Life Insurance: A Slice of History
modern insurance contracts that we have today such as life insurance,
originated from the practice of merchants in the 14th century. It has
also been acknowledged that different strains of security arrangements
have already been in place since time immemorial and somehow, they are
akin to insurance contracts in its embryonic form.
growth of life insurance from almost nothing a hundred years ago to its
present gigantic proportion is not of the outstanding marvels of
present-day business life. Essentially, life insurance became one of the
felt necessities of human kind due to the unrelenting demand for
economic security, the growing need for social stability, and the clamor
for protection against the hazards of cruel-crippling calamities and
sudden economic shocks. Insurance is no longer a rich man’s monopoly.
Gone are the days when only the social elite are afforded its protection
because in this modern era, insurance contracts are riddled with the
assured hopes of many families of modest means. It is woven, as it were,
into the very nook and cranny of national economy. It touches upon the
holiest and most sacred ties in the life of man. The love of parents.
The love of wives. The love of children. And even the love of business.
Life Insurance as Financial Protection
life insurance policy pays out an agreed amount generally referred to
as the sum assured under certain circumstances. The sum assured in a
life insurance policy is intended to answer for your financial needs as
well as your dependents in the event of your death or disability. Hence,
life insurance offers financial coverage or protection against these
Life Insurance: General Concepts
is a risk-spreading device. Basically, the insurer or the insurance
company pools the premiums paid by all of its clients. Theoretically
speaking, the pool of premiums answers for the losses of each insured.
insurance is a contract whereby one party insures a person against loss
by the death of another. An insurance on life is a contract by which
the insurer (the insurance company) for a stipulated sum, engages to pay
a certain amount of money if another dies within the time limited by
the policy. The payment of the insurance money hinges upon the loss of
life and in its broader sense, life insurance includes accident
insurance, since life is insured under either contract.
the life insurance policy contract is between the policy holder (the
assured) and the life insurance company (the insurer). In return for
this protection or coverage, the policy holder pays a premium for an
agreed period of time, dependent upon the type of policy purchased.
the same vein, it is important to note that life insurance is a valued
policy. This means that it is not a contract of indemnity. The interest
of the person insured in hi or another person’s life is generally not
susceptible of an exact pecuniary measurement. You simply cannot put a
price tag on a person’s life. Thus, the measure of indemnity is whatever
is fixed in the policy. However, the interest of a person insured
becomes susceptible of exact pecuniary measurement if it is a case
involving a creditor who insures the life of a debtor. In this
particular scenario, the interest of the insured creditor is measurable
because it is based on the value of the indebtedness.
Common Life Insurance Policies
life insurance policies are often marketed to cater to retirement
planning, savings and investment purposes apart from the ones mentioned
above. For instance, an annuity can very well provide an income during
your retirement years.
Whole life and endowment participating
policies or investment linked plans (ILPs) in life insurance policies
bundle together a savings and investment aspect along with insurance
protection. Hence, for the same amount of insurance coverage, the
premiums will cost you more than purchasing a pure insurance product
like term insurance.
The upside of these bundled products is that
they tend to build up cash over time and they are eventually paid out
once the policy matures. Thus, if your death benefit is coupled with
cash values, the latter is paid out once the insured dies. With term
insurance however, no cash value build up can be had.
practice in most countries is the marketing of bundled products as
savings products. This is one unique facet of modern insurance practice
whereby part of the premiums paid by the assured is invested to build up
cash values. The drawback of this practice though is the premiums
invested become subjected to investment risks and unlike savings
deposits, the guaranteed cash value may be less than the total amount of
Essentially, as a future policy holder, you need
to have a thorough assessment of your needs and goals. It is only after
this step where you can carefully choose the life insurance product that
best suits your needs and goals. If your target is to protect your
family’s future, ensure that the product you have chosen meets your
protection needs first.
Real World Application
is imperative to make the most out of your money. Splitting your life
insurance on multiple policies can save you more money. If you die while
your kids are 3 & 5, you will need a lot more life insurance
protection than if your kids are 35 & 40. Let’s say your kids are 3
& 5 now and if you die, they will need at least $2,000,000 to live,
to go to college, etc. Instead of getting $2,000,000 in permanent life
insurance, which will be outrageously expensive, just go for term life
insurance: $100,000 for permanent life insurance, $1,000,000 for a
10-year term insurance, $500,000 for a 20-year term insurance, and
$400,000 of 30 years term. Now this is very practical as it covers all
that’s necessary. If you die and the kids are 13 & 15 or younger,
they will get $2M; if the age is between 13-23, they get $1M; if between
23-33, they get $500,000; if after that, they still get $100,000 for
final expenses and funeral costs. This is perfect for insurance needs
that changes over time because as the children grow, your financial
responsibility also lessens. As the 10, 20, and 30 years term expires,
payment of premiums also expires thus you can choose to use that money
to invest in stocks and take risks with it.
In a world run by the
dictates of money, everyone wants financial freedom. Who doesn’t? But we
all NEED financial SECURITY. Most people lose sight of this important
facet of financial literacy. They invest everything and risk everything
to make more and yet they end up losing most of it, if not all- this is a
fatal formula. The best approach is to take a portion of your money and
invest in financial security and then take the rest of it and invest in
Ultimately, your financial plan is constantly
evolving because you are constantly evolving. You can’t set a plan and
then forget it. You need to keep an open eye on your money to make sure
it is working hard because that money needs to feed you for the next
20-30+ years that you will be in retirement. You have to know how to
feed your money now so that it can feed you later.
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