Insurance
From OneBuckWiki
Insurance: Premium paid to hedge the risk of a predefined event for a maximum coverage.
Even though there are more than hundered types of Insurance, Most common are Life, Health and Auto.
Insurance vs Assurance
Insurance is coverage for an event that is a probable. e.g: Fire, Accident. Assurance is coverage for an event that is certain to happen. e.g: Death.
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Life Insurance
Most common forms of Life Insurance are Term, Whole Life, Universal, Limited Pay, Endowments, Accidental death.
Term Life
Term Insurance: This is where you define a term like 10 year or 20 year. Term Life premiums are low compare to similar products in most cases. Premiums change depending on Age of the person, health status of the person and various other factors. Term Insurance is recommended by top financial advisors. Instead of paying $100 a month for universal life policy, It is wise to page less than $10 a month to Term life insurance and Let the $90 go towards tax efficient savings. If there is still room in that specific years tax sheltered account, putting $90 a month will bring a refund of $18.00 even at 20% tax rate.
Putting Tax sheltered Money in a Low expense long term growth fund will not only bring spectacular returns over time, your investment will be grow compounded without paying tax. Ofcourse, any money ftaken will be taxed at that time.
Pros:
- Low monthly cost.
- Insurance company can not cancel the policy in most cases.
- You may not need additional insurance if you have enough savings later. So you can terminate.
Cons:
- High cost at older age. But Is it worth to take Life Insurance beyond age 60? Most companies will deny.
- Increased payments after the term.
- Between terms, Denial from Insurance company to give Insurance.
Universal & Whole Life Insurance
Universal Life
Universal policies comes with cash portion of the policy which makes attractive. Guranteed Intrest payments are normal in these policies.
A Lumpusm payment between $5000 and $10000 may be cover life insurance for a newly born child thru the life with variable coverages besed on age with maximum of One Million dollar coverage. This seems good approach. Mathematically, It may be little expensive but a considerable option.
Whole Life Insurance
This is for people who seek insurance protection for entire life. Premium payments will remain the same thru life of that policy.
Pros and Cons of Universal and WholeLife
Pros
- Cash value in the policy
- Fixed Payment amounts
Cons
- Higher payments
- Total expenses paid may be higher : A tiny percentage increase in expenses with compunded effect makes it expensive.
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