Life insurance is a plan whereby you pay money to the company while you are alive and the company pays your chosen beneficiary when you are not. The longer you live, the more the insurance company profits. Life insurance is a must for anyone with family responsibilities and little personal wealth. Because it is misunderstood, overused for underprotection, and sold through marketing gimmicks with little real value, life insurance can also be detrimental to your wealth.
First, here are a few terms that you must understand in order to take control of your life insurance costs.
- DEATH BENEFIT. The amount of money that will be paid to the beneficiary if the insured dies; the amount of life insurance. Also called the face value of the policy.
- PREMIUM. The amount you pay to the insurance company. Life insurance premiums can be paid in one lump sum (single premium), one check each year (annual premium), or periodically by quarter or by month. Premiums can be for insurance only or partially diverted into investments, prepaid policies, and retirement plans.
- POLICY TERM. The period during which the life insurance is in force. The term can range from one year to a lifetime.
- FEES AND COMMISSIONS. Charges for administrative and selling expenses levied by the insurance company against your premiums or cash value.
- SURRENDER CHARGE. The amount of money the insurance company keeps if the policy is canceled. Surrender charges apply only to policies with investment plans such as whole life and universal life and can run into thousands of dollars.
Let’s begin with the basics. How much life insurance do you really need? To determine the amount of life insurance you need, you must first determine if you need life insurance at all.
Tags: Cut the cost of your life insurance, increasing financial protection