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Life Insurance

Life insurance is an effective way to ensure that the finances of family and friends are protected, when the unthinkable happens. There is more than one type of life insurance policy, and insurance companies may apply restrictions and conditions, in order to protect their own interests. An application is required before an offer of insurance is given, where a variety of necessary questions must be answered fully and truthfully. In addition, you may be required to undergo a medical examination before an offer is made by the insurance company.

Life insurance involves four key roles, and they are the insurance company providing coverage, the policyholder purchasing coverage, the individual whose life is insured and the beneficiary, who will receive the benefits of the policy upon the insured individual's death. However, these roles are not always filled by four parties, and can involve only two parties or many more; this is because one individual can fill the last three roles, and more than one beneficiary can be named. Although the policyholder and the insured do not have to be the same person, insurable interest must be present. This means that the policyholder would suffer a financial loss if the insured's life were to end.

When choosing a life insurance policy, you should consider the different types of insurance available and the benefits you require. The three categories of life insurance available are as follows:

Term life insurance - This requires the policyholder to make fixed payments on a schedule. It provides life coverage for a set period, e.g. 15 years, and will only pay death benefits to the beneficiary if the insured individual dies before the expiry date.

Whole life insurance - This also requires the policyholder to make fixed payments on a schedule. Coverage under this type of policy guarantees insurance until a specific age. The death benefit of this type of insurance is guaranteed; therefore, if the insured individual outlives the policy, the beneficiary will still be paid.

Universal life insurance - This does not require fixed payments, and payments can be made at any time for any amount, up to government-set maximums. Coverage under this type of policy is allowed to be maintained indefinitely.

The key questions to answer before choosing life insurance are as follows:

  • What are the death benefits you require?
  • How long will you need coverage to be in place?
  • Where should you buy the type of policy you require?

The answers to these questions will vary, depending on individual needs, but here are some general answers, which may help you get started:

  • Many people require death benefits of a value between 6 and 12 times their income.
  • Household wage-earners usually require insurance to be in place for, at least, as long as they will be employed. If the insured individual is a homemaker, coverage is needed for as long as there are dependents, such as children, living in the home.
  • An independent insurance broking agency, which contracts with at least 20 life insurance companies, is a recommended starting point for finding the coverage you require.

Once an offer is made to you, by the insurance company, there is no obligation to purchase the insurance. The contract, under which you are obligated, starts from the time you sign and submit the relevant acceptance paperwork.

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