Life insurance: a piece of history
The modern insurance contracts we have today, such as life insurance, originated from the practice of merchants in the 14th century. It has also been recognized that different types of security arrangements have existed since time immemorial and are somewhat similar to insurance contracts in their embryonic form.
The phenomenal growth of life insurance from almost nothing a hundred years ago to its gargantuan proportion today is not one of the outstanding wonders of business life today. Essentially, life insurance became one of the felt needs of humanity due to the incessant demand for economic security, the growing need for social stability, and the clamor for protection against the dangers of cruel and crippling calamities and sudden economic shocks. Insurance is no longer a monopoly of the rich. Gone are the days when only the social elite had their protection because in this modern age, insurance contracts are littered with the insured hopes of many families of modest means. It is woven, so to speak, into the very nook and cranny of the national economy. It touches the holiest and most sacred bonds in the life of man. Parental love. The love of wives. Children’s love. And even the love of business.
Life insurance as financial protection
A life insurance policy pays an agreed amount generally known as the sum insured under certain circumstances. The sum insured in a life insurance policy is intended to meet your financial needs and those of your dependents in the event of your death or disability. Therefore, life insurance offers financial coverage or protection against these risks.
Life Insurance: General Concepts
Insurance is a risk sharing device. Basically, the insurer or insurance company pools the premiums paid by all of their clients. Theoretically speaking, the pool of premiums is responsible for the losses of each insured.
Life insurance is a contract by which one party insures one person against loss due to the death of another. Life insurance is a contract by which the insurer (the insurance company) for a stipulated amount, agrees to pay a certain amount of money if another dies within the time limited by the policy. The payment of insurance money depends on the loss of life and, in its broadest sense, life insurance includes accident insurance, since life is insured in both contracts.
Therefore, the life insurance policy contract is between the policyholder (the insured) and the life insurance company (the insurer). In exchange for this protection or coverage, the policyholder pays a premium for an agreed period of time, depending on the type of policy purchased.
Similarly, it is important to note that life insurance is a valuable policy. This means that it is not an indemnity contract. The interest of the insured in her life or in that of another person, in general, is not susceptible to an exact pecuniary measure. You just can’t put a price on a person’s life. Thus, the measure of the indemnity is the one established in the policy. However, the interest of an insured becomes subject to exact pecuniary measurement if it is a creditor who insures the life of a debtor. In this particular scenario, the secured creditor’s interest is measurable because it is based on the value of the debt.
Common Life Insurance Policies
In general, life insurance policies are often marketed to address retirement planning, savings, and investment, in addition to those listed above. For example, an annuity may very well provide income during your retirement years.
Participating whole life and endowment policies or investment-linked plans (ILPs) in life insurance policies bundle a savings and investment aspect together with insurance protection. Therefore, for the same amount of insurance coverage, your premiums will cost you more than buying a pure insurance product like term insurance.
The advantage of these bundled products is that they tend to accumulate cash over time and eventually pay off once the policy expires. Therefore, if your death benefit is combined with cash values, the latter is paid after the insured dies. However, with term insurance, you can’t build cash value.
The common practice in most countries is the marketing of packaged products as savings products. This is a unique facet of modern insurance practice in that part of the premiums paid by the insured is invested to accumulate cash values. The drawback to this practice, however, is that invested premiums are subject to investment risk and, unlike savings deposits, the guaranteed cash value may be less than the full amount of premiums paid.
Essentially, as a future policyholder, you need to have a thorough assessment of your needs and goals. Only after this step will you be able to carefully choose the life insurance product that best suits your needs and goals. If your goal is to protect your family’s future, make sure the product you’ve chosen meets your protection needs first.
real world application
It is imperative to get the most out of your money. Splitting your life insurance into multiple policies can save you more money. If you die when your children are 3 and 5 years old, you will need much more life insurance protection than if your children are 35 and 40 years old. Let’s say your children are 3 and 5 years old now and if you die, they will need at least $2,000,000 to live on, go to college, etc. Instead of getting $2,000,000 in permanent life insurance, which will be outrageously expensive, just opt for term life insurance: $100,000 for permanent life insurance, $1,000,000 for 10-year term insurance, $500,000 for term insurance. term of 20 years and $400,000 of 30 years. period of years. Now this is very handy as it covers everything you need. If he dies and the children are 13 and 15 years old or younger, they will get $2 million; if the age is between 13 and 23, they receive $1 million; if you are between the ages of 23 and 33, you receive $500,000; if after that, they still receive $100,000 for final expenses and funeral costs. This is perfect for insurance needs that change over time because as children get older, their financial responsibility also decreases. As the 10-, 20-, and 30-year term expires, premium payments are also due, so you can choose to use that money to invest in stocks and take risks with it.
In a world governed by the dictates of money, everyone wants financial freedom. Who does not? But we all NEED financial SECURITY. Most people lose sight of this important facet of financial education. They invest everything and risk everything to do more and yet end up losing most, if not all of it, this is a fatal formula. The best approach is to take some of your money and invest it in financial security and then take the rest and invest it in financial freedom.
Ultimately, your financial plan is constantly evolving because you are constantly evolving. You can’t set a plan and then forget about it. You need to keep an eye on your money to make sure you’re working hard because that money needs to fuel you for the next 20 to 30 years or more that you’ll be retired. You have to know how to feed your money now so it can feed you later.