Life insurance comes in a variety of different types but can be divided into two distinct categories--protection policies and investment policies. A protection policy is designed to provide a cash benefit when a certain event happens, such as death among others and typically in one lump sum payment to the beneficiary. An investment policy is to facilitate the growth of capital by paying premiums.
There are three basic parties to a life insurance policy—the insurer (insurance company) the insured and the policy holder. The policy holder and the insured are often the same person, but if a spouse buys a policy on their spouse then one spouse is the insured and one is the policy holder. The policy holder makes the premium payments to the insurer. When the insured party passes away, the beneficiary receives the proceeds of the policy. The policy holder designates who the beneficiary will be and in most cases, can change the beneficiary during the term of the policy.
Life insurance can be divided into two basic classes—temporary and permanent and subclasses—term, universal, whole life, variable, variable universal and endowment life insurance.
Temporary or term life insurance only provides coverage for a specific period of time for a specified premium. This policy is a protection policy only and does not accumulate a cash value. Term life insurance buys protection for the death of the insured and nothing further. Term insurance premiums are generally lower because the risk of death within the term is low.
Permanent life insurance is a policy that remains in effect until it pays out upon the death of the insured unless it is canceled due to non-payment. Permanent life insurance builds a cash value that reduces the risk to the insurance company over a period of time. There are three types of permanent life insurance—whole life, universal life and endowment.
Whole life insurance has a level premium throughout the contract and a cash value table that is guaranteed by the company. The death benefits, cash values, annual premiums and mortality and expense charges don't reduce the cash value in the policy making this type of life insurance advantageous. The chief disadvantage of whole life insurance is inflexibility and the rate of return not being as competitive as other savings alternatives.
Universal life insurance is a newer type of life insurance that provides full permanent coverage with some flexibility in premiums and a higher rate of return. This type of policy also creates a cash account which is increased with the premiums.
Endowment life insurance policies build up a cash value in the policy which equals the death benefit at a specific age, known as the endowment age. Endowment policies are typically more expensive than other types of life insurance policies because the premium period is shorter and the endowment date is earlier.
There are many types of life insurance policies for you to choose from, but these are the basic types. All life insurance policies have clauses and restrictions in them that could void them for pay-out, such as committing suicide would most often void the policy and no pay outs would be made to the beneficiary. Check with your insurance agent about the type of policy that is best for you.
Tuesday, November 20, 2007
Keeping Life insurance Beneficiaries Updated
After you’ve been approved for life insurance and have paid your annual premiums, you might prefer to put your policy out of your head. While death and taking care of your family after you are gone is something you’d rather not think about, consider how unfortunate it would be if you passed away and your spouse found your beneficiary was a special someone from before you met him or her.
It is very important you keep your beneficiaries updated to avoid confusion and litigation after you are gone. It is fairly simple and there is no cost, there’s really no reason not to update your beneficiaries each and every year.
Take into consideration the case of Carol Zerkle and Barbra Holycross who were involved in a court case in Ohio over Michael Holycross’s life insurance benefit. Michael was married to Carol from 1972 through 1993, when they divorced. In 1997, Michael married Barbra and they remained married until his death in 2003.
Michael had designated Carol as his life insurance beneficiary when they married in the 70s and it was never addressed in the divorce settlement in the 90s. Michael never updated his policy to include wife Barbra, probably assuming it would automatically be granted to his wife, not his former wife.
While the probate court heard Barbra’s complaint, they rules in Carol’s favor, citing two rulings. While one ruling spoke specifically to a spouse’s rights over an ex-spouse to death benefits (in Barbra’s favor), another specifically stated that the ruling could not be applied retroactively to insurance policies dating before 1990. After exhausting all appeals, Barbra was excluded from any claim to Michael’s life insurance benefit. Don’t let this happen to your loved one.
Updating your Beneficiary
Avoid the unfortunate situation Barbra found herself in by updating your life insurance beneficiary regularly. Start by dusting off your original insurance policy documents. Don’t remember the name of the insurance company? Try calling the insurance agent. If you purchased the policy through an employer, call their human resources department.
Contact your insurance company to request a change of beneficiary form. Every insurance company chooses their own form and steps to take in order to change the benefactor of their policies.
Complete the form, including finding witnesses and a notary public, if required. Most banks offer notary services for free or just a few dollars if you are an account holder. Office supply stores, shipping shops and some post offices offer notary services as well. Do NOT sign the form until you are instructed to by the notary, if a notary stamp is required.
Make a copy of the form before you submit it. You may have to send in the form by registered mail, you may be able to simply fax it in. Again, contact your insurer to find out how they prefer to receive your change of beneficiary form.
Confirm your insurance company has received and processed your request about a month after submitting it.
Keep a copy of all your insurance policies, wills and final wishes in a single file. Let your beneficiaries or estate delegate know where the file is and discuss your wishes.
It is very important you keep your beneficiaries updated to avoid confusion and litigation after you are gone. It is fairly simple and there is no cost, there’s really no reason not to update your beneficiaries each and every year.
Take into consideration the case of Carol Zerkle and Barbra Holycross who were involved in a court case in Ohio over Michael Holycross’s life insurance benefit. Michael was married to Carol from 1972 through 1993, when they divorced. In 1997, Michael married Barbra and they remained married until his death in 2003.
