Life Insurance Quote Reviews

As with life insurance proper, the different experience of all individuals is encompassed within the mortality statistics. While in ordinary life insurance “the burdens of the few are borne by the many”, in annuities almost the opposite is the case, for it is the losses of the few (the minority who die soon after taking out their annuities) that provide for the propensity of many annuitants to live longer than the average.

The investments in which the company invests its annuity fund are often Government securities or other fixed interest investments such as local authority loans. The reason these are normally chosen is that they enable the company to obtain the highest possible secure income on its annuitants’ money and also to match the income to the expected periods for which it is to be paid.

Annuities used to be a favoured investment for retired people who had saved up money throughout their working life and wanted to obtain an income from it higher than that available from deposits or stock market or other risky investments.

The return from the annuity is higher because of two factors: first, each annual payment consists of an element of both interest and capital, and, secondly, the yield from the underlying investments is usually the highest income safely obtainable on any invest­ment. Only the interest portion of each annual payment is taxable, so that the net annual return from an annuity will far exceed that obtainable, say, on equities.

However, the steady increase in inflation since 1960 has had a very severe impact on those who purchased annuities on retirement at the start of that decade. The fixed annual payment of annuitants has been eroded in spending-power terms and in some cases hardship has resulted. The dangers of contracting for a fixed income in inflationary times should not be forgotten when considering an annuity, but it may still provide the best net return when compared with other types of investment. There are several different types of annuity matched to particular needs which are considered below.

If one fund has a yield of 8% before tax (and since life insurance companies pay tax on dividend income at the basic rate of income tax means there is over 5% to reinvest) and another has 3% (only 2% to reinvest) then the latter has got to produce 3% more capital growth every year just to keep pace with its rival - and this ignores the impact of capital gains tax. So a low-yielding fund may be a less promising choice for a unit-linked life policy than a high-yielding one. The latter, even if capital values remain static (as they do in most investment sectors some of the time), always has the reinvestment of income to help keep the value of units growing.

The second factor to be considered in purchasing unit ­linked insurance is the type of policy to choose. Like conventional policies, unit-linked ones are in the form of either endowments or whole-life policies. Many have the form of endowments or whole-life policies with the premium-paying period lasting till age 65 at most and for l0 years at least. As with the conventional policy, the ultimate intention for the accumulated capital should determine the choice. If “the intention is simply to accumulate a capital sum over l0 years with no necessity for continuing there­after, then a simple l0-year endowment-type policy is best. The reason is that the flexibility of the longer-term policy (say, one based on the whole-life contract) also involves costs. If you are concerned with the conversion of capital to retirement income then the flexible format, as we shall see, has considerable advantages.

Unit-linked policies have become far more sophisticated in recent years because many people have taken advantage of them for investment while regarding the life insurance as no more than a by-product. The more costly investment ­directed contracts (”costly” meaning that a minimum premium of up to £50 a month may be required) therefore incorporate a number of investment and tax refinements. Such policies normally allow the investor to switch his investment between different funds.

In the conventional bonus systems we have been looking that the sum assured plays the central role in surplus distribution, which is achieved by additions to the sum assured. Since this sum is payable on maturity or earlier death, this does place certain investment constraints on the company, that always keep a watchful eye on mortality statistics and expenses at the same time as managing its investments. A number of people discovered that it was possible to detach investment from the protection inherent in the conventional with-profit policy through the use of unit linking.

A specific proportion of the premium (usually low) was earmarked to provide some life insurance cover, and the rest was invested in “units” in a fund or funds selected by the policyholder. At first, these were restricted to authorized unit trusts investing in the stock market, but later internal unitized funds of ordinary shares, property, fixed interest, etc.

While a minimum guaranteed life insurance is maintained throughout the policy’s life, it does not normally grow as cover does under a conventional with-profit policy. But the value of the investments, mirrored in the price of the units, will always provide a sum reflecting exactly the investment experience of the chosen fund. The policyholder in this situation does not need the calculations of the actuary to decide how the surplus is to be distributed because it happens automatically.

 At maturity, he simply receives the net value of all the units that his premiums have purchased over the years or the units themselves. Since this sum will relate very closely to the level of market values, whatever type of fund is involved, the policyholder is exposing himself to certain investment risks. Whereas the conventional system takes on the investment risk and spreads it over large numbers of policyholders and also over time, the unit-linked policy requires the policyholder to shoulder the investment risk himself, without the safeguards of the conventional company’s “smoothing operations”. But it is hence worth emphasizing again the difference in cost between pure protective life insurance and investment-oriented policies

Times have changed and the reasons why people buy life insurance have grown from the original purpose. Let’s have a look at the causes:

Income Replacement

Life insurance is used to protect the premature death of a spouse or parent so that the loss of income is not devastating to the family.

