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PERSPECTIVE

November, 2020

The topic for the last two columns has been explaining what life insurance is and providing a basic understanding of the product so consumers can make informed decisions. This article will cover a couple of other important points. Insurance provides an essential service and will be the subject of future columns. But next month, we are on to another topic!

There are many ways to purchase life insurance. Some policies seem to cost more than others for the same coverage. The pricing of insurance is calculated after considering statistics from the past and the best projections of the future. Actuaries are trained to determine risks by taking into account the historical cycles while at the same time anticipating future events. The premium for insurance policies also includes the cost of operating the insurance company. Insurance is a calculated cost spread over the risks associated with a large number of policy holders, all of whom are paying premiums.

Applications for insurance go through a process called underwriting in which the expected risks of the desired coverage are calculated into a policy premium. Some of the considerations actuaries look at are general about society as a whole. Then they will consider factors more specific to the application or the person applying. With life insurance, these specific considerations may include the present health and age of applicants, the applicant’s family health history, the risks of their vocation and life style and the risks associated with any future plans the person may have. It stands to reason that the best time to arrange your life insurance coverage is early in life before health issues may arise. The underwriting requirements at the time of application for insurance will help the company determine if they will accept the risk of a potential payout and at what cost to the policy holder. Generally, once coverage is offered by the company and is accepted by the applicant, the contract becomes unilateral. Simply put, the policy holder now has control of the policy as long as they pay the premiums. Changes in health or life situations will not affect this policy in the future. At this point you have peace of mind!!

An important consideration of any life insurance contract is who owns or controls the coverage. As stated above, the policy holder does. In some contracts the policy holder may be someone other than the person insured. For instance, in the case of group insurance through employment, the contract is owned and controlled by the employer. Also, with mortgage insurance the policy ownership is generally with the mortgage company. As insurance professionals we will help you understand these differences so there are no misunderstandings to surprise you later.

One last thing to talk about this time. Have you ever heard someone say that life insurance should really be called death insurance? The word ‘life’ was specifically chosen for this product for one reason. Life insurance is not for the people who die!! Life insurance is for those who live! The tax free proceeds from these policies will help your loved ones. First of all, it will help them remember the significant part you were in their lives by covering final financial obligations and arrangements. Your legacy may help them remain in their home. Perhaps it will provide for the objectives you had for their future financial needs and career development. For certain, it can help them avoid a life where financial hardship
eliminates opportunity. Life insurance provides for the living! There is coverage that fits your needs.
Let us help you be ready.