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Insurance 101

Sunday, September 2, 2012
As financial needs are very specific, life insurance policies have become highly customizable. Below are the points you need to be aware of in order to formulate a policy that can best address your needs. Don't rely soley on what your insurance agent tells you. They earn from commisions and therefore have interests that conflict your's. Review these items before you see an agent so you are knowledgeable of what you are commiting to and the options that are available to you.

Face Amount - the amount you are insured for. This is the minimum amount that will be given to your beneficiaries upon your demise. This is the main and basic component of your life insurance policy.

Premium - the amount you need to pay regularly to be insured. Understandably, the bigger the face amount, the bigger the premium.

Living Benefit - the amount that will be given to you in the event that you are still alive but want to  surrender your policy. This value increases given that you constantly pay your premiums but takes significant time before you break even, usually in the range of 10-20 years.

Death Benefit - the full amount that will be given to your beneficiary. This is comprised of the face amount plus cash value plus dividends.

Paying Period - the number of years you are required to pay premiums.

Insurance policies are usually lifetime to pay. However, there will come a point when your cash value and dividends are big enough to pay premiums for you, in which case, even if you don't pay premiums, your life insurance policy can take care of itself.

Or, you can be upfront with your agent that you only want to pay for a certain period only, let's say 10 years. If so, premiums will be adjusted, usually made bigger, to make sure that in 10 years of paying, your cash value and dividends will be big enough to sustain you policy without paying premiums anymore.

Riders - accessory/add-on protection. When you get a life insurance policy, you are basically insured against death. However, you can also get insured against disability, dismemberment, critical illnesses, etc. through riders. These are accessory protection and cannot be availed on their own. A main policy (life insurance against death) must exist first in order to get riders. These also have associated additional costs that will be added to your premium.

Dividends - bonuses given by an insurance company. These usually depend on the performance of a company thus these are not guaranteed and may or may not be given. And if given, there are no fixed rates.

Dividend Options - options on how to manage dividends. There are several options and below are the basic ones.

1. Dividends to be automatically paid to you in cash
2. Dividends to be kept and accumulate in the safekeeping of the isurance company and in turn, earn you interest 
3. Dividends to be automaticaly used to reduce premuim payments
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