Insurance

Detailed Information Regarding Different Life Insurance Plans

Life insurance is a protection against financial losses in case of sudden or premature death of the insured. The beneficiaries (people whom the insured wrote on his insurance policy) will receive the insurance claims that can safeguard them from the financial impact of such losses.

Aside from death benefits, Life insurance can also be a great savings and investment tool. There are several types of insurance plans that offer investment returns for premiums (a term used for insurance payments) that can increase up to 10-15% or more per year, which can also be withdrawn in case of emergency.

Life Insurance Plans

There are several types of insurance plans but this four is the most common:

Term Life

This type of insurance offers death benefit for a fixed number of years (e.g. 5, 10, 15, 20, 25, or 30). The insured pays fixed annual premiums each year and are less expensive than other insurance coverage. If the insured dies during the term, the beneficiaries can get insurance claims. However, if the insured dies beyond the term, the beneficiaries will get nothing. One of the disadvantages of this insurance coverage is that it cannot accumulate cash value. The premiums paid each year remains as is, and serves only a particular term. If the term ends, you may renew or stop paying your premiums. This only applies to people who are only concerned about life insurance when they have dependents or mortgages to pay. There are also retailed versions of this insurance that covers only a certain period of time (commonly for 1 year) and are really cheap and handy. Examples of these are accident, travel, and hospital insurance.

Whole Life

This insurance coverage is permanent and provides protection and savings. Whole life insurance requires payment up to age 100 and part of it goes to savings. This portion of your premium payments that goes to savings accumulates in value over time. This can also be considered as a living benefit, or the cash values and dividends that you can borrow should the need arise, and should be repaid otherwise it will be deducted to your death benefit. The increase of cash value and dividend maybe slow during the early years since most of the payments will likely go to administrative fees and agent’s commission. The premiums being paid for this type of insurance coverage are fixed regardless of age or health status, and will only be terminated once your insurance policy runs out of funds, or after all the benefits have been claimed.

Universal Life

Is another permanent type of insurance coverage. This is similar to whole life insurance, but offers more flexibility, and it is more complicated and expensive. The policy holder can increase or decrease the death and living benefits, as well as the cash value of his policy whenever wishes. The premium payments may also increase or decrease. However, due to the rapid changes of premium payments, the interest rates earned by the cash value may also become inconsistent, thus resulting to a possibility of your insurance policy becoming underfunded since it can no longer cover up the rapid increase on insurance premiums. If this will be the case, you will have to pay extra coming from your own pocket to keep your policy in force otherwise, the policy will lapse. However, one of the attractive features of this insurance coverage is its ability to borrow against the cash value at a low interest rate attracting consumers to avail of this insurance.

Variable Life

This insurance coverage is with a cash value component therefore it must be registered to the Securities and Exchange Commission. It is more expensive than that of a whole life and universal life insurance. It has fixed premium payments and a guaranteed minimum death benefit claim. You may also borrow from the cash value and just like how other insurance plan works; you have to repay it to keep it in force. A certain percentage of the premium payment goes to the type of investment from which the policy holder chooses for his account such as stocks, bonds, or mutual funds. If the return of investment is high, the policy holder can take advantage of this opportunity to buy more coverage or pay policy premiums. One of the most common investment tool used by insurance companies are mutual funds wherein the policyholder can choose a certain percentage of his premium to go to Equity or Managed Funds. Equity funds are shares of the insurance company that you purchase, thus making you one of its shareholders. Your equity shares will then be invested to the stock market to acquire more shares and earn dividends. The risk in choosing this type of investment tool is its inconsistency with the prices of each share since its value in the stock market may increase or decrease rapidly.

If you want a more secure investment, then the Managed Fund is the best option for you. This investment tool pools your money with that of the other investors, and will be used to buy and sell shares or assets on your behalf. Apart from that, the government may also borrow from this fund to finance projects such as buildings and other infrastructure and will pay it including the interest rate and that’s how you’ll earn from it. However, though it offers security, the increase of investment is pretty slow. Some businessmen are taking variable life insurance and investing lump sum of money through equity funds. They take advantage of the increase of value per share then withdraw their investment after.

Though there are a lot of insurance plans offered by different insurance companies, and choosing the best insurance plan for you can be pretty tricky. To avoid all that confusion, you should contact a licensed financial planner to discuss the type of insurance that is best suited to your needs. Some insurance plans require medical underwriting, but some do not, and that’s why a financial planner is necessary. He/she will create insurance proposals for you and will explain each including the pros and cons. A financial planner can help you choose the best insurance option for you and your family.