Life insurance
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Life insurance with cash value, a long-term investment?

For those who wish to obtain life insurance, the choice of the type of insurance, with its various options, is often complex and can discourage more than one. There are two types of insurance, term insurance, and permanent insurance. Choosing life insurance is an important choice that should not be taken lightly. Among these types of insurance, there are several variants and combinations, each with advantages and disadvantages.

It is therefore important to fully understand the insurance you are purchasing to be certain that it will allow you to achieve your financial goals.

Many will consider life insurance as a product of civil liability, to cover a loan in the event of premature death, to cover the financial needs of their survivors, or to accumulate a surplus in case of emergency needs.

This article presents the various options and aims to enlighten the reader about his choice of subscription to life insurance cash value and its various components. An insurance contract may include several evolving components, in anticipation of changes and various personal and professional events.

For the examination of the various types of an insurance contracts, one can establish a classification according to the structure of the premium, in anticipation of the occurrence of the death of the insured.

An insurance contract is structured according to four components:

  1. Insured;
  2. Payer;
  3. Owner;
  4. Beneficiary;

Each component can be identified by one or more persons or companies, except for the insured who must be an insurable person.

The premium or the deposit

The premium or the deposit are linked to two components of the insurance contract which have contradictory objectives. Namely, the insured who hopes that the benefit will be paid as late as possible and the payer who wants the cheapest insurance. The insurance benefit is paid at the time of the death of the insured.

The project for the payment of premiums or deposits is associated with the time horizon which may be of a limited duration depending on the risk assessment or until the death of the insured.

The constant that all contracts are structured by insurance companies according to the cost associated with the risk of death occurring during the year.

Insurance contracts drawn up over a year are generally collective insurance contracts, generally offered by companies, associations, and financial institutions. They are revised according to renewal periods that can go up to 60 months to take into account the variable risk associated with the turnover of the insured. These contracts are held by owners other than the insured, the insured being associated with a risk profile based on occupational experience or characteristics of homogeneity.

Temporary bonuses for temporary contracts

It is possible to associate the premiums with a limited contract duration. These contracts will be called temporary. To maintain the link with the owner of the policy and prevent a potential change in the duration of the need for insurance associated with the conditions of the insured, insurance companies insurance will offer renewal conditions to the owner of the contract for a higher premium, based on the duration of the remaining life expectancy of the insured.

As life expectancy is an unknown factor, insurance companies will seek to plan the death benefit payout, depending on the age and conditions personal lives of the insured. The more recent the information on the insured, the lower the renewal premium required. For example, a contract with a duration of 10 years, renewable for another period of 10 years, the difference in premium will be minimal, on the other hand, the more the 10-year periods are renewed, the more the premiums required will be high, the period of life expectancy reducing and the probabilities of paying the death benefit becoming increasingly evident.

The duration of the contract is called the temporary period of the contract. We find on the market of temporary insurance contracts very varied durations which can go up to the age of 100 years of the insured. The shorter the duration of the contract, the lower the insurance premium will be for the insured and the lower the potential for claims of the insurance benefit will be. © high, which may not even be paid, in the lifetime of the insured, will exceed the duration of the insurance contract.

Permanent bonuses for permanent contracts

Remembering that life insurance costs are based on one year, permanent premiums are payable until the death of the insured, based on his or her hope. rancid of life. It is possible to structure the payment of premiums according to the cost of insurance, generally referred to as premiums according to the annual renewable rate “TRA” These premiums will be below the first years, higher following, even very high, the last years close to the determined years of life expectancy. In this sense, the payer will have to budget his disbursements. It may even happen that the payer dies before the insured and that he will have to be replaced.

To improve the budget planning of the payer, it is possible to request, from the insurance companies, a level premium for the duration and the life expectancy of the ™insured.

Temporary “deposit” bonuses for permanent contracts

To prevent the replacement of the payer and to guarantee the payment of the insurance benefit, it is possible to request from the insurance companies, deposits over some time. completed which will allow the insurance contract to be maintained for the life of the insured.

In doing so, surpluses will accumulate, the cost structure of life insurance being on the risk of the death of the insured over one year.

These surpluses set aside by the insurance company will remain the property of the owner of the contract, for the life of the insured. It must be remembered that the owner, the payer, and the beneficiaries can be distinct from each other and that each has its financial objectives which can be opposite if not contradictory. even if to establish a life insurance contract, the insurable interest is taken into account by the insurance companies, as well as the deontological and ethical aspects of the representative.

Also, the tax authorities keep an eye on these surpluses which can be accumulated for the benefit of the owner, rather than for insurance being paid. to the beneficiary, upon the death of the insured. Surpluses can be invested within the insurance contract in different categories of investments similar to market investments against a credited return.

To reduce this aspect, insurance companies will pay the accumulated surplus to the beneficiary, upon the death of the insured.

Nevertheless, the surpluses belong to the owner throughout the contract and can be cashed, at any time, by the owner.

The collection can be the complete redemption of the surplus accompanied by the termination of the contract.

It is possible to pay the accumulated surpluses to the owner of the contract and to keep the contract in force. The payment surpluses may be paid in the form of a loan equivalent to the surpluses or of a withdrawal.

The withdrawal of surpluses will require the recovery of deposits which could turn out to be very high. A withdrawal could also reduce the death benefit.

To protect the deposits and the death capital, it is possible to request a loan equivalent to the accumulated surpluses, against interest which can be capitalized up to the payment of the death benefit of the insured. The death benefit will be reduced by the loan and capitalized interest, but deposits will not be affected. Moreover, accumulated surpluses will continue to be credited within the contract and will reduce the interest capitalized on the loan. The payor can also pay the accrued interest on the loan at any time.

These provisions of a life insurance contract make it possible to meet the objection of an insurance subscription, that insurance is taken for the others with lost funds.

It will also be possible to replace the owner of the contract, in exchange for financial compensation or not.

Conclusion

The first step is to find the purpose of the insurance or the need for protection and to cover the risk at the lowest cost. If the period of protection is determinable, then the term insurance that corresponds to the duration of the protection will be the most appropriate.

Generally, the period of protection is indefinite, being based on the life expectancy of the insured. In doing so, the insurance companies will determine the temporary durations of their contracts at the age of 80 of the insured. Insurance, therefore, remains a risk management product where:

The amount of coverage = benefit paid on the death of the insured + the accumulated surplus – the cost of insurance – the administration costs.

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