Motivation for life insurance

MOTIVATION FOR LIFE INSURANCE

BUYING LIFE INSURANCE

Buying life insurance is unlike any other product you buy. When you pay your premiums, you're buying the future, financial security for your dependants and loved ones, which only life insurance can provide.

Among its many benefits, life insurance ensures that when you die, your dependents will have the financial resources needed to protect their home and income. Even more importantly at a stage when your assets will be tied up, while the affairs of the estate are in probate, it can also pay death duties and taxes -some products will cover the funeral as well.

Selecting a life insurance product is an important decision. It can either be simple or highly complex, depending on the needs for the product. As with any major purchase, it is important to understand what your needs are. Explore and research all the options available to you.

The main purpose of life insurance is protection. Life insurance can be used to help with other financial goals, funding retirement, education expenses, bridging finance, mortgage and second mortgage. Should your motivation be other than protection, maybe it would be better to consider other financial products better suited to meet those goals.

Two questions to establish motivation for life insurance

• Why do I need life insurance?
• How much life insurance do I need?

Why do I need life insurance?

Life insurance is an essential part of financial planning. The main reason for buying life insurance is to replace income, which would be lost with the death of the provider. Life insurance ensures that your dependants are not saddled with significant debt when you die. As mentioned earlier, death duties and taxes, as Benjamin Franklin pointed out very succinctly: "There are only two certainties in life: death and taxes." So it is with no surprise even in dying you have to pay taxes. If it is any comfort, in nearly all cases there is no tax payable on the settled claims.

How much life insurance do I need?

Before buying life insurance, assemble all personal financial information and review your family's needs. There are a number of factors to consider when determining how much protection one should have.

Depending where you are in life these needs vary and will change several times; which is why you need to reevaluate your needs periodically and adjust your insurance accordingly.

Although there is no substitute for a careful evaluation of the amount of coverage needed to meet your needs, one rule of thumb is to buy life insurance that is equal to five to seven times your annual gross income.

What is term insurance?

Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of a specific period, which can be from one to 20 years. The premium rates increase at each renewal date. Many policies require that evidence of insurability be furnished at renewal for you to qualify for the lowest available rates.

What is permanent insurance?

Permanent insurance provides lifelong protection and is known by a variety of names. As long as you pay the necessary premiums, the death benefit will always be there. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, it could be the wrong type of insurance for you.

Most permanent policies, including whole, ordinary, universal, adjustable and variable life, have a feature known as "cash value" or "cash surrender value". This feature, which is not found in most term insurance policies, provides you with some options:

You can cancel or "surrender" the policy "in total or in part", and receive the cash value as a lump sum of money. If you surrender your policy in the early years, there may be little or no cash value. If you need to stop paying premiums, you can use the cash value to continue your current insurance protection for a specific period of time, or to provide a lesser amount of protection to cover you for as long as you live. Usually, you may borrow from the insurance company, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit.

As there are many different products, all designed for different needs, it would be impossible to cover them with one article. However, I will be exploring different aspects of life insurance. and the importance of once having made a commitment, to stick to it, which is why the motivation for life insurance needs to be crystal clear in your objectives.

At various stages of my life I have sold insurance, at times with companies specializing in certain products only. I have also sold it in different forms of marketing, from door to door, a call center, group sales to companies and also strictly by appointment. My personal leaning is toward permanent insurance, term insurance provides a service the motivation for it really needs to be assessed very carefully before purchasing it.

Life insurance is the foundation of financial security, like all foundations it not only needs to be strong but also well designed, and tailored to meet your needs.