Different Types of Life Insurance Policies

Life insurance is one of the most important policies that you should take so that you are able to leave behind enough financial security to your family, in case of your unfortunate death. If you are married or have dependents who look up to you financially, it is a must to take life insurance policy. There are three main types of insurance policies that you need to know:

Term Insurance: Term insurance is the most common and basic life insurance policy. You get a sum assured amount on your death, which is handed out to the person you nominated for in the insurance agreement. So here, you have to determine how much the life cover should be, the policy tenure etc. The premium money that you pay for this kind of insurance is the lowest among all life insurance products. However you do not get back any money if you survive the term of the policy.

Whole life policy: Whole life insurance policy is supposed to insure you for the entire life. So, it is an investment as well as life cover. So when you pay your monthly premiums, a part of it goes towards savings and builds up as cash value while the other goes toward protecting your life. You can borrow money against this cash value which builds over a period of time. Whole life policies mature after an individual turns 100 years old. At that time, the insurer will pay you the face value (or the amount the insured has built over a period of time). If the policy holder dies before this period, he can get the sum assured as well as the returns over investment.

Endowment policy: Endowment policies are aimed for a particular period. The maturity period can be in sync with your goals like your child’s marriage, overseas trip, retirement planning, college education etc. While term insurance is for a particular period of time like 10 year or 20 years, or so on, the whole life policy covers you for your entire lifetime; you are covered, no matter when death comes. Endowment policies are like term insurance when it comes to policy tenure (10 years, 20 years etc) but you get back returns over your investment if you survive the policy term. Endowment insurance policies have high premiums among all these three common forms of life insurance.

Decreasing term insurance: There is a fourth type of life insurance policy, linked to term insurance, also known as ‘decreasing term insurance’ associated with mortgage. This is beneficial if you are taking mortgage and you have money outstanding. You should take this insurance when you take mortgage. The amount is insured for the entire mortgage term. When you pay off the mortgage amount, the money remaining on the insurance policy decreases till there are no more obligations. In case, you die during the term of the policy, the money towards insurance is paid by the insurance company.

Check with your insurance company about various types of life insurance policies and choose the ones that serve your purpose to the optimum.

Missing Life Insurance Policy

Maybe you’ve heard the tale of the missing life insurance policy, or maybe you could tell such a story from your experience. You find out that a deceased relative or a very close friend who had no family had you listed as the beneficiary on one or more of their life insurance policies. Alas and alack you face two giant obstacles: you don’t know through which companies the insurance was underwritten and you don’t know that because, well, you can’t find the policies.

Now this is problematic because, officially speaking, when you go to claim a death benefit as a beneficiary you are supposed to bring the policy with you and surrender it to the underwriting life insurance company. This, among other forms of ID, is intended to help you prove that you are who you say you are, that you were in fact a “bennie” listed in a policy, and in fact the insurance company owes you a check. Few life insurance companies want to give anyone a hard time about paying out the death benefit; but insurance fraud is rampant as it is, so they do want to be careful that the right people are getting the right amount of money and getting at the right time.

But, don’t panic. There’s some good news about all this, besides the fact that you are likely owed money.

You see, if you can do the right things to prove that you’re the or a bennie, and you can find the right insurance company so you can prove that you know your deceased relative or friend had the policy in question, you can receive the money you are owed. And–there’s no expiration date on a death benefit. If you don’t discover you’re owed the money for 20 years or more, and one day you find out and walk into the insurance company’s office, and tell them you have a 20-plus-year-old claim, as long as you can show them your credentials and you can tell them the policy number they are going to pay you. (But do keep in mind: they don’t adjust for inflation. If the death benefit signed on for in 1985 was $100,000, that’s the money you’re getting in 2008; you’re not getting $203,000 or whatever would be the equivalent in spending power today.)

Also, if the insured died and still owed premiums and suddenly stopped making premium payments (for the obvious reason that they died), and the policy wasn’t paid up (as a permanent policy can be), the insurance company, if they did not know about the death, will start tying to contact and/or track down the insured to find out why they aren’t paying premiums. You can try to find contact information for the life insurance company or companies by going through the deceased’s mail, if you don’t know where the policy can be found.

Under state insurance laws, if a life insurance company does learn of a policy holder’s demise but cannot locate the bennie(s) and never receive a claim, they have to turn their death benefit over to the state comptroller’s office within three to five years (the state is the state where the policy was written and issued, even if the insured moved to another state later). The state will lump this money together into other unpaid monies owed to people, but they document the amount and source of the money and, in accord with different state laws and procedures, they keep lists of beneficiaries who have unclaimed money. They might publish these database lists online.

But, in reality, you should not expect to find your money with the state government. Most of the time, death benefits are paid out because the bennies contacted the life insurance company.

You do, also, need to hope that the premiums were paid by the deceased long enough to keep the policy in force. If the deceased had a term policy, as long as it was paid to be current (including the mandatory 30 day grace period) up to the time of their death the life insurance company will pay the claim. Otherwise, you’re owed nothing at all.

If the policy was a permanent policy that builds cash value, if the policy was about to lapse the insurance company would pay the premiums for the insured using their cash value. This death benefit would be the equivalent of the face amount or higher (depending on how long the policy was in force), and the policy would last as long as possible given the amount of cash value. The life insurance company might also put the policy on “extended term” status, meaning they use the cash value to buy a term life policy of the equivalent face amount. This term policy would last as long as it could be paid for. The life insurance company might also put the policy into a “reduced paid up” status, meaning the policy is still in force and will remain in force but, depending on how much premium was not paid, the death benefit is reduced.

If you cannot find the physical policy, you need to somehow get hold of the policy’s unique issuance number and the life insurance company information. And in your own financial life, keep your financial documents all together in one place; if you keep most of it online, entrust at least one person with whom you are close to the information needed to access it.

Cut Expenses – Cut Expenses by Never Buying These Life Insurance Policies

1. Mortgage Insurance

When you purchase a house, insurance companies will try to sell you mortgage insurance. Do not buy a separate policy to cover your mortgage. Simply determine the amount of insurance (if any) that you need to protect your dependents, buy a cheap term life insurance policy and make your spouse the beneficiary.

2. Accidental Death Insurance

Death is death. Your dependents do not need more money if you die in an accident rather than as a result of an illness. As with mortgage insurance, determine the amount of insurance (if any) that you need, buy a cheap term life insurance policy and make your spouse the beneficiary.

3. Cancer Insurance

Since your life and health insurance will pay out regardless of the diagnosis, you do not need a special policy to cover a particular illness.

4. Credit Insurance

This pays off your credit card or consumer loan balances if you die. Since this coverage is extremely expensive, skip it and take out a low cost term policy as discussed above.

5. Children’s Life Insurance

The purpose of life insurance is providing for your dependents if you die before accumulating enough assets that you do not need life insurance. As much as you love your children, you probably are not dependent on the financially. So, skip the policy on them. If you insist on having sufficient coverage to pay for final expenses on children, add a child rider to your own life insurance policy. It will cost less than $50 per year.

If you have any of these policies, you should seek to cancel as quickly as possible.

In order to protect your dependents, shop for the lowest premium term life insurance.