Know about life insurance

Know-how about life insurance

You know there is something funny with Life Insurance – It ensures the death of the insurer. Yes as the product pays at the death of the insured person. So, according to me, it should actually be called ‘Death Insurance’. And the thing which is insured is the financial loss that will happen due to death of the insured person.

Insurance is around for hundreds of years. It’s very important for every person to learn the know-how about life insurance. Insurance companies have a statistical table of life span of individuals over a span of 100 years, to my surprise they do predict really well. Insurance companies calculate the value of insurance based on these tables.

Cost of Insurance: traditionally it is expressed in terms of annual cost per thousand of coverage. For example, to buy coverage of $5,000 at the cost of $10 per thousand, the cost of insurance is $50.

The development in medicine and treatment has increased the average life of people and eventually the cost of insurance is seeing a decline. There are numerous types of insurances available in the market but in my knowledge, there is only one type of insurance, the insurance for a certain period or term. All other insurances are only specialization of this.

Term insurance: this is a type of insurance where cost of insurance increases every year with the age of insured person, as the chances of casualty increase. Over the time companies developed another process known as level premium policy where the cost of insurance does not vary. The insurers add up all the premiums from age 0 to 100 and then divide by 100. This leaves you with a higher premium in the initial years. Insurance companies get delighted because most of the policy holders don’t continue for many years with a company and companies are left with more money. Since this process is against the interest of policy-holder, they developed a concept of cash value.

Cash Value: in this scheme, whatever extra premium you pay is kept with the company only. When your policy expires, you get back the deposited money. Otherwise, other choices available to you are:

1. Buy more insurance using the cash value

2. Pay existing premiums using the cash value

3. Borrow the money at interest
4. If you die, the insurance company only pays the face amount of the insurance policy and keeps the cash value.

Do you think that cash value insurance makes a sense to you? I guess ‘No’.

There are a lot of other terms used for cash value insurance:
- Universal Life

- Whole Life
- Variable Life

- Participating Life (pays dividend)
- Interest Sensitive Life
- Non-Participating Life (no dividends)

Many life insurance companies call their products as investment but cash value insurance is never an investment. Insurance and investment don’t come hand in hand. These companies take your investment, invest it themselves and keep the profit as well.

When you compare the life insurance sale tactics and techniques to other types of insurance, you will feel that former are ridiculous. Will you ever think of buying a car insurance or home insurance or business insurance policy in which you pay extra premium or borrow your own money. No! But these agents are able to sell their life insurance, ever wondered why? What’s the reason behind? Commissions!

So don’t get into the sweet and attractive words of life insurance agent, get to learn the know-how about life insurance and think from your own mind.