Life Insurance

Life Insurance

Life insurance refers to a contract between an insurance company and an insured, according to which upon the death of the insured, the insurance company will pay a benefit to a designated beneficiary. People usually take life insurance to leave their loved ones with the funds necessary to cover the costs of burial, or for financial support after the passing away of a major family breadwinner. The contract usually involves a premium paid on a regular basis by the insured. Some of the largest insurance companies in Canada include Manulife Financial, Standard Life, Sun Life Financial and Industrial Alliance. Large insurance companies often manage assets close to billions of dollars on a yearly basis.

Further, insurance policies vary from one another and may include disability insurance or terminal illness insurance. Also, there exist insurance contracts specifying an annuity. The amount of the insured benefit, as well as the premiums involve fairly complicated calculations taking into account the age of the insured, his or her general health condition, amount of personal assets, also known as personal net worth, in addition to income. Also, insurance policies may be individual or involve group benefits. Usually, life insurance policies have exceptions, such as suicide of the insured which does not warrant the payment of the benefit.

Our lives are not eternal. Photo by Elena

As a general rule, a course on financial markets will involve some discussion of insurance, since insurance falls under the umbrella term of financial services. Additionally, some life insurance contracts, such as whole life, universal life or variable life may also be seen as investments. Interestingly enough, insurance has a long history, with its origins dating as far back as Ancient Rome, Babylon and 2000 BC China. Initially, insurance emerged as a protection to traders. However, modern life insurance dates back to the 18th century. According to historical records, the first insurance company to offer life insurance was the Amicable Society for the Perpetual Assurance Office.

Your life insurance needs will vary over the course of your life, peaking as you cope with hefty mortgage payments and big tuition bills for kids, and falling after you’re retired.

How much you need: Whatever policy you buy, the most important thing is tat you end up with enough coverage.

The amount of life insurance you need roughly correlates with your family’s annual living expenses for the number of years you’ll need the insurance. Add together all of your family’s expenses for the years you’ll need insurance. You should include future college costs, mortgage payments, costs to settle your estate, and an emergency fund (typically, three months salary). Then subtract all family income other than your salary. Be sure to include Social Security and pension payments as well as any income you may receive from your investments. Adjust both your future expenses and income to take account of inflation. The result of this calculation in how much life insurance you need. Some experts suggest an even simpler formula: multiply your annual take-home pay by five.

What your options are: Term insurance will pay your survivors a death benefit if you die whir the contract is in force. It is often called “ pure” insurance because it offers a death benefit without a savings component. A life insurance policy can be locked in for 1 to many years. It is often the best – and cheapest – bet for families who want to provide for the future in the event of the loss of a breadwinner and who want to target they years when their insurance needs will be greatest.

There are two basic types of life insurance policies: term insurance and whole life insurance. All other types of policies are variations of these two types (The American Council of Life Insurance, Washington, DC). Photo : Megan Jorgensen (Elena)

Insurance: How to buy what you really need

If you read nothing else before you buy insurance, read this text!

Buying insurance is right up there with going to the dentist on most folk’s list of things they hate to do. And worse, unlike going to the dentist, buying insurance requires some know-how. Studies by the non-profit National Insurance Consumer Organisation show that more than 9 out of 10 Americans purchase and carry the wrong types and amounts of insurance coverage.

The insurance industry doesn’t make it any easier. Sorting through all the policies offered requires the patience of crossword puzzle addict and the mathematical skills of an astrophysist.

Some simple guidelines can help, though. Find a strong, healthy company that tailors policies to the coverage you need, and then focus on getting the best value for your dollar. Here’s how to figure out what kind and just how much coverage you really need for the most common varieties of insurance.