Term Life Insurance Q&A

Life Insurance Policies Explained

Did you know that life insurance policies have pretty much been around since the first days of organized civilization?  Records from ancient times tell stories of merchants that took out life insurance policies whenever they went on journeys.  Of course, the holder of the life insurance policies prayed that the merchant never came back to collect on the policy. 

Life insurance policies as we know them today actually began in 1700's England when businessmen would meet at Lloyd’s pub and discuss the ways people provided for their loved ones after their death.  This was how Lloyd’s of London – a well known insurance firm – got its start and modern life insurance was born.  The ideas borne from Lloyd’s of London swept across the Atlantic to America and many Christian churches started their own form of life insurance policies for their poor constituents who need help burying their loved ones.

Life insurance policies are considerably different to what they used to be and they are more evolved than their ancestors.  The life insurance policies today are pages upon pages of information that is designed to protect you and the insurance company from fraud.  Plus, you have more options to choose from in the type of insurance you can qualify for.  There are three popular life insurance policies that people seem to prefer: term life; whole life; and universal life insurance.

Many people believe that the best policies available in today’s market are term life policies. As the name suggests, these policies involve paying a pre-determined premium for a set ‘term’ or period of time. Premium prices are usually fixed, and this means that it is easy to plan repayments as per your monthly budget. Death benefits are usually higher as well, as it is less likely that you will experience a drastic change in your lifestyle between term renewal periods.

Alternatively, you may wish to apply for whole life insurance. With these policies, you get more options and a bigger price range than with term life. These policies will stay the same throughout your lifetime, and won’t change with any lifestyle changes or changes to your health status. They also come with an investment product attached which counts as a personal asset which can be borrowed against or cashed in if necessary. Whole life lacks the flexibility and value for money of term life insurance, but you get more for your money over time.

Similar to whole life insurance is universal life insurance which has benefits from both term and whole life in that it accumulates cash value over the duration of the policy’s term, but has flexible benefits that you may find in a term life plan.

New to the life insurance policies industry are viatical settlements.  They are a bit problematic to many life insurance companies because the work on a different concept that the three life insurance policies listed above.  What happens is this: a terminally ill patient who needs cash can sell their life insurance policies to a company or an individual who then names themselves the beneficiary of the life insurance policies. 

Usually the life insurance policies are purchase by the new beneficiary for a fraction of the value of the policy itself and it gives the original policy holder cash to use while they are still alive to pay off their debt or do something for themselves before they die.  When the buyer cases in the life insurance policies when the seller dies, they make themselves a nice profit, usually between 35 and 50 percent return on their investment.  It is a legal transaction, but it drives insurance agencies up the wall.