Michael had designated Carol as his life insurance beneficiary when they married in the 70s and it was never addressed in the divorce settlement in the 90s. Michael never updated his policy to include wife Barbra, probably assuming it would automatically be granted to his wife, not his former wife.
While the probate court heard Barbra’s complaint, they rules in Carol’s favor, citing two rulings. While one ruling spoke specifically to a spouse’s rights over an ex-spouse to death benefits (in Barbra’s favor), another specifically stated that the ruling could not be applied retroactively to insurance policies dating before 1990. After exhausting all appeals, Barbra was excluded from any claim to Michael’s life insurance benefit. Don’t let this happen to your loved one.
Updating your Beneficiary
Avoid the unfortunate situation Barbra found herself in by updating your life insurance beneficiary regularly. Start by dusting off your original insurance policy documents. Don’t remember the name of the insurance company? Try calling the insurance agent. If you purchased the policy through an employer, call their human resources department.
Contact your insurance company to request a change of beneficiary form. Every insurance company chooses their own form and steps to take in order to change the benefactor of their policies.
Complete the form, including finding witnesses and a notary public, if required. Most banks offer notary services for free or just a few dollars if you are an account holder. Office supply stores, shipping shops and some post offices offer notary services as well. Do NOT sign the form until you are instructed to by the notary, if a notary stamp is required.
Make a copy of the form before you submit it. You may have to send in the form by registered mail, you may be able to simply fax it in. Again, contact your insurer to find out how they prefer to receive your change of beneficiary form.
Confirm your insurance company has received and processed your request about a month after submitting it.
Keep a copy of all your insurance policies, wills and final wishes in a single file. Let your beneficiaries or estate delegate know where the file is and discuss your wishes.
Why choose Term Life Insurance?
Term life insurance is insurance that lasts for only a specified term, or period of time. This term can be short or long depending on your needs and the variety of policies available from the company from which you are buying a policy. There are many reasons that people should consider term life insurance as the perfect alternative, so let us explore some of those reasons below.
New Debt
If you are buying a car, a boat, or any other expensive investment, then you are adding to your monthly financial burden and that of your family. When you add these burdens, the emergency funds that you have in place for your family might not be enough to cover them through the new debt should something happen to you. This means that you should consider investing in a short term life insurance policy of only a couple of years. This kind of policy will help your family maintain their lifestyle and pay off the new debt should something happen to you before you have completely taken care of it. Consider this when buying anything from a horse to a jet ski, and you will have your family covered in case of an emergency.
This kind of reasoning for buying term life insurance is just as common sensical as taking an umbrella when you step out on a cloudy day. With luck, you will never need to use it, but it will always be there if the worst should happen and the storm breaks unexpectedly.
Buying a house falls under the category of new debt as well, but as it is unlikely that you will be paying of the house within, say, five years, you would ideally be considering a longer term policy for this kind of investment. A thirty year policy will help you protect your family, hopefully until the house is paid off and the debt is gone. This can also be taken care of with term life insurance.
New Family Members
Hopefully the burden of a child was one that you expected and welcomed, and now that that child (or those children) is here, you will want to take care of them as best you can. Child rearing is expensive, and child care can put a single parent far behind on the monthly bills. If you have any special new additions to your family, perhaps it would be ideal to consider a life insurance policy of twenty to twenty five years to protect your family until the children are raised and gone (hopefully!) You will have the assurance that your family will be financially taken care of until the kids are grown and out of the house and your spouse only has him or herself to take care of.
This kind of policy is the kind that you will always hope never to use, but would never want to be without. There is nothing worse than losing a parent, unless it is to lose both parents because the survivor could not handle the burden alone. Term life insurance could protect them once you are gone and are no longer able to do so yourself.
New Debt
If you are buying a car, a boat, or any other expensive investment, then you are adding to your monthly financial burden and that of your family. When you add these burdens, the emergency funds that you have in place for your family might not be enough to cover them through the new debt should something happen to you. This means that you should consider investing in a short term life insurance policy of only a couple of years. This kind of policy will help your family maintain their lifestyle and pay off the new debt should something happen to you before you have completely taken care of it. Consider this when buying anything from a horse to a jet ski, and you will have your family covered in case of an emergency.
This kind of reasoning for buying term life insurance is just as common sensical as taking an umbrella when you step out on a cloudy day. With luck, you will never need to use it, but it will always be there if the worst should happen and the storm breaks unexpectedly.
Buying a house falls under the category of new debt as well, but as it is unlikely that you will be paying of the house within, say, five years, you would ideally be considering a longer term policy for this kind of investment. A thirty year policy will help you protect your family, hopefully until the house is paid off and the debt is gone. This can also be taken care of with term life insurance.
New Family Members
Hopefully the burden of a child was one that you expected and welcomed, and now that that child (or those children) is here, you will want to take care of them as best you can. Child rearing is expensive, and child care can put a single parent far behind on the monthly bills. If you have any special new additions to your family, perhaps it would be ideal to consider a life insurance policy of twenty to twenty five years to protect your family until the children are raised and gone (hopefully!) You will have the assurance that your family will be financially taken care of until the kids are grown and out of the house and your spouse only has him or herself to take care of.
This kind of policy is the kind that you will always hope never to use, but would never want to be without. There is nothing worse than losing a parent, unless it is to lose both parents because the survivor could not handle the burden alone. Term life insurance could protect them once you are gone and are no longer able to do so yourself.
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