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Life Insurance
Life Insurance is not simply the paying out of a sum on the death of
the insured person, as is commonly assumed. It is in fact a
sophisticated investment instrument that can help people plan for
retirement as well as providing for dependents. It is a complex area
with many competing providers. An easy way to reach the full range of
these providers is to use a price comparison site, like the one here.
How Life Insurance is Calculated
When there is a large enough group of people it is possible to
calculate life expectancy of the whole group with a great degree of
accuracy. This means that life insurance can be offered to this group
of people with payouts in the event of death and while a proportion of
this group will be paid, the accuracy of this calculation will mean
that the life insurance company is highly unlikely to lose out among
the whole group.
When groups are large enough they can be subdivided so that sub groups,
such as people of a certain age, gender or occupation can be offered
differing rates for life insurance. The calculation of life expectancy
is known as actuarial work and those that make these calculations are
actuaries.
Term Life Insurance
Term Life Insurance is often called pure life insurance, because it
does pay out at death. Simply put term insurance pays out a specified
sum if a person dies within a specified time. There is a fixed
premium which can either be paid at the beginning of the term or in
intervals throughout the term. Paying in instalments is usually more
expensive.
A common use for this policy is for mortgage life insurance where the
insured person essentially buys the insurance at yearly intervals and
the insurer pays out the sum of the mortgage at the time of death. The
beneficiaries are usually the family and they choose whether to pay off
the mortgage (the usual option) or whether to continue with the regular
mortgage payments and to invest the money. If there is a family where
one person earns a disproportionate share of the family income, some
mortgage providers will insist on this sort of policy as a condition of
taking out the mortgage.
Whole Life Insurance
Whole life insurance covers a person for the whole of their life unless
there is a time limit on the policy. Whole life insurance often allows
for cash loans of sums that are within the policy. This decreases the
eventual payout. A big disadvantage is that the amount that is paid
out, or is available to loan out will be dependent on investment
performance. This can lead to a large amount of uncertainty and often
the fixed premiums that are paid can be far higher than the eventual
pay out.
A more flexible version of this life insurance policy is Universal Life
Insurance which allows for a certain degree of flexibility in regards
to the allocation of money in investments. This can mean that if the
investments do well and there is a surplus in the account then premiums
can be reduced or deferred.
Endowments
A common form of life insurance is an endowment. This does not just
pay out at death but also pays out a sum at a set time. So for example
it may pay out at a certain age or after a certain period of time. The
death pay out tends to be fixed while the pay out at the end of the
term is either fixed or varies with investment performance (also known
as with profits).
Endowments have had periods of popularity when interest rates are high
or when tax treatment of mortgage interest payments has been generous
as they allow for mortgages to be matched with endowments and to be
paid off at the end of the term. This has led to a large number of
mis-selling cases when endowments were matched against mortgages and
drastically underpaid their promised value.
Annuities
Annuities are offered by many life insurance companies as they use the
same actuarial techniques. Essentially an annuity is a reverse life
insurance policy that takes an up front rather than periodic premium
and pays out periodically rather than in one event. This is used to
primarily to pay out pensions.
How to find life insurance
Life insurance is a competitive market that uses a lot of sales people
to sell the product due to the profits that can be involved. A more
effective way to get the required life insurance, of whatever type, is
to use acomparison site like the one here, where providers across the
country can offer their best price.
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