Life Insurance:Meaning, Benefits-Ghana and Globally
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What is Life Insurance?
Life Insurance is a contract between an insurance company and a policy holder and beneficiaries to pay a lump sum of money during critical or terminal illnesses, disabilities or death of the insured lives.
- Life insurance is a contract between a life insurance company and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime. -1
- Life insurance is defined as a legally binding contract between a policyholder and an insurer in which the insurance company provides financial protection to the policyholder and pays a death benefit to the nominee when the insured dies. For a life insurance policy to remain in force, the policyholder must pay regular premiums over the period of time or pay a single premium upfront. 2
What are the benefits of Life Insurance?
Life Insurance has several benefits, including:
1. Financial Protection
2. Wealth Creation
Builds savings Habit
Achieve you big financial goals
3. Tax savings
Is Life insurance worth buying?
Do I need a Life Insurance plan?
Yes! Life insurance policies are a guarantee for your loved ones. Buying the best life insurance policy can help in providing financial assistance to your family in an unfortunate event. This covers accidental death, permanent and temporary disability, and child support. You need a life insurance plan if:
a) You are married
b) You have children
c) You are unmarried
Whether you are single, married or have kids, you need a life insurance plan to stay protected. If your family relies on you for financial support, it is better you consider buying the best life insurance plan. The cost of education is spiraling and building an education fund right from the beginning is the only solution if you want to secure their future. Also, even if you are single, unexpected expenses may pop up anytime, catching you completely off-guard.3
What do you have in your financial portfolio?
How much savings are you able to make to take care of unforseen circumstances.?
Do you have a pension plan ? How far will that take you into the future?
How about an inheritance plan? If you fall dead today what becomes of your estate?
Certainly there are no guarantees in this life. it's however your responsibility to plan your financial future irrespective of your current financial situation.
How much life insurance do you have in your financial portfolio? I it substantial enough to cover you and your love ones during critical periods of your life?
Have a substantial life cover(s) that can outlive you and ensure a comfortable future for your kids and entire family whether in your absence or your presence.
How much is life insurance?
The cost varies, depending on a number of factors. But life insurance is generally considered to be good value.
A policy giving your loved ones a decent amount of financial protection can cost from just a few pence a day.
Your monthly payments will depend on things such as:
your age
your health
your lifestyle
whether you smoke
your family medical history
the length of the policy
your occupation – a high-risk job might push your premiums up.
The price is also affected by the level of cover you buy. The amount of cover you need will depend on:
any debts
mortgage/rent
number of dependents
take-home pay or income from other sources. 4
Things to Think about when buying life Insurance.
1. Be honest about your medical history
Most claims are successful, but it’s important to give your insurer all the information they ask for. When you make a claim, they will check your medical history. If you didn’t answer truthfully or accurately in your application, or didn’t disclose something, they might not pay out.
2. Read the small print
Make sure you know exactly what is and isn’t covered. Be aware that definitions and exclusions (what isn’t covered) can vary between different insurers. If you see something you don’t understand, ask the insurance provider, or your insurance broker or financial adviser.
3. You can change your mind
You have 30 days from buying the policy to change your mind and get a full refund.
4. Can you switch to a better deal?
If you’re young and/or healthy, it might be worth seeing if you can a better deal elsewhere.
But as you get older or develop medical problems, you might find it’s cheaper to stick with a policy you bought when you were younger.
If you decide to switch, make sure you don’t cancel your existing policy until the replacement policy is fully set up and you have made the first monthly payment.
When you’ve cancelled a policy, you can’t change your mind.
5. Consider a waiver
With some insurance policies, you can ask for extra features to be included. For example, if you pay a bit extra to add a ‘waiver of premium’ to your policy – your premiums will be paid automatically if you can no longer work due to accident or illness.
This is to protect against your policy being cancelled if you miss a monthly payment.
What Type of Life insurance do i need?
Which type of life insurance you need depends on several factors, including your reason for purchasing a policy, your finances, and any investment goals you may have. Below are some of the most common life insurance policies available as well as when they may suit your needs.
Term Life Insurance
A term life policy lasts for a specific period, typically from one to 30 years. During the term, the policyholder makes fixed premium payments in exchange for a guaranteed death benefit.
Under a term life policy, coverage ends at the end of the term. However, some insurance companies allow policyholders to extend the coverage to another term or convert it to a permanent policy.
Term life insurance is often the most affordable policy available.
Whole Life Insurance
Whole life insurance is one type of permanent life insurance. As long as the policyholder pays their premium, the policy will remain active for the insured’s entire life. In most cases, the policy premium and death benefit are fixed, and you will pay the same premium as long as you have the policy.
Whole life insurance also has a separate cash value component, which grows as the insurer pays dividends, a portion of the insurance company’s revenue that is paid to policyholders. Policyholders may be able to withdraw from or borrow against the cash value portion of their policy to fund expenses while they’re living.
Based on our analysis of current costs, a whole life policy is typically more expensive than a term life one, but it may be a good option if you don't want a policy limited by term lengths. It also may be a good option if you’d like a savings component incorporated into your plan.
Life insurance is one way you can provide financial support for loved ones after you die. When you open a policy, you will pay a regular premium – often monthly or annually – in exchange for coverage. As long as your policy is active when you die, the insurance company will pay out a lump sum, also known as a death benefit, to the policy beneficiaries.
