Life is a chain of unexpected circumstance, and many people have already recognized this fact. Add in the inevitability of these unforeseen events and life has become more uncertain as ever. Banking on this reality, life insurance companies have devised various plans to accommodate practically every scenario. Thus, the insurance industry has established, and greatly emphasized, the importance of this investment for a large part of the world population, if not all.
In the United States alone, 2/3 of the population have already acquired their life plans because of the emphasis of the government. These plans have proven to be a useful tool to help a person and his family minimize the financial problems that may occur in the long run.
Generally, life insurance is a protection against the loss of income that may result if the insured pass away. The main purpose of life insurance is to deliver a measure of financial security for a person’s family after he or she has passed. So, before purchasing a life insurance policy, one should consider his or her financial situation and the standard of living one wants to maintain for his or her dependents.
In this regard, it is proper to be knowledgeable in choosing the best insurance provider. Insurance companies and their plans may seem all too similar. However, getting the right match for specific requirements might just be that one decision that could mean financial protection or tragic bankruptcy.
Price is Right
One of the most upfront elements of any life insurance plans is the amount needed to pay to keep a policy enforced. Usually, the plan’s premium may be predetermined or computed, depending on how much an applicant wants to invest in and/or how much the benefit is worth. Then again, choosing the life insurance plan should be one that best suits a person’s current economic status and coverage requirements.
Before determining which price is the most suitable, one should understand first how life insurance plans prices are established. According to the Department of Financial Services, the premium rate for a life insurance policy is grounded on two fundamental concepts – mortality and interest. Often, a third variable comes into play – the expense factor, which is defined as the sum that the company adds to the cost of the policy to cover operating costs such as selling insurance, investing the premiums, and paying claims.
Mortality. In essence, life insurance is based on the sharing of the risk of death by a large group of people. As such, the amount at risk must be known to predict the cost to each member of the group. Mortality tables are used to give the company a basic estimate of how much money it will need to pay for death claims each year. By using a mortality table, a life insurer can determine the average life expectancy for each age group.
Interest. The second factor used in calculating the premium is interest earnings. Companies invest premiums in bonds, stocks, mortgages, real estate, etc., and project earnings at a certain rate of interest on these invested funds.
Expenses. The third consideration is the expenses of operating the company. The company estimates the expenses of processing a policy such as salaries, agents’ compensation, rent, legal fees, postage, etc. The amount charged to cover each policy’s share of expenses of operation is called the expense loading. This is a cost area that can vary from company to company based on its operations and efficiency.
Now that a person understands the concept of pricing in the life insurance field, he or she can now be able to pinpoint what factors affect the prices. With the large number of companies offering plans, it is paramount that a person compares these prices to one another. A good practice is to get several quotes from various insurance companies. This creates a pool of options, allowing a more informed decision.
Also, if a person intends to get a cheaper life insurance, the applicant may opt to avoid policy riders and additional insurances such as option to purchase child policies or more insurance at a future date without going through medical exam process.
Policy is Perfect
With several company quotes at hand, there are easy comparisons as to how much the total sum would be. However, it is also an important factor to inspect the coverage of these life insurances since not all cheap policies are good.
Insurance coverage is the amount of risk or liability that is covered for an individual or entity by way of insurance services. Insurance coverage, such as auto insurance, life insurance – or more exotic forms, such as hole-in-one insurance – is issued by an insurer in the event of unforeseen occurrences
People should understand first that there are multiple types of life insurance coverage. The two basic types of life insurance are term and permanent. The one that’s right for a person depends on many factors highlighted by the amount of coverage a person need and the length of time the coverage will last.
Term insurance provides protection for a limited period of time and pays a death benefit if the insured passes away during the specified period. Term coverage can meet a wide variety of business and personal needs, and is a practical way to provide the most coverage for the premium.
On the other hand, permanent policies can provide valuable protection for one’s family. They offer the potential not only for guaranteed lifetime protection but also to build cash value. How the cash value grows is based on the amount of premium paid and the death benefit option selected.
A person hoping to avail a life plan must always take note on what type of insurance he or she will avail. Since the coverage varies depending on type and depending on each company, a person must always base his or her decisions in favor of what is REALLY needed. For example, if a person might prefer a life insurance policy that stresess the importance of medical coverage; an applicant may prefer an insurance company that provides a pathway for a personal touch in life plans that focus on health conditions and medical problems.
Trust is Wealth
With the increasing demand for more diverse life insurance plans, many companies have established themselves at the forefront of providing the best policies. Whether a person prefers the best or the cheapest, it all boils down to trusting the reliable companies.
The best insurance companies for life insurance are those that offer a wide range of plans that can give applicants what they need at the best price. A company should be able show stability and a strong financial foundation. Applicants would be more confident when the company they entrust their financial security in is ready to execute any deals as the need arises. Factors which should be put in mind in choosing a trustworthy company are Financial Strength, Type of Company, Type of Agent, Level of Service, Premium and Risk Tolerance.
Choosing a company that will be outlasted by its own product is not one a person wants to deal with. While it would be nearly impossible to sit down and rummage through the financial documents of all the possible companies, it is possible to get a good idea of where they stand financially by reviewing their financial ratings through independent rating agencies.
An individual must also consider what type of company he will trust. There is more than one type of life insurance companies, and it’s the internal structure and operating personnel which make them different. One type of company is called a mutual life insurance company, and the other is a stock held life insurance company.