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Life Insurance
What Is Life Insurance?
Life Insurance is basically transferring our higher risk by paying a small amount of premium to insurer.
In the process a contract between an insurer and a policyholder is issued. A life insurance policy guarantees the insurer pays a sum of money to our loved ones who are named as beneficiaries when the insured policyholder passes away, in exchange for the premiums paid by the policyholder during their lifetime.
The Life insurance comes with different options which includes Term insurance, Whole Life insurance and Universal Life insurance.
Term Insurance
Term policies are better for temporary needs. The premium stays same for the term/period we have purchased the policy for. Commonly used terms are 10, 20 and 30 years. These policies are mostly renewal and convertible which means term policies gets automatically renewed for next term with increased premiums. These details are provided by companies in their illustrations.
Whole life insurance
These policies are also called permanent policies which means they cover us for whole life and premium stays the same for the tenure we wish to pay for. These policies are mainly used to cover permanent needs in life like final taxes, final expenses etc.
As these policies are little expensive in the beginning as compared with Term Insurances, but these policies also have cash values accumulated during time. We can always put these policies for collateral and take loan against them. These policies are further divided into Non-paricipating and Participating policies. Both policies have cash values which increases with time. In participating policies, companies offer dividends which are vested and increases face/coverage amount with time. For details we can refer to the illustration and ask our advisors to explain the same.
Universal Life Insurance
Universal life is also a type permanent Life Insurance and is made of two components. One is insurance and other one is investment. This is only policy wherein we have a flexibility to have premiums between minimum and maximum range. Any amount we pay in premium, above the cost of insurance, is invested and we get statements of the same periodically. These are further categorised into YRT and LCOI. In YRT cost of insurance is renewed every year and in LCOI its same for the whole tenure.
For continuation of our policies we need to ensure that our account value is always positive so that in case we miss a premium, company can adjust from the accumulation account.
What happens if I miss premium
The treatment is different for different types of policies but for all policies we have 30days grace period to pay our premiums.
For term policy, as they don’t have any cash values, if we delay premium beyond 30 days, the company can void the contract or may ask for medicals to ensure insurability to reinstate the policy.
For permanent policies, as they have cash values, company can adjust premiums as temporary loan from your cash accumulated, but would be charging interest on that.
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