Things to Consider Before Applying for a Life Insurance Policy
Life insurance is essential to protecting your finances and maintaining the financial stability of your family. Whether you’re in your 20s, 30s, or 50s, life insurance is required at every stage of your life to take advantage of the maximum financial benefit that you can.
Choosing the right insurance among so many available insurance options can be daunting. How do you do it? Ask questions from the time of your application process or when contacting companies. The key elements of insurance include life and death coverage, premiums, dividend rates and non-direct or direct recognition life insurance. Always resolve all of your questions before buying an insurance policy.
There are a few things to consider before making the final deal with your insurance company.
Life Insurance Benefits
The first concern for any insurance policy is the coverage they provide in case of any uncertainty. An initial need analysis is a great way to find your insurance needs and look for insurance coverage based on those needs.
Insurance companies use the term "human life value" to measure the person's monetary worth to provide life insurance and death claims. Human life value is calculated considering all the values of incomes, expenses, investments, and liabilities of a potential policy holder.
Life insurance has many terms that play a vital role in the benefits you receive at the time of maturity. So you will need to look for any charges that are deducted from your maturity amount.
Premium Payments Terms
PPT or premium payment term defines the total value you pay to your insurance company in a definite period of time.
Here you should ask questions like how much you are paying and how long? Do you get back the value that you are paying? How does the premium term add to or balance your current financial burden?
All these questions have to be answered before deciding on your premium value and term of payment.
Direct Recognition Vs. Non-direct Recognition
Many insurance providers don't clarify the terms “direct recognition” and “non-direct recognition” to the insurer before taking the policy. Yet it is one of the most crucial considerations, especially if you plan on using your insurance policy in an infinite banking plan.
According to an article by Truth Concepts, direct recognition and non-direct recognition life insurance are defined as follows:
Direct Recognition Life Insurance
As stated in banking terms, "In a direct recognition company, the earnings rates on loaned cash value are affected both positively and negatively when the cash value is used as collateral." The dividend is paid only on the remaining value of the policy left after providing the mortgage.
For example, suppose you have withdrawn a loan of $100 on your policy cash value of $500. In that case, after deducting the loan amount, the final dividend calculation takes place on the current cash value. After the deduction of $100, the value left is $400 dollars, which is the cash value on which your dividend will be calculated.
Non-direct Recognition Life Insurance
"In a non-direct recognition company, the earnings rate on cash value is totally unaffected by any loans against cash value." No matter the loan value of your policy, your dividend will be calculated on your total policy value. In the above example, if your cash loan is 100 dollars and your cash value is $500, the dividend will be calculated on the full $500 without any deductions.
The type of insurance you are opting for will decide all insurance benefits and claims at the time of maturity. It is always better to clarify and ask questions or get your insurance agent to do it for you before choosing what is right for you. Life insurance is your lifelong savings and it is best to analyze all your risks before making any financial choice. You also can, and should, ask for help from a professional who can guide you in your financial decision making.
Disclaimer
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