When the policy
holder dies the insurance company pays out a predetermined
sum to the beneficiaries of the policy. In this respect it
is similar to the term insurance, but there are two key differences:
(i) there will be a payout even if you survive the term;
and (ii) the policy amount builds up into a cash fund during
the policy period, which is proportionately more than one
would find in another type of policy.
You
should always remember that this type of insurance product,
although more attractive than the other types, is also more
expensive. Experts advise against such a choice. They remind
you that the main objective of insurance is to protect your
family when you are no longer here. Mixing it with an investment venture would increase the risks. Term insurance should give
you all the cover you need without costing too much.
Once
you have decided which insurance route is best suited for
you, you must then decide how much cover you need. Contact
an insurance company, or consult your financial adviser if
you have one. He will determine the level of cover that is
appropriate for your financial situation both before and
after you die.
Next
you will have to fill out a proposal form. You will be
asked questions ranging from your age and occupation to
details about your health and any medical conditions that
you currently have or have previously suffered from. It is
in your interest to answer all questions fully and honestly.
Any inaccuracy or false information may jeopardise a future
claim.
Now you need to consider the option of buying insurance
either directly from the insurance company or through a middlemen/broker.
You can buy life insurance either directly from the life
insurance company, or from an insurance broker approved by
the financial services authority (FSA).
Look up the phone directory or browse around on the net.
Read the ads. You will soon find either a broker or an insurance
company whose products match your needs. Some brokers operate
independently, whilst some serve as 'consultants' or 'agents'
to the insurance company.
Many
insurance companies extend their reach through the appointment
of
such brokers and middlemen. These brokers
would, in most cases, take care of all the procedural requirements
for you, including helping you choose the right type of policy.
They would even offer you a discount for the policy which
you wouldn’t have got had you gone directly to the
insurance provider. In a discounted life insurance you pay
less on your premiums yet still receive the same level of
cover.
The brokers are able to provide you a discount because the
insurance company pays a commission to them, which they may,
if they choose to do so, pass the benefit on to you.
The
commission is paid to these middlemen as the insurance
company makes
a saving on the administrative costs. Also
because the middlemen take work off them and introduce customers.
But don’t expect discounted policies to be all that
common. In practice however, things work out differently.
If you were to take a policy directly form a provider, they
would incur administration costs as would a broker. So your
chances of getting a discounted price on your premium are
few. Secondly, let’s not forget the insurance company
is in the business for profit. So it would naturally set
its charges at a level that ensures profit; which means increased
cost of premium.
A
broker would do something else that insurance companies
would
not: he would recommend that you review your term insurance
policy and premiums after you’ve had one for a period
of say five years or more. The broker knows that there is
a possibility that changing a policy at this stage could
dramatically reduce the premiums. Premiums increase as one
gets older and besides it is much longer since you took that
medical exam when you applied for the policy. With passage
of time the risk increases for the insurer. So if you were
to apply again for a new policy, and take a fresh medical
exam, the insurer can see that you would be a better risk,
thus you can cut your premiums.
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