Life Insurance

Life insurance is a legal contract between a policy owner and insurer, where the insurer agrees to pay a large sum of money upon the death of the insured individual. The amount is paid to the designated beneficiaries if an insured event occurs that is covered by the policy. The terms of the contract describe the limitations of the insured events. Specific exclusions can limit the liability of the insurer. These include claims relating to suicide, fraud, war, riot and civil commotion.

Some of the main reasons people buy life insurance are:
• To replace income needed to maintain the standard of living after the death of a wage earning family member
• To pay off a mortgage loan or other personal debts
• To create a fund for their child’s education
• To pay for final expenses such as taxes and funeral costs
• To create a family emergency fund or a fund for a family member with special needs

There tend to be two major types of life insurance policies – Protection and Investment. The protection policy is designed to benefit in the occurrence of a specific event. The payment is usually delivered in a lump sum. The investment policy is designed to protect and grow capital over time through regular payments or a single premium.

Building up your wealth takes time, but you can lose much of it in an instant. A life-threatening illness such as cancer, a heart attack or stroke could occur at any time. Therefore it is imperative that you protect your family. Here are some life insurance tips you should be aware of.

• Make sure you buy enough cover. You want to buy enough to cover large debts like a mortgage or your child’s education fund.
• Be sure to check out the terminal illness benefit on life plans. This pays out the assured amount if you are diagnosed with less than 12 months to live.
• Unlike income protection, critical illness protection only covers the condition listed under the plan. It is important that you understand and verify what is covered and what is not.
• Exercise your guaranteed insurability options. At certain stages in your life you should upgrade your policy. These instances can include the birth of a child, getting married, or even buying a new home.
• Check what coverage you currently have. Life insurance, income protection and even critical illness may be included in your employee benefits package. Life insurance might be called ‘death-in-service benefit’, and income protection might be called ‘long-term disability benefit’. Avoid over insuring by seeing how much coverage you already have.

Forgetting to mention a relatively minor health issue could result in your policy not paying out due to non-disclosure. Habits such as smoking, a bad back or reoccurring pains should be discussed with your insurer. You also might want to check in from time to time on the cost of premiums. It’s better to shop around every couple of years to see if there are any new deals.