Life Insurance
‘Life is not a bed of roses’ is a very famous saying. We all are fond of ourselves as well as our possessions which we struggled and acquired during these years. No one likes to part with their valuable things except in exceptional cases we do give as a gift to our children, friends or relatives. But all the other possession we value it and keep it carefully. There are many risks like natural calamities, accidents and health problems which crop up all of a sudden and we lose everything we have. That is why people cover their risks by entering into an agreement with the insurance company to cover their losses. Insurance protects you, your family as well as all the belongings throughout your lives.
What’s Life Insurance?
Life insurance is a contract between the insurance company and you and the insurance company ensures in case of any death, the predetermined amount will go to the beneficiary selected by the policy holder. In case of disability to work, it is a great help for the policy holder as well as his dependent members.
Insurance is a kind of risk management mainly used to protect against the risk of a contingent loss. Insurer is the company which takes the risk and sells the insurance. Premium is the amount which we pay to the insurance company for covering our risk and to keep the policy in tact. Policy is the printed document issued to the policy holder issued by the insurer stating the terms and conditions of the insurance contract. The amount of premium depends on the type of the policy, the period of the policy, age and the sum assured. Right from your life, for studies abroad, for travel, for driving, for your house, your business, for your health etc insurance is a must. So in a nutshell, insurance is the protection or an assurance against financial loss in case of emergency due to unavoidable circumstances. It is essential to know how the insurance company can afford to compensate the loss which is due to the public who pay premium regularly and the loss is adjusted with the entire premium.
As per statistics, the people of Canada spend a larger portion of their earning in insurance. It is the fifth largest expenditure made by any family. There are many types of insurance. Some of them are the Life Insurance, Long Term Insurance, Permanent Life Insurance, Whole Life Insurance, Universal Life Insurance and Variable Life Insurance and so on and so forth.
Life Insurance is the most important and a responsible decision wherein any individual should take for the benefit of the spouse or children or loved ones to ensure that they continue to get the quality of life which they deserve. There are many ways one can insure their life. A medical examination is done for the applicants who wish to apply in the Life Insurance Scheme. Life Insurance funds are used to cover the taxes and acts as a collateral security on any loans due can be covered by the same. Life Insurance can be broadly classified into two. They are the Term Life Insurance and the Permanent Life Insurance.
Term Life Insurance
In the case of Term Life Insurance, the policy is taken for a fixed term say 10 years. So automatically after ten years, the insurance protection ceases unless the policy is renewed. All these years you will pay the same fixed amount as premium. Once your term expires, you can automatically renew the policy and you can plan the next term and accordingly the premium will be let known to you. In case you die within this term, the beneficiaries whom you have mentioned in the policy will receive the amount without paying a single penny on tax. Depending on your age, remuneration, the lifestyle, health and the amount you are capable to pay as your premium one can decide on the term life insurance. This insurance is suitable for those who cannot afford high premium but at the same time they have to cover their life. This insurance is otherwise called as temporary insurance as the risks have an identifiable duration.
Classification Of Term Life Insurance
The term insurance can be again classified into renewable or non renewable insurance. In the case of non renewable insurance, the policy ends once the term is over and the policy has no value. The cost of the premium is low and it is used as a security to borrow loan, once the loan is repaid, there is no need for the insurance. The renewable insurance means the policy can be renewed at the end of the term for another term of the same period or duration. However the premium will not be raised due to change in the health of the policy holder. Some policies specify the premium for renewable insurance for each renewal. In some cases the renewable policy is ineffective after 80 years of age, and then it won’t have life coverage.
Permanent Life Insurance
The word permanent is self explanatory and if you want to go for Permanent Life Insurance, the insurance is designed in such a way that you get full protection for your entire life time. For permanent life insurance, the premium will not change and one should pay the premium regularly and in case of any death, the persons mentioned as beneficiary will get the amount mentioned in the insurance policy. The permanent insurance is used for estate planning and for the retirement planning. The main aim is to ensure that the spouse has sufficient money when the policy holder dies so that she can lead a peaceful retired life. The children also should get their share which is tax free.
In normal times this insurance helps in tax exemption and the policy also acts as collateral security while obtaining loans. Sometimes an individual thinks how much should I insure my life for? The answer is very simple, one can calculate the annual income he/she is earning and make it 10 times or 12 times for the term insurance plan, so that in case of any emergency, the dependents are not at a loss and they can continue to lead a decent life.
In permanent insurance plan there is an option and one can maximize the pension. The people who are getting pension have two options to choose, they can continue to get pension after the death of the policy holder, and then the spouse will get a reduced pension which is almost 60% to 75% of the original pension. The other better option is that the spouse closes the pension plan and gets a new life insurance policy with the difference of the bulk amount of capital and the spouse can live on comfortably.
In these modern days, the insurance companies not only cover the life, but at the same time they multiply your wealth. Insurance helps not only during the time of retirement but also for your children’s future needs. Life insurance can provide replacement of income, cost of education, life style maintenance, retirement expenses, security against loans, great support during hardships and helps in the infrastructure support. Don’t worry about investing in any type of life insurance; you are investing in the happiness and well being of your loved ones.