Life Insurance 101: A Brief Guide To Protecting You And Your Family
The insurance market is one of the most complex ones a person has to face
. It is probably only in competition with mortgages, real estate and bank services in terms of financial products that confuse people the most and for which a significant amount of time is necessary to gather information, evaluate alternatives and make a choice before deciding for one of the many options available.A classic example of this is the case many of us have to face sooner or later, especially once there are kids in the picture: a life insurance. The number of insurance companies and policies is truly amazing, with thousands of combinations for timing, coverage and amount of the premiums which vary depending on many parameters, some of which are out of the insured persons control.
We can distinguish three main types of life insurance policies, which can in their turn offer several different levels of payments and coverage. All of them have the same goal, that of protecting one or more people in the event of incidents that could significantly decrease the welfare of a family, such as the death of the member bringing in the majority of a familys income or an incident that incapacitates them to work.
The first type of life insurance is the endowment life policy, which is a popular alternative because it also functions as a supporting tool to public retirement pensions. This policy does not contemplate a payment once the insured person dies but rather that if this person should die while the insurance is in place, his/her beneficiaries would receive the premiums paid. In the case of the insurance expiring while the insured is still alive, one can choose to receive the paid capitals plus interest as a one time payment or rather as an annuity, a popular option for those who wish to guarantee an income on their old age.
The second type of insurance is the term life policy, which is essentially different from the first one in the fact that the insurance expiring, no premiums are paid to the insured or the beneficiaries if the person is still alive. Therefore, this is the financial product that responds best to the pure necessity of providing a family with enough income to provide for a family in the case of the breadwinners death. The payments not being recoverable at the end of the insurance period, the premiums for the insured who effectively die while the insurance is in place are higher.
Finally, there is a third type of endowment policy proposed by insurance brokers that is a mix between the two above. These policies establish a payment of premium at expiry date whether the person is alive or not. Such premiums, again, can either be received as a single installment or in the form of monthly income, but yield of course smaller returns than the other two types of insurance. This kind tends to include coverage against diseases and incidents, the insurance company paying a greater premium in the case one of this eventualities should occur.
Having children, subscribing a mortgage and the ever more present uncertainty about the public retirement landscape make it so that insurance policies be a useful tool to protect ones life and that of the family. A thorough analysis of available alternatives and of the effective risks and consequences, as well as the level of coverage required, is the key to choosing the most suitable life insurance.
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