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Tuesday, 2 November 2010

Why term life insurance makes sense

One of the first considerations when examining the issue of long-term policy of life insurance coverage is compared to the total or variable. We must first understand how they are different and look at the pro's and con's (freely translated the cost!) There is life threatening.

Compare the types of life insurance terms, including boils down to one point. Term life insurance is for a specified period. Variable whole life and can usually be performed on the entire life of a person. This means that there will be a payment at a time as long as the policy is to maintain in force (generally means that the premiums are paid). Is cons-intuitive world of insurance and the basic principle of operation of insurance. The insurance is to protect against an unlikely possibility, but devastating for many people and reduce the risk of a single individual. Whole life insurance is to provide coverage for a very likely (such as taxes, inevitable) risk of all.

Consider an example. If 100,000 people buy life insurance ($ 100,000 K) for a period of 10 years and 15 people actually triggers the benefit, the total gain is $ 1.5 million (15 people times $ 100,000). But the total is divided between the risk pool total of 100,000 people. basic premium that each person must pay for this protection is $ 15 Very cheap.

Add to that inflation and the return on investment (plus administrative costs and benefits) of the present and is the basis of premium term life. Carriers are essentially statistical guess what percentage of people who raise the age for benefits under the health status and the duration of the term. Is higher than 15, but you get the idea of how insurance life insurance, especially in general should work. This is also true for the sick and wounded. The foundation of insurance is an expense would result in catastrophic loss of the person, but if divided among a large number of people enough, the group can handle, as only a percentage goes to arouse interest. It extends from the risk.

Whole life insurance (and variable) is something entirely different. The risk of you triggering the benefit is 100% (assuming policy kept in force). How can that be? Well, the premium has to be significantly more (usually around 10 times more) than term life insurance for smaller amounts. Here, the carrier is estimating that they can take the 10 times premium (let's say $150 per person for our above example) and make enough money investing that amount to pay out for everyone in the group at a lesser amount. They are essentially investing with your money hoping to earn off this "float" before needing to payout death benefits. They also plan to pay your death benefits with future money which is worth much less (due to inflation, $1 today might be worth 60 cents 10 years from now and 20 cents 20 years from now). You're not purchasing life insurance to have money invested. You are buying life insurance to protect against a risk.

It is similar to buying insurance to cover 100% of all costs (no copayment, no deductible and no co-insurance). The cost of such a plan would be so high that it would soon price themselves out of business. That is why we have a constant movement toward higher deductibles and greater cost sharing. Equal to 100% of the risk of death is simply not profitable, which brings us to our next point.

Premium premium premium

Premium is the amount to be paid to maintain the life insurance plan, and this is where the rubber meets the road from the term life insurance and whole. The term is much less expensive than whole life, it is difficult to make the case for life. If you have enough money to afford a lot of whole life insurance as a matter of whether you need life insurance to begin with. It takes a lot of awards for buying large quantities of a lifetime. Some (usually an insurance broker for the sale of life), I would say that you can build the actual values with a time of life, and then begins to be part of a whole life policy, which is closer to your property (to borrow is an example). Why pay your own money is a company life insurance premium does not like (and with the place) that your money you can borrow against.Why not keep 9/10ths of your premium for you and buy time with the other 1/10th (difference in premiums) lifetime premium. In our opinion, this is a gadget for people who do not understand how money works. You're basically giving the wearer life of money to invest in themselves, and you get in return a smaller amount at the time the service is activated. Keep your own money and spend a fraction of it to protect against real insurance. Life Insurance in a nutshell.

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