Life Insurance Companies, Essay Example

When you apply for a life insurance premium, the acceptance of this policy is normally based upon the following criteria: [1] the type and amount of insurance that you require [2] your current health assessment, the possibility of death determined by lifestyle habits e.g., smoking, drinking, drugs; this along with age and current medical condition  [3] previous health record in terms of potential life-threatening illness e.g. cancer, heart problems, HIV/AIDS.

In order to obtain the best life insurance premiums or rates, you would need to be identified in one of two categories, i.e. preferred risk or average risk.  Factors that move a person into the unsuitable include:  Age [Age, 60+ Is a Determining Factor], Being Treated for Life-Threatening Illnesses like Cancer.

Group Life Coverage

IRC Section 79 provides an “exclusion for the first $50,000 on group term life coverage for a policy provided by an employer.”  (IRS.gov).  A taxable benefit occurs where the life assurance cover exceeds $50,000.  This type of policies often an attractive benefit option for employers to provide their staff.  It is relatively inexpensive because it can be applied to a broad group of people. As the risk is spread it provides the insurer with the option of charging a lower premium.  This type of premium  is often viewed by the employee as a supplementary policy as it most often only pays out 1 to 2 years salary of the deceased person.  This type of policy is similar to that of the term life policy, and normally requires periodic renewal.  It is therefore important to keep information on employee’s health records up to date.  This includes names of beneficiaries, and any new records of serious illness that may prejudice the policy.  This prevents any legal battles that may result in future payouts when the policy holder dies.

Selecting Life Assurance

The selection of appropriate life assurance policies has become a lot more complicated these days.  Too many policies are wrapped up in legal jargon and fine print.  As such, there becomes an element of utmost good faith to believe the life insurance companies will pay out in the event of your death.  In general terms, the basic requirements are relatively straightforward.  The policies are issued in two forms [1]  term life insurance and [2] whole life insurance.  With whole life it is anticipated that such coverage will remain for your entire life.  Term is different this looks at limited term life coverage;  normal blocks of 5 or  10 years.  After the term policy ends, you need to either for a renewal or seek alternative coverage from a new insurance provider. ” When you attempt to purchase life insurance, the company will ask you questions and may require you to complete a brief medical examination. These factors include your health, your occupation, your age, your lifestyle and your hobbies. Once your risk has been assessed, you will be placed in a specific underwriting class: preferred or preferred plus policy holders pay the lowest premiums, standard is the class where about 75% of the population ends up, and special rating applicants must pay higher premiums.”  (Jorgenson).

Investment Potential

When purchasing life insurance you are faced with the question of buying term life policies and investing the difference or alternatively, you can consider the purchase of whole life insurance insurance policies as an investment in the future protection of your family.  Equally with term life insurance, you have to replace this at the end of the term.  This leaves you vulnerable to the cost of increased policies owing  to advancement in age and any additional medical problems that will move you into a higher risk insurance category.  In  more unfortunate circumstances you may get a disease like cancer, and despite advanced treatments these days.  i.e. early case, prostate cancer may either be cured  or extend your life by 10 to 15 years.  Under such circumstances the insurers will regard you as too high a risk and refuse to offer you life insurance.  The other danger is that you fail to  declare an illness on an existing policy;  somewhere in the fine print may be an exclusion clause for the insurer not to pay out in the event of death.  So whilst you believe that you are fully vested, your  beneficiaries may come in for a nasty shock at a later date.  At the very least, this can involve unforeseen legal costs in the determination of the rights of the policy.

There is also the possibility of purchasing Annuities. A great deal of research is required when exploring this option. Annuities will pay a regular income until the death of the person, this being in return of a lump sum payment. As the life of the insured is uncertain the insurance company takes a risk. The life insurance policy is really the opposite concept to that of a life annuity policy ” There are several types of annuities on the market today, including tax deferred annuities,  immediate annuities and equity indexed annuities  but, at its most basic level, annuity insurance involves paying money into an annuity contract now so that you can withdraw the funds at a later stage, with interest and hopefully without having to pay excessive taxes”  (Jeremy).

Calculating the cost

When taking out life insurance you will certainly derive  the most benefit by being a healthy young individual.  This will provide you with excellent coverage at the lowest costs.  The older you are on a term life policy means the more it will cost for the given levels of benefit.  For example:  On a  a 20 year policy you might expect a man  of 29  to pay 1.5 times the amount of a 19-year-old man.  At age 49 the amount would be  2.5 times that at age 39.  Sex is also factored into this event and men can expect to pay higher premiums than women because in  general terms  women are expected to live longer than men.

The cost of life insurance has fallen by over 30% in the last decade.  This is reported as being at an all-time record low.  In the UK, a 40-year-old man who was working and looking for coverage of 100,000 pounds for 25 years was only being charged 11 pounds per month.  UK statistics show that one in 20 children lose a parent before they have  completed full-time education.  Many people have opted to have their life insurance linked  to their mortgage. This is referred to as mortgage term insurance.  The coverage essentially eliminates the mortgage debt at the time of the death of the policyholder.
Critical Illness cover has been another area where examination of the terms of the policy conditions are essential ” Many believe they will pay out if you get any serious illness and can’t work. Yet that isn’t true, critical or serious illness policies pay out a lump sum if you get a specific illness as defined by the terms of the policy; for example losing one leg isn’t critical, but two legs is! So don’t think “I’m covered for cancer”, most policies only cover a limited range of cancers.”  (Lewis)

Works Cited

IRS.gov. Group-Term Life Insurance. 2010. 4 5 2010 <http://www.irs.gov/govt/fslg/article/0,,id=110345,00.html>.

Jeremy. Annuity Insurance Quote. 7 12 2009. 4 5 2010 <http://www.articlesbase.com/insurance-articles/annuity-insurance-quote-1630821.html>.

Jorgenson, Amy. How Does a Life Insurance Policy Work? 2010. 4 5 2010 <http://www.ehow.com/how-does_4567661_life-insurance-policy-work.html>.

Lewis, Martin. Life Insurance. 2010. 4 5 2010 <http://www.moneysavingexpert.com/insurance/level-term-insurance>.