Life insurance

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Life Insurance - choosing the right type and the right company.

One of the most important decisions a person has to make is when choosing life insurance. It is possible to say that the decision is prompted by several factors. As a young person, one feels quite immortal and the idea of life insurance does not cross one's mind - unless it is to claim it at the death of one's parents or relatives.

However, as time passes and the inevitable 40's loom ever larger, plus there is the question of one's family, children, home, pets and many other etceteras, the subject of life insurance often comes up in family conversations at times most inopportune such as Sunday roast dinners, birthday parties attended by older relatives or Christmas do's where the only thing that should be discussed is how long to roast a turkey and where to get Christmas crackers.

However, the subject comes up time and time again and we are faced with the inevitable - choosing the company and the benefits.

First of all, ask yourself the question - why do I need a life insurance? Is there anybody who might be left without income after I die? Do I want my descendants to enjoy a financially-peaceful life - in other words is this going to be the inheritance I am leaving my children? Is my surviving spouse going to need an additional income? Is this going to be a source of saving for my family? The questions are manifold and you must ask yourself which

Basically, there are two things that should be considered and talked about with the family and friends. The thing is not to take just the world of the insurance salesman for the Bible.

First of all, it is necessary to explain what life insurance is. It is basically a contact between the insured (also knows as the policyholder although sometimes there might be a difference between the insured and the policyholder) and the insurer. Under this contract, the insured or policyholder agrees to pay a monthly amount of money called a premium in exchange for a payment to surviving relatives or policy beneficiaries upon his or her death or other catastrophic event such as illness or accident. Other additional clauses such as payment for funeral arrangements might be included in the policy.

It is necessary to remember that before signing any contract, and a life insurance policy is a legally binding contract, all parts must be read including the so-called small print.

When choosing life insurance normally policyholders may choose between term and whole life insurance and a traditional life insurance and a cash value life insurance. What is the difference? Term Insurance is paid out only if death occurs during the term of the policy, which can vary from 1 to usually 30 years. Whole life insurance also known as permanent insurance , as the name suggests, covers the whole life of the insured no matter when he or she dies - even if she or he gets to be a 100! Usually, this is a more expensive type of life insurance and is often called an all event life isnurance.

In a traditional life insurance policy a policyholder will pay a certain monthly premium for an x number of year and upon his or her death his surviving relatives or beneficiaries shall receive a lump sum, unless there are other clauses added to the policy.

The other possibility is to opt for a cash value life insurance which means that apart from receiving a lump sum at the demise of the policyholder, it is also equipped with a saving mechanism which means that a part of the deposited premiums can be withdrawn during the life of the policyholder. Now, there are two opinions about the second option. Some say that it is a life-jacket for policyholders in case of a dire necessity while others say that it is a simple waste of money. Again, like with any other choices , it depends entirely on a prospective policy buyer.

When choosing a beneficiary one must remember that usually children under 18 cannot be beneficiaries until they reach adulthood. It might be necessary to put a reliable adult (grandfather, mother, trusted friend) as the beneficiary of a life insurance and change the beneficiary when children reach 18. Many companies permit a free change of beneficiary although some charge for the second and subsequent change.

Who else can be a beneficiary of a life insurance policy? It is not necessarily just one person but you can leave your life insurance to more people (whether they are related to you or not), as has been mentioned before you can choose a trustee of a trust you’ve set up, you can leave it to a charity or to your estate. Then you have to think if the beneficiary is a primary or a contingent beneficiary. A Primary beneficiary is the person who shall get the death benefits if he or she can be found after your demise while a contingent beneficiary is the one that gets the death benefits if the primary beneficiary cannot be found. As has been said before, you can change the beneficiaries of your life policy however, there might be additional costs you must clarify with your insurance company.

This leads us to the last point - how do I choose a life insurance company? It definitely should not be on the say so of a life insurance salesman. He or she wants to sell you an insurance as he or she shall receive a commission on the sale so beware and look at the small print.

Here are a few pointers to help you choose the right company:

• choose one that offers the product that meets all or your or your beneficiaries' needs.

• Choose a company that has a long standing reputation in the market. Remember that you are buying a long-term product so don't go for a new fad (all your pals got insurance with them!) company that might disappear in a few years.

• Choose a company that has strong market ethics - do some Internet research and see if they are embroiled in any legal battles over payments.

• Shop around and compare monthly premium costs versus long term benefits.

• Compare different life insurance plans.

Finally, which are the biggest life insurance companies?

1 MetLife

2 Prudential Financial

3 New York Life Insurance

4 TIAA-CREF

5 Massachusetts Mutual Life Insurance

6 Northwestern Mutual

7 AFLAC

8 Genworth Financial