to protect against inflation. In most cases, a death benefit is paid monthly.
Estimating Coverage needs
Life insurance provides payments to your beneficiaries that replaces some or all of your income if you die during the coverage period.
In exchange for insurance coverage, the insured person makes periodic payments called premiums to the insurance company. The person making payments is also called insuree and the insurance company is called the insurer. The insuree is also called the policy holder.
Most life insurance policies are taken out to replace family income in the event of an untimely death. As a result, these policies often designate a spouse, child, sibling or parent as beneficiary. The policy may also designate more than one beneficiary.
Some types of life insurance allow you to change your premiums or stop paying them for a while. These premiums are called flexible premiums. This situation occurs if the investments that are funded by some of your premiums earn a higher than expected rate of return.
The following can help you determine your coverage needs.
1. Determine your coverage period
2. Calculate the expenses that require coverage
3. Reduce the amount of required coverage by available assets and income
4. Add estimates for inflation,interest rates on savings, and taxes
5. Find other ways to lower your premiums
Since your health is a large determinant of your premiums, consider avoiding tobacco and alcohol. A healthy medical history helps. Skydiving, motorcycle riding and scuba diving are activities with higher accident and fatlity rates. Avoiding these kinds of insurance risks can help to lower your premiums.
In exchange for insurance coverage, the insured person makes periodic payments called premiums to the insurance company. The person making payments is also called insuree and the insurance company is called the insurer. The insuree is also called the policy holder.
Most life insurance policies are taken out to replace family income in the event of an untimely death. As a result, these policies often designate a spouse, child, sibling or parent as beneficiary. The policy may also designate more than one beneficiary.
Some types of life insurance allow you to change your premiums or stop paying them for a while. These premiums are called flexible premiums. This situation occurs if the investments that are funded by some of your premiums earn a higher than expected rate of return.
The following can help you determine your coverage needs.
1. Determine your coverage period
2. Calculate the expenses that require coverage
3. Reduce the amount of required coverage by available assets and income
4. Add estimates for inflation,interest rates on savings, and taxes
5. Find other ways to lower your premiums
Since your health is a large determinant of your premiums, consider avoiding tobacco and alcohol. A healthy medical history helps. Skydiving, motorcycle riding and scuba diving are activities with higher accident and fatlity rates. Avoiding these kinds of insurance risks can help to lower your premiums.
Life Insurance
A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceed and is thereby safeguarded from the financial impact of the death of the insured.
The goal of life insurance is to provide a measure of financial security for your family after you die. So, before purchasing a life insurance policy, you should consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example who will be responsible for your funeral costs and final medical bills? would your family have to relocate? will there be adequate funds for the future or ongoing expenses such as daycare, mortgage payments and college? it is prudent to re-evaluate your life insurance policies annually or when you experience a major life event like marriage, divorce, the birth or adoption of a child, or purchase of a major item such as a house or business.
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