The LIfe Policy: Protecting Yourself and Your Loved Ones from the Inevitable

2007-03-08 10:33:40

( Insurance )



They say that everything in this world can be avoided, except death and taxes.

If you are currently earning money to support someone else, death is something you don't want to think about. But if you were to die all of a sudden, what would be the impact to your loved ones? They will have to carry on painfully without you, and worse still, without the financial support you used to provide them.

What is a Life Policy?

A life policy, also called a life assurance policy, is an investment plan which enables you, the policyholder, to prepare for the inevitable. You make regular payments, or premiums, for a predetermined period based on the amount you wish to be covered and the length of coverage.

You are insuring against the fact that if something tragic should happen to you, your dependents, or beneficiaries, will receive the covered amount.

The amount of your premiums depends primarily on the benefit or coverage amount, the length coverage, your age at the time you bought the policy, and length of time you want to pay the premiums.

Some insurance companies also adjust premium prices based on the nature of your occupation, lifestyle and health condition. For example, you would be charged a higher premium if you smoke because of the presumed health risks. Many insurance companies also require you to undergo a physical health examination just to confirm that you are healthy enough not to "expire" soon.

Types of Insurance Policies

There are generally three major types of life policies - whole life policies, term life policies and endowment policies.

Whole life insurance policies cover you until you "pass on". You can also choose the length of time you will pay premiums. Once the premium amount has been set by the company, it will be the same amount throughout the duration of the policy.

Unlike whole life insurance policies, term life insurance policies covers only a specific time period such as one year, 10 years, etc. Once the period expires, so does your coverage. In spite of the limited nature of term life policies, some people actually prefer this type because it is so much cheaper than whole life policies.

Endowment policies are very similar to term life insurance policies in that you are covered up to a certain time period of your choice. The main difference is that if you outlive your chosen coverage period, the full amount of coverage will be awarded to you. Think of it as a combination of a life policy as well as a savings plan which gives you that extra opportunity to enjoy the "fruits" of your premiums.

Another advantage of endowments is that they can be resold or reassigned to another company or party in the event that you can or would no longer want to continue your payments. These are also called traded endowment policies. Selling an endowment policy is done through an investment company other than your insurance provider.


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