• Sunday, May 19, 2024
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BusinessDay

When seeking life insurance cover, ask questions on value

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The amount of premium you pay may really not determine the value you get on your life insurance. So, negotiation for value could mean much on your bottom line, meaning that you can save money and still get good value. Therefore, while seeking for a cover, find out if you can also save money and get same value.

Experts say there is always a way to “save” on something, depending on your definition of the word – save. There are oftentimes ways to use your premium Naira more efficiently; in other words, get the most bang for your buck.

With term life insurance, this can be fairly simple. If you are comparing apples to apples – ten year guaranteed level premium policies with two companies that both have solid financial strength ratings, then the lowest premium will be the best way to go.

Permanent life insurance is very tricky. The products are highly complex and there are many ways to end up worse off than you started with. In the majority of cases, replacements are ill-advised. While you may find an illustration that shows a lower premium, remember that illustrations are just that – illustrations and as such are not guaranteed.

Unless, there is sufficient reason to move and you are able to move to a product with a quality company that provides a guaranteed death benefit, then you probably shouldn’t change your coverage.

There is a shortage of advisors who are qualified to assist in this area, so proceed with caution. At a minimum – as discussed in a prior question, you should consult with a Chartered Life Underwriter (CLU), a special designation for insurance sales people.

•What exactly is life insurance?

Life insurance is a type of insurance that pays money when someone passes away. That’s it, simple enough in theory. Life insurance is designed to replace income for someone or something that is dependent upon the insured. If that does not exist, then there is no need for life insurance.

However, to understand what life insurance is today you should look at how life insurance originated. Life insurance is one of the very oldest types of insurance/financial products in existence. It stems from the old principle that if a villager’s house burned down, and then the other villagers would help to rebuild the house.

The function of insurance is to safeguard against misfortunes by having the losses of the unfortunate few paid by the contributions of the many that are exposed to the same peril. This is the essence of insurance – the sharing of losses and, in the process, the substitution of a certain small “loss” (the premium payment) for an uncertain large loss.

Life insurance, like any other financial product is a tool to assist you in accomplishing a specific goal (or goals). As such, it will assist the beneficiary when there is an economic loss, due to the death of the insured that extends well beyond just funeral or final medical expenses.

The loss of future income, due to the death of a breadwinner can have a severe impact on the lifestyle of the surviving family members. Debt owed by the deceased may become due and payable as well as possible estate or inheritance taxes. Life insurance can create an immediate source of funds to enable the payment of these expenses and to provide a source of future income.

Typically, there is recognition of an obligation to protect one’s dependants from the financial hardship an untimely death may cause, however, no one likes to think about the fact that they will die someday. This is another reason aside from the potential discomfort of dealing with a life insurance advisor that can make it easy to delay and put off the decision to purchase life insurance.

Keep in mind that that life insurance is not for you, it is for your survivors. Therefore, you typically will only have a need for life insurance when you are leaving behind someone or some entity that is dependent on your income.

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