Life Assurance
Life Assurance is classified as insurance of persons and the two main types of life insurance policies are:
- Term Insurance Policies
Also known as Pure Life insurance because its only purpose is to insure individuals against the loss of life. Premiums for Term Life insurance are based solely on a person’s age, health and the life insurer’s determination of life expectancy. If the person dies within the specified term, the insurer pays a death benefit to the designated beneficiary. If the term expires before death, no death benefit is paid. Policyholders may be able to renew a term policy at its expiration, but their premiums will be based on their attained age.
Examples are:
Mortgage Protection policy: The proceeds from this policy are used to pay off any outstanding amount owed to the lending institution at the death of the owner so that the loved one of the deceased can live in the house free and clear.
Credit Life Policy: Used to support loans
Keyman Insurance Policy: Taken out for key employees and Business Owners
Group Life Insurance: These policies are usually taken out by companies for the benefit of their employees, and sometimes extended to cover the employees’ dependents as well. Typically the premiums are borne by the employers, and employees are covered as long as they remain in the employment of the company. - Permanent Insurance Policies
Offers a death benefit, plus an investment component that may be collected, borrowed or used to pay the policy’s premiums. The policy may remain in force for a lifetime, as long as the premiums are paid.
Examples are:
Whole Life Policy: The policy proceeds are paid after the death of the assured and it can, therefore, be used to support a will to dear ones. Some yield dividends if they are taken from a Mutual Life Insurance Company.
Universal Life Policy: The policy has a cash-bearing component that can be assessed by the policyholder to meet short- and long-term goals, as well as, used to diversify investment portfolios.
Endowment Policy: The old Endowment policy has been improved and is now wholly investment based. These policies can be used to support short- and long-term goals including retirement.
Single Premium Life: Designed for highly net-worth individuals who choose to invest in insurance rather than investing in the traditional investment portfolios. Such an individual is also interested in the proceeds that yield from the life insurance.
These Life Insurance policies may be used to fund:
Child Education: The policy proceeds are used to take care of the child’s education on the death of the parent/guardian
Executive Bonus Plans: These policies are drafted to support the bonus plans of corporations. The cash value built in the policy is used to fund the bonus arrangement of the company.
Buy-Sell Agreements: These policies are taken to fund Buy-Sell Agreements drawn between Partnerships and Owners of companies. They are useful at the time of the death of a partner, where proceeds can be used to settle the interest of family members or used to run the company.
- Some uses of Life Insurance
- Final expenses, example funeral
- Settle debts
- Maintain standard of living
- Education
- Support dependents
- Savings
- Supplement Retirement
- Estate Planning
- Fund Wills /Trusts
- Mortgage Protection
- Fund Employee Benefit Plans
- Used to support Business Overhead Expenses