According to the 1999 National Association of Funeral Directors Survey, the average funeral costs $5,778.16.
What’s the purpose of life insurance?
Life insurance is usually purchased by individuals to cover loss of income in case of death and to assist with subsequent expenses such as medical and funeral bills, child care costs, college expenses, and the costs associated with day-to-day living, such as mortgage and rental payments. Death is not always necessary for an insurer to pay the value of an insurance policy, however; some policies contain features providing retirement income and cash savings. Life insurance may offer both protection and savings.
What types of life insurance are available?
There are many varieties of life insurance policies, but some common types are term, universal, and whole life.
Term Life Insurance is a low-cost way of providing the largest insurance protection for your premium dollar. Protection is provided for a limited number of years. The insurance expires without value if the insured lives beyond the policy period, usually 5 to 30 years. Term insurance premiums will not increase during the guaranteed policy time period you select. Term Life Insurance pays a death benefit only if you die during that term. The insurance coverage terminates if you discontinue your premium payments.
Universal Life is a flexible-premium policy, that unlike traditional cash value life insurance, divides the pure insurance protection and the cash value accumulation into separate and distinct components. Premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The cash value of the policy at its maturity depends upon the value of the investments made by the insurer.
Whole Life provides permanent protection for the whole of life – from the date of policy issue to the date of the insured’s death, provided that premiums are paid. Premiums are set at the time of policy issue and remain level for the policy’s life. Unlike term insurance, whole life combines insurance protection and savings or cash value which builds over time. Cash value build-up may provide a source for living benefits, for example, helping pay off a mortgage, or a child’s education, or cash surrender value if the policy is ever cancelled.
How are life insurance premiums determined?
In addition to being based on the type of policy issued, premiums are determined by insurers through the use of mortality tables. These tables are statistical analyses of the deaths of a given group of individuals, beginning at birth and extending until all members of the group are dead. For example, a mortality table will show the likelihood of death in terms of the number of deaths per thousand persons and in terms of the expectation of death at each age. So your age is a top factor in determining your life insurance premium. Other factors include your health, occupation and hobbies.
