What is the need for life insurance?
There are several cases in people’s lives when life insurance or assurance can be very helpful. In case of a sudden tragedy, such a legal contract may help the survivors leastwise financially to go on and live down the situation.
Or, upon the occurrence of a critical or terminal illness of the insured, the insurer will give him/her financial support. However, one must be very careful when it comes to this product as there are many pitfalls one can fall prey to.
Both the life insurance’s terms and conditions and its costs should be taken into consideration before actually concluding such an insurance contract.
But what exactly does the term refer to?
Life insurance is a typical insurance product protecting the beneficiary mentioned in the contract if the policy owner (namely, the insured person) dies. The policy owner and the beneficiary are not necessarily the same person, and most of the time the policy owner (who pays for the contract) differs from the beneficiary.
The beneficiary may be the insured person’s wife, husband, children, or other relatives, and is subject to change. This means that the owner may change the beneficiary as long as the insurance contract does not have an irrevocable beneficiary identification. If the policy has an irrevocable beneficiary, in order to make changes, the beneficiary must agree with them.
And how does life insurance work?
The owner of the policy pays a stipulated amount of money called ‘premium’ to the life insurance company either regularly (until an agreed date/ for a specific period of time), or in lump sums. In case he/she dies before a predefined period, a lump sum of money is given to the beneficiary based on the policyholder’s contributions. However, if the owner of the life insurance outlives that predefined date, he/she will get an extra income which may either be a large sum of money, or some kind of pension allowance given to the insured each month, until his/her death.
After this, it seems obvious why so many people choose this product and assume the financial obligation of paying a certain amount of money monthly to the insurer. The primary reason for people concluding a life insurance contract is securing one’s relatives, more specifically, one’s family in case an unforeseen event happens. In case the policy-owner dies, he or she protects his/her family financially. Covered insured events include for instance serious illnesses.
Types of life insurance product
There are many life insurance product types. One may choose temporary or permanent life insurance, or one can opt for a so-called children’s life insurance, but there are many other subcategories. All the contracts, however, seem to fall into one of the two major categories: life insurances for reasons of protection or investment. The first type is ‘beneficial’ if a specified event occurs, in which case the beneficiary gets a lump sum of money. Life insurance with investment purposes is intended to provide an extra income to the insured.
One must be very careful and prudent in order to choose the right life insurance product. First of all, there are several companies offering the same products but with different costs. Second, there are many life insurance types, and one needs to analyze which product fits one’s needs the best. Next, purchasing life insurance coverage should be preceded by an attentive analysis of the insured’s personal and financial circumstances.
One should take into consideration one’s present and future financial possibilities as well as needs, but also the needs of one’s close relatives. One’s property, fixed expenditures, and the possibly needed future funds should also be given thoughtful attention. Last, but not least, one should pay attention to the terms of one’s insurance contract, namely, to the descriptions of the so-called ‘insured events’ as well as the coverage the policy provides in each case.
Finally, if one has already concluded a life insurance contract, it is useful and even recommended to re-evaluate one’s financial and personal situation from time to time, particularly if major changes occur in the insured person’s life. Also, the contract’s particular exclusions should be taken into consideration, as these limit the insurance company’s liability. For example, there is no coverage for claims referring to suicide, war, or riot.