When is the Best Time to Buy Life Insurance

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Published on May 4th, 2015 | by Joan Makai

Life insurance in  layman’s term is a variety of monetary provision for loved ones. The difference is; this money is given to nominees only in the event of the insured’s death during the agreed term of the policy. In conventional savings, loved ones receive only the amount that has already been deposited by the earning member. But in life insurance, a predefined value referred to as the sum assured is given to nominees in the case of untimely death of insured. Therefore, if a person purchases a policy of $100,000 and pays premium of $20,000 in aggregate for it, the insurance company will be liable to pay $100,000 to the nominees, provided the insured did not commit suicide, and he did not hide any material fact about his health.

Why Should People Buy Life Insurance Coverage?

As mentioned in Investopedia, the object of taking any life insurance product is to provide for any impending expenses that may cascade on loved ones after the demise of the insured. But such policies are also bought to save taxes and provide money for future.

When and How Should People Buy Life Insurance Coverage?

Many people do not give enough thought to life insurance, especially when they are young. But it’s important to realize that people have fewer diseases and ailments during their youth, therefore, insurance premiums are much lower. Buying life insurance coverage at a young age is, yes, a wise decision. People usually buy such policies when they get married, and when their babies are born. Periodically, such policies can be supplemented to match the future needs. Since premiums do not change throughout the term, the coverage bought becomes cheaper with every year that passes because of loss in purchasing power of that premium.

Different Types of Insurance Policies

There are variations of this insurance product. Buyer can choose to by Whole-life policy, endowment policy, term policy, money back policy or unit linked insurance policy.  Whole life policy provides the required coverage for against the risk for the entire life of the insured. At the end of life, the nominee gets a corpus. Usually, such policies are advisable for providing for funeral expenses. It is difficult to estimate how long a person will survive. Moreover, it is difficult to estimate the possible funeral and other expenses the loved ones will be burdened with. Therefore, the first such policy should be taken at the earliest, and, therefore, periodically it should be supplemented with a new policy to match the expenses.

Endowment policy is similar to whole life policy, but the term is predefined.  Therefore, the insured may be alive to enjoy the returns from the policy.

Term policies are remarkably short term policies such as two years or five years, unlike endowment policies, which may be taken for ten years, 15 years, 20 years or more. These are ideal policies if the insured is undertaking an increased risk to his or her life.  But such policies may also be taken for clearing outstanding home loans, i.e., if the insured dies, then the loved ones may have to clear the vast amount of loan outstanding on the date.  Premiums of these policies are small. But correspondingly, risks of the policy not being renewed or the person having to pay the much higher premium the next time are greater. Money back policy is ideal for planning periodic requirements. The money received at agreed intervals helps to pay for expenses such as children’s education or marriage.

Any or all of these insurance products can be linked to stock markets, i.e., percentage of premiums collected by the insurance company are invested in stock markets, and returns generated from the market are distributed in proportion to such percentage. This return is the bonus on policy. Effectively, most life insurance policies offer sum assured plus the cumulative amount of annual bonuses.

What if Life Insurance Coverage is not bought or Premiums are not paid in Time?

If people do not buy insurance cover or fail to pay premiums in stipulated time, the loved ones have to face the risk of not receiving any money from the insurance company, including the premium amounts that insured may have paid to date. Usually, if there is a delay in premium payments, the policy lapses. To revive the same policy, the insured has to go through medical tests once more.

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Joan Makai

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