Payment of Outstanding Debts

Life insurance can as well be useful to protect mortgages, car payments and credit cards, etc.

Final Expenses

The benefits obtained from life insurance can cover funeral and other administrative expenses, etc.

Education Funding

The death of a parent may mean that the quality of education, intended for a child, may be out of reach.

Emergency Fund

Any adjustment expenses, such as time off work, medical and counselling expenses can be covered by life insurance.

Special Needs Child

The use of life insurance provides a guarantee that the funds will be there to care for those special needs.

Business Continuation

To provide funding to assist in orderly transfer of business ownership, in the case of owner’s death, life insurance guarantees that the business is transferred as intended.

Business Insurance

Key Person, Executive Bonus, Split Dollar and Deferred Compensation funded with life insurance.

Estate Taxes

Under current tax law life insurance can provide liquidity at death to pre-fund the estate tax liability. This may not be necessary if the Estate Tax is permanently replaced.

Charitable Giving

A charitable minded client may leave a gift to a favourite organisation, without significantly reducing the size of the estate by using the death benefit to replace the value of the property gifted to heirs.

Equalising Inheritance

Life insurance provides additional liquidity to assist in providing each child with equal shares of their parents’ assets.

Income in Respect of a Decedent

People die owning assets that have not yet been taxed; these taxes then become the obligation of the beneficiary. Life insurance provides liquidity to assist in the payment of these taxes.

Second Marriages

There can be conflict when a parent with children remarries. Life insurance provides the children with enough financial security.

It is fairly easy to economic and financial loss due to death of an income earner. If, due to death of a person, a loss of five thousand dollars arises without replacement for the usual recurrent expenses of a household, a life insurance would generally replace the five thousand dollars and ensure that the amount increases in order to cater for the inflation costs and children’s needs as they get older. It is certain that the five thousand dollars will be adjusted: the family need not worry about Social Security or other employment taxes, but is fairly certain that the family will incur increased costs due to a missing pair of hands in the house.

It is unfortunate that this straightforward calculation cannot be simply transformed into a capital sum and eventually into life insurance needs. A simplistic calculation would be to say that a regular monthly income of five thousand dollars increasing by three percent yearly for a wife that could live for another sixty years would generate a capital sum of nearly two millions and seven thousand dollars (a four percent return is assumed here) with no principle left at the end of that period. With an additional calculation taking into consideration income and expenses due to existing assets and expenses at death, this is the process used to calculate how much life insurance I need.

The issue is that nobody can imagine ever having a gain of two million dollars, even more buying that much worth of life insurance to replace five thousand dollars a month. Consequently, most of us will compromise buy insuring only a fraction of their human life value and buy a life insurance policy of two hundred and fifty thousand dollars for an income of five thousand dollars per month. But a policy like that would only cover family expenses for less than four years.

The covers which are available to you are Life Cover, Critical Illness Cover, Life or Earlier Critical Illness Cover, Income Protection Cover, Mortgage Income Protection Cover, Accident Sickness Cover, Unemployment Cover and Payment Protection Cover.

With regards more specifically to Life Insurance you can make changes to your policy even after the policy has started. You could do this by increasing or decreasing the sum assured agreed at the start of taking out your Life Insurance policy. However if you were to increase the sum assured you would then typically on a monthly basis pay extra than the premium first agreed or if you were to decrease the sum assured you would then typically pay less on a monthly basis. Any changes that are made to the policy are subject to term and conditions specified at that moment in time. Changes can be made where there is no need for any further information which are called Guaranteed Options such as if you get married, adopt or child or have a baby, move house or change doctors, or have a change in career. Guaranteed option can only typically be applied if the person taking out the policy is aged 50 or under at the commencement of the policy and was accepted on standard terms.

When applying for Life insurance some providers will give you what they call Free Cover if you are a UK Resident and under the age of 60 before the application have been received. Free Cover is only given on a temporary basis whilst the application is in process and only starts once the provider has been given Direct Debit Instructions.

If you have any liaiblity then it is important to protect this when ever possible. A mortgage or loan should you die would be passed to your next of kin. It would not be a nice situation if a loved one was greiving for you and have the added issue of having your debts passed to them also.

So when asking do I need life insurance then the answer is yes. Life insurance is designed to offer protection and give just a little bit of peice of mind. The policy will pay a lump sum if you die or suffer a terminal illness this will pay off any liabilities immediately and give peace of mind.

In the past mortgage lenders have asked for the polices to be assigned to the mortgages but no longer is this common practice. The money when it is paid out is yours to do what you like with, so you dont have to pay off all the debt if you do not wish only partial debts can be paid.