The purpose of life insurance is to protect an individual's dependents form financial loss in the event of his or her untimely death.
In rendering advice on insurance, one of the main considerations of the client would be the premium payable, for example knowing the rates on term life insurance. While this element is important, the planner should also take into account other factors such as the financial strength of the insurer, quality of service, nature of products, etc. The planner should be familiar with how premiums are computed. In normal circumstances, premiums in life insurance are mainly(but not only) based on the following factors:
Consider this case: Mark is a dynamic marketing executive working in a company selling computer parts. He is 23 years old and single. He recently completed a very exclusive and popular two-year marketing course overseas. Due to the high course fee and overseas living expenses, Mark had to borrow $100000 from his parents on an interest free basis. Mark's parents are very wealthy and do not need to be financially supported by Mark. In view of his good work performance, Mark's employers have agreed that should Mark be disabled and unable to work, they will continue salary payments for six months before terminating the employment if they so wish.
Mark has sufficient protection against medical expenses that can be incurred in the event of disability or critical illness. However, Mark needs life insurance to cater to consequences caused by his death -- he needs income protection in the event of sickness or accident and protection in the event of critical illness. What are the types of life insurance policies that can provide Mark with such needs? There are many types of insurance, in this case here, Mark would need Term life insurance, whole life insurance, Endowment life insurance or Investment-linked life insurance.
Depending on Mark's budget, he can choose any of the types of insurance recommended above, or he may take up all! If he wants the most coverage but the least amount of premiums, I would recommend Term Life Insurance. Term life insurance is the simplest type of life insurance. With the payment of a premium, it provides coverage against death for a specified period, by paying the sum assured to the beneficiaries in the event of the insured's (in this case, Mark) death. The term policy is purely to provide protection and has no investment value. The premiums are expended and none of it is used to build up any cash value.
Term Life Insurance has the following advantages:
In rendering advice on insurance, one of the main considerations of the client would be the premium payable, for example knowing the rates on term life insurance. While this element is important, the planner should also take into account other factors such as the financial strength of the insurer, quality of service, nature of products, etc. The planner should be familiar with how premiums are computed. In normal circumstances, premiums in life insurance are mainly(but not only) based on the following factors:
- The mortality charges which are very much based on statistically derived life expectancies
- Expense charges
- Credited interest
- Administrative fees
Consider this case: Mark is a dynamic marketing executive working in a company selling computer parts. He is 23 years old and single. He recently completed a very exclusive and popular two-year marketing course overseas. Due to the high course fee and overseas living expenses, Mark had to borrow $100000 from his parents on an interest free basis. Mark's parents are very wealthy and do not need to be financially supported by Mark. In view of his good work performance, Mark's employers have agreed that should Mark be disabled and unable to work, they will continue salary payments for six months before terminating the employment if they so wish.
Mark has sufficient protection against medical expenses that can be incurred in the event of disability or critical illness. However, Mark needs life insurance to cater to consequences caused by his death -- he needs income protection in the event of sickness or accident and protection in the event of critical illness. What are the types of life insurance policies that can provide Mark with such needs? There are many types of insurance, in this case here, Mark would need Term life insurance, whole life insurance, Endowment life insurance or Investment-linked life insurance.
Depending on Mark's budget, he can choose any of the types of insurance recommended above, or he may take up all! If he wants the most coverage but the least amount of premiums, I would recommend Term Life Insurance. Term life insurance is the simplest type of life insurance. With the payment of a premium, it provides coverage against death for a specified period, by paying the sum assured to the beneficiaries in the event of the insured's (in this case, Mark) death. The term policy is purely to provide protection and has no investment value. The premiums are expended and none of it is used to build up any cash value.
Term Life Insurance has the following advantages:
- It is relatively insexpensive
- Most term policies contains a renewal features, which increases the usefulness of the policy as it can automatically be renewed until a specified age without the client having to show insurability.
- Most term policies contain a convertibility feature, which allows the client to convert it to a more permanent policy, such as whole life policy, endowment life insurance policy etc, later when the client can afford to do so and it becomes useful to convert.
- The premiums paid are expended and the policy does not accumulate cash value.
- Term policies generally only provide temporary coverage. Most of them expire and cannot be renewed when the insured reaches the age of 60 or 65.
- As the insured becomes older, the premiums assessed to be payable at each renewal will increase.
