How Does Life Insurance Work

Many are asking themselves, "Just how does life insurance work, anyway?" Life insurance has been shrouded in mystery since its birth. This is partly due to the way life insurance is always sold, which is specially trained to earn commissions through agents. But other factors include the fact that life insurance is perhaps the most intangible product that you can buy, and the fact that it develops in strange and mysterious ways, through the use of statistical secret called actuaries.

Actuaries are statisticians professional with strong business educations and experiences using data including sex, age, occupational hazard, and medical examinations to calculate the probability of death as a person. Using these data and actuarial calculations, they recommend an insurance company on how much a particular policy for a particular applicant should cost (ie what his prize should be). From this advice, a life insurance company, sets its premiums, coming up with "cost per thousand" tables.

After a person has requested a life insurance policy and took a medical examination, the life insurance company, assuming the person is insurable, tells him how much he will pay per month (or year or every six months) to pay for coverage under the range of risk of falls. Factors of youth, being female, non-smoker status and overall health based on medical examination, all contribute to lower the premium, while their opposites help to increase premiums. Having a dangerous profession can also increase the premiums according to underwriting standards of the insurance company.

DIFFERENT TYPES OF POLICIES

There are different types of life insurance policies. It 's important to know about them so you can make an informed decision about the type of coverage is best for you.

First comes the very first type of life insurance ever conceived: Term. A term policy is very simple: you pay premiums to have the death benefit coverage for a specified period, or period of time. If you die during that period, the beneficiary receives the payment. If you're still alive when the term expires, you can renew your policy (in some cases) for another term (with premiums based on your state of New Age), or you may lose coverage. There are different types of Term Life for different purposes. Do not you get back one of the premiums you pay on time. However, term life is the cheapest form of life insurance and many financial advisors and planners recommend.

(Recently, the life insurance industry has developed a new type of life called Term Life Insurance Return of Premium (ROP) where you can get all the premiums back if you survive the term. However, this type of Term Life is significantly more expensive . 's life insurer uses the extra money to invest and make a profit as a hedge against possible ROP).

Later, the life insurance industry has developed whole life insurance. The idea was to give people an incentive to hold a policy for their "life" or until very old age (when they received the payment in case of death to themselves, if still alive) and be able to build cash value within the life insurance policy that could be used, if necessary, and may also be used to pay policy premiums. And it is true that, if a Whole Life policy is held long enough, it returns the same as a decent corporate bond. The problems, however, are as follows: whole life insurance costs much more than Term Life, many people could get far better returns on their money by investing the money you save with Term, and life insurance has never was actually intended to be kept for a lifetime.

In response, life insurance companies about 20 years ago has begun to develop universal life and variable universal life insurance. Term life policies are really such a tax-free investment account bundled with them, this account is partly personalized by the policy holder. Variable universal policies allow higher yields, but, consequently, greater exposure to risk, including possible losses, but also allow more money to be paid by the payment of premiums to increase their value in cash. These policies premiums are usually between Term Life and all for the same amount of coverage for the same person.

APPLICATION OF BASE

As a rule of thumb, when you apply for life insurance, you want to be covered for 8 to 10 times the annual salary. (There may be other considerations which amount you want if you're in a job situation or if you use life insurance for specialized needs such as mortgage payoff in the event of premature death). So, if you earn $ 50,000 a year, you want to have a death benefit of $ 400,000 to $ 500,000. This is to allow the recipient to be able to pay all debts and still have more money to invest in an account and use it as income.

Beneficiaries must be chosen with some care, because your choice is investigated by applicants when the application is turned in. Technically you can call all you want, but a "strange" naming, as a very distant cousin can get your policy denied due to suspicion about your motives. If you are married you must name your spouse and / or your children, even if it is not necessary, but again, if the fact can be viewed with suspicion, even if you can justify the agent and subscribers will get the policy . You can change the beneficiary named (s) at any time while the policy is in force.

Most life insurance policies will not pay if you commit suicide or are killed by a beneficiary named in the first two years of having the policy and there will be a clause stating that written in your policy. Moreover, if a complaint is made death benefit and it turns out that as a policy holder lied on your application (as you said you do not smoke, but an autopsy shows that you did), life insurance companies will not pay.

When you apply for life insurance, you must be prepared to answer some questions about sensitive personal and financial issues relating to health. The agents are trained as a goal-minded professionals and there are strict regulations in the area of ​​confidentiality.

Some people prefer to apply for life insurance on the Internet. This can be a good idea if you know what you're doing, but the usual person would benefit from meeting in person with agents who represent several insurance companies on life or a meeting with an insurance broker or financial planner to be informed about the best options ....