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Life Insurance Basics

April 13, 2012 | Comments: 0 | Views: 159

People who are planning to purchase a life assurance plan or a life insurance policy often hesitate doing so because of the confusion that is associated with understanding all the terms and concepts related to such policies. In order to help people understand life insurance policies better, here are some of the considerations that people must make before purchasing a policy for themselves.

The Importance of a Policy The first thing that a person will consider in purchasing a policy is its importance. Why is life insurance important? In order to answer this question, a person must first ask this question to himself, "If I die unexpectedly, will somebody be affected financially?" If the answer is "Yes", then that means that this person needs a policy.

A life insurance policy is a legal contract made by two parties, namely: the insurance company and the policy holder. The insurance company will agree and be obligated to indemnify the loss of life of a policy holder for an amount specified by the policy holder. The policy holder in the meantime will be responsible for making sure that premium payments are regularly made to cover the cost of the insurance policy. The two parties are held responsible for upholding their end of the agreement. The insurance company may opt to refuse coverage if the policy holder does not make payments or if the payments of premiums are not up to date.

A person having people depending on them financially must have a life insurance policy. It does not matter if the dependents are a person's children, elderly parents, employees, or pets. A person who has a policy may designate anybody as his/her beneficiary. This beneficiary will receive the death benefit once the policy holder dies.

The Cost of Having a Policy The second thing that a person will consider in purchasing a policy is the cost of being covered by life insurance. The amount that a policy holder will have to pay on a regular basis is known as the insurance premium. The amount of premium will depend on the amount of coverage that the person will want to be covered with and the type of insurance policy that the person chooses and the length of term.

The coverage amount is the total amount of money that the person is insured for. This is the amount that the beneficiaries will receive upon the death of a policy holder. If a person chooses a large coverage amount, then the amount of premiums that he/she will have to pay on a regular basis will also increase. The amount of coverage a person chooses depends on the person and his/her family's needs. If a person's family is accustomed to a lavish and luxurious lifestyle, a large coverage amount may be enough to maintain that lifestyle for a number of years to come. The common rule of thumb being followed is to purchase a coverage that is at least ten (10) times the amount of a policy holder's annual salary.

The amount of premium will also depend on the type of policy that a person will choose. A term life insurance policy covers a policy holder for a specified amount of time which may range from 1 year to 30 years. The term life insurance quotes will vary as the term increases since the total cost of insurance may be divided for the entire duration. The longer the duration of the term will mean the lower the amount of premiums that a person will pay on a regular or monthly basis.

The type of policy also affects the amount of the premiums that a policy holder must pay. A universal life policy may include a savings or investment option bundled in with the basic policy. This means that the policy holder pays for both the cost of the insurance coverage and the savings option. On the other hand, a term life policy only obligates the policy holder to pay for the cost of the insurance making a term policy cheaper in terms of premiums.

A no medical life insurance is another type of policy that allows a person to be covered by insurance even without having to undergo a comprehensive medical examination. This type of policy will base its premium rates or insurance quotes on the age of the policy holder and the medical information that this person is willing to disclose to the underwriters.

Article by David Livingston of EQuote, who is a specialist in everything life insurance. For more information on term life insurance for seniors, visit his site today.

Source: EzineArticles
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