Even though many life insurance policies work the same way, each type has significant differences that further define how they work, including how long the coverage lasts, if the policy includes an investment component, and whether or not you can access funds before your death. Understanding these differences can help you select the best policy for your needs.5
What Does Life Insurance Cover?
Unlike other insurance policies, which typically dictate how the policyholder can use a claim payout, life insurance benefits can cover a wide variety of expenses. In many cases, policyholders invest in a policy to replace their income and ensure that their beneficiary can meet financial obligations, including:
End-of-life expenses, such as funeral and burial costs
Mortgage payments
Tuition payments
Personal debt, including outstanding loans or credit card bills
Day-to-day expenses, like groceries
Financial obligations aren’t the only way to use death benefit funds, however. Some individuals choose to open a life insurance policy to build an inheritance for their children or make a charitable donation to the policyholder's organization of choice.
Depending on the policy you choose, you may also be able to use the funds to manage expenses while you’re alive. For instance, if you have a whole or universal life policy, your insurer will likely let you borrow against it to fund expenses like your child’s college tuition or make a down payment on a house. However, keep in mind that if you do borrow against your account, the full death benefit may not be available if you die before paying back the funds.
What Doesn’t Life Insurance Cover?
Life insurance covers most causes of death, including natural and accidental causes, suicide, and homicide. However, some caveats may prevent your beneficiaries from receiving their payout.
Steven Weisbart, who served as the chief economist at the Insurance Information Institute until his retirement in 2020, says there are two common reasons why an insurer may deny a life insurance claim: a lapse in payment or misrepresentation of the insured’s health.
If health information is misrepresented or omitted, insurance providers may deny a claim. That is particularly true during the contestability period, which is typically a two-year window after the policy begins.
In addition to those common causes, an insurer may deny a claim based on the circumstances of the death. For instance, if the insured dies by homicide, the insurer may not cover the claim if the beneficiary is responsible for or involved in the victim’s death.
Life insurance policies also frequently include what’s known as a suicide clause, which voids coverage if the covered individual dies by suicide within a specific period, often two years, after opening a policy.
Finally, some insurance providers will deny claims if the insured dies while engaging in a high-risk activity, like skydiving, at their time of death. As such, it’s important to discuss life insurance coverage limitations with your agent or broker before purchasing a policy.
What Type of Life Insurance Do I Need?
Which type of life insurance you need depends on several factors, including your reason for purchasing a policy, your finances, and any investment goals you may have. Below are some of the most common life insurance policies available as well as when they may suit your needs.
Term Life Insurance
A term life policy lasts for a specific period, typically from one to 30 years. During the term, the policyholder makes fixed premium payments in exchange for a guaranteed death benefit.
Under a term life policy, coverage ends at the end of the term. However, some insurance companies allow policyholders to extend the coverage to another term or convert it to a permanent policy.
Term life insurance is often the most affordable policy available
Whole Life Insurance
Whole life insurance is one type of permanent life insurance. As long as the policyholder pays their premium, the policy will remain active for the insured’s entire life. In most cases, the policy premium and death benefit are fixed, and you will pay the same premium as long as you have the policy.
Whole life insurance also has a separate cash value component, which grows as the insurer pays dividends, a portion of the insurance company’s revenue that is paid to policyholders. Policyholders may be able to withdraw from or borrow against the cash value portion of their policy to fund expenses while they’re living.
Based on our analysis of current costs, a whole life policy is typically more expensive than a term life one, but it may be a good option if you don't want a policy limited by term lengths. It also may be a good option if you’d like a savings component incorporated into your policy.
Universal Life Insurance
Like whole life insurance, universal life insurance covers you for your entire life, as long as you make regular premium payments, and has a cash value. However, cash value growth depends on market growth.
When market interest rates are strong, the cash-back value of a universal policy will grow at a higher rate. The opposite is also true: when markets are performing poorly, the cash value will grow at a slower rate. Standard universal policies will usually have a guaranteed minimum interest rate.
You can also borrow against or withdraw funds from this account to pay your premium or to fund expenses like weddings, educational expenses, or a down payment on a new home.
Unlike whole life insurance, universal life insurance offers more flexibility because you can typically change your death benefits and premiums to accommodate changing circumstances. As such, it may be worth considering if you’re looking for a policy that provides more flexibility.6
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1 Investpedia. https://www.investopedia.com/terms/l/lifeinsurance.asp
2. retriieved 13th Aug 23 https://www.canarahsbclife.com/life-insurance/what-is-a-life-insurance-policy-and-how-does-it-work
3. retriieved today 13th August. https://www.canarahsbclife.com/life-insurance/what-is-a-life-insurance-policy-and-how-does-it-work
4 . retriieved today 28/08/23 from https://www.moneyhelper.org.uk/en/everyday-money/insurance/what-is-life-insurance#:~:text=Life%20insurance%20pays%20out%20either,level%20of%20cover%20you%20buy.
5. retriieved today 28/08/23 from https://www.moneyhelper.org.uk/en/everyday-money/insurance/what-is-life-insurance#:~:text=Life%20insurance%20pays%20out%20either,level%20of%20cover%20you%20buy.
6 retriieved today on 28/08/23 from https://www.usnews.com/insurance/life-insurance/how-does-life-insurance-work