Life

Life insurance is a financial product designed to protect your family. Whle there are various types of coverage, it is generally a policy that triggers a tax-free cash payment should you die while the policy is still in effect. Essentially, these policies provide inheritance for your family as well as function as a strategic asset for wealth preservation.

In basic terms, there are three main types of life insurance policies and coverage differs from one type to another. Fundamentally, all life policies provides a cash benefit should your death occur while the policy is in effect, however, differences in coverage can be found below:

Whole life: A whole life policy stays in effect for the rest of your life and includes a cash value component, although impossible to know how much, that can be tapped into while you are alive. Cash value component is part of the premium you and is accrued over time. A guaranteed death benefit is paid upon your death and the named beneficiaries in the policy are the payees. However, the cash value component is not paid to the beneficiaries. Thus, there is a guaranteed payment.

Term: A term life policy pays a death benefit to the beneficiaries named in the policy during a specific period (i.e. 20 years or 30 years) that is decided upon the policy inception. However, there is no cash value at policy maturity. Hence, there is not a guaranteed payment should a death not occur.

Endowment: An endowment policy not only covers the life of the policyholder and pays a decided coverage amount to the named beneficiary should a death occur, but also generates a certain amount throughout the coverage of the policy and is then availed at the time of policy maturity. Thus there is a guaranteed payment.

Life insurance can provide financial security for you and your family in a wide variety of ways:

• Provide for your spouse and children: Payments can replace your lost income in the event of an unexpected death.
• Pay off the mortgage: The payout can cover the payment for your housing.
• Supplement your retirement: The cash value benefit of whole-life can act as a cushion for market volatility.
• Leave an inheritance: Your heirs will have an opportunity to better their lives and will be eternally grateful for your gratitude.
• Final expenses: Funerals can be expensive, so it can provide a chance to take the burden off of your loved ones.
• Replace earned income: Some policies allow you to collect the death benefit before actually passing away.
• Take care of estate taxes: Tax-free proceeds can be used to pay the government's estate tax bill.
• Peace of mind: Life insurance solutions can provide you a peace of mind knowing that your family financial well-being is secured after you are gone.

Life insurance can be useful for anyone. It can serve as a smart financial decision if other people in your household rely on your income for their living expenses. Most people see it as a key component of financial security as not only does it preserve wealth for their heirs, as wealth is passed on to the next generation, but it can also build a tax-free cash cushion for retirement.

Whole life policies are most suitable for those:

• Funding a trust: Supporting children after your death
• Funding a buy-sell agreement: Allows the opportunity to fund the purchase of shares in the business if you're an owner of a business with a partner
• Paying estate taxes: Helps heirs pay estate taxes after you pass away
• Guaranteed benefit: As it is a whole life policy, your beneficiary will guarantee a death benefit

Term Life policies are most suitable for those:

• Safety net: If you are only concern over a specific period of time, usually working years where it can help pay off mortgage payment
• Your parents: Can obtain substantial coverage at a low cost and families can rely on it to replace loss of income should an unexpected death occur before their children reach adulthood
• Older surviving spouse: May be preferrable given the costs of other policies

Endowment policies are most suitable for those:

• Wants a disciplined route for savings: Premiums are paid regularly according to terms and conditions, and can still a habit of regular savings.
• Have various life goals: The amount accumulated can be used for long-term personal goals such as child's higher education, down payment towards a new house, or a new car
• Bonus provision: Both the sum assured and total accumulated bonus can be be provided at either policy maturity or after death
• Tax benefits: The death benefit is exempt from tax and can also reduce your tax liability

In terms of the 3 main types of policies, the cost, ordering from most expensive to least expensive can be found below:

The most expensive policy, due to its shorter period and a guaranteed payout, the premium, often paid annually, is more expensive.

The policy's premium maintains the same the same throughout the policy, no matter what health conditions appear; however, the younger the age at policy inception, the cheaper it can be.

It is  considered as cheapest because it offers a benefit for a restricted time, with its use only for a death while the policy is in effect.

Other factors that may play a part in influencing the cost is health, gender and lifestyle. A 60 year old who regularly take part in extreme activities, smokes daily and drinks heavily is a higher risk to the insurer than a 30 year old with no underlying health conditions.

With life insurance, the documents required during a death claim can feel innumerable. Especially during such a sensitive time, these requirements can take a toll. At CHAZ, we understand the delicateness during these situations and have experience in proceeding with care.

The content provided is for informational and educational purposes only. The coverage written may change without notice and may not be applicable to all situations and policies. Terms, conditions and qualifications are also subject to circumstance, supplementary material and underwriting. CHAZ Insurance Brokers Ltd. is not liable for any discrepencies should there be any. For more information, please contact us via the enquiry form below.