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LIFE & FINANCIAL

What Is Life Insurance?

  • Life insurance is an agreement between you and the life insurance company. You agree to make certain payments to the insurance company. The insurance company agrees to pay a sum of money to a person of your choosing upon the death of the insured
  • Elements of a life insurance policy:
    • Cash value - An interest-bearing savings account included in permanent life insurance policies
    • Death benefit - A payment or series of payments made to a life insurance policy's beneficiaries upon the death of the policy's insured individual(s)
    • Health class - An insurer's evaluation of an individual's health. This datum is used to calculate the individual's mortality risk
    • Premium - A payment from the policy owner to the insurance company
    • Quotes - Life insurance quotes are price estimates made before the application process
    • Rate - The price required to maintain a life insurance policy
    • Rate class - (see health class)

The purposes of life insurance

The most common purpose of life insurance is to protect the finances of one's family or friends in case of a wage-earner's death, but that's not its only use. Life insurance can be used:

  • To hire childcare to replace a home-maker's contribution
  • For estate protection
  • For mortgage protection
  • To fund a retirement
  • To protect a business against the loss of a key employee
  • As an employment benefit

How life insurance works

  • In life insurance there are four roles: the life insurance company, the policy owner, the insured individual, and the beneficiary. (Technically, the last three roles can all be filled by the same person. Also, a single policy may cover more than one insured and may have more than one beneficiary.)
  • The life insurance company pledges to pay a death benefit to the policy's beneficiary upon the death of the insured, so long as the policy is in force at the time of death. The policy owner is responsible for paying premiums in order to maintain the policy in force
  • The process of buying life insurance
  • Most purchases are as simple as finding the right merchant and paying him or her, but buying life insurance is a longer process because insurance companies face a different risk (cost) for each person they insure. Here are the steps a life insurance buyer typically undertakes (we can work out an alternative in some cases):
    1. Compare life insurance quotes from various insurers. You can compare from many insurers at once by using an online quotes at an independent agency
    2. Complete an application. Our custom at Wholesale Insurance is to fill out the application for you, gathering the necessary information through a phone conversation. Then we send you the paperwork to review and sign
    3. Undergo a medical exam. The insurance company collects data about your mortality risk by sending a medical examiner to your home or office, free of charge
    4. Wait for underwriting. For most applications, the insurer requires several weeks to collect and evaluate data from your physician and perhaps other sources of information. This step is bypassed for guaranteed issue life insurance
    5. Accept an offer. If the insurer is willing to accept your risk, it will send you an offer. To put your contract in force, sign the offer and return it with your first premium payment. Until you do so, there is never an obligation to buy

Types of life insurance

Life insurance is understood best by dividing all types of life insurance into three categories: term life insurance, whole life insurance, and universal life insurance
  • Term life insurance requires fixed payments on a fixed schedule and provides coverage for a fixed duration (e.g. 10 years). The policy only pays a death benefit if the insured individual dies before the policy expires
  • Whole life insurance requires fixed payments on a fixed schedule. These policies guarantee coverage up to a certain age (usually 100 years of age). These policies guarantee a death benefit, so even if the insured individual outlives the policy, a death benefit will still be paid. These policies carry cash value, which means that they can be liquidated
  • Universal life insurance allows payments of any amount at any time (up to certain government-stipulated maximums)
  • Coverage from these policies can be maintained indefinitely. These policies carry cash value, which means that they can be liquidated

Choosing the right life insurance policy

  • Three questions present difficulty for most life insurance buyers:
    1. How big of a death benefit do I need?
      Most people need a death benefit as large as 8 to 12 times their annual income. To fine-tune this estimate, use an online life insurance calculator
    2. How long do I need coverage?
      Wage-earners need coverage for at least as long as they expect to be gainfully employed. Homemakers need coverage for at least as long as there are dependents who need care in the home (children, invalids, etc.)
    3. Where should I buy life insurance?
      Look for an independent agent/agency that contracts with 20 or more reputable life insurance companies. PHP Insurance Services will help you to find out a best policy
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