SOME PEOPLE swear by insurance protection. Others would be caught dead without it were it not for the Government’s National Insurance Scheme. The Government scheme is virtually automatic for every working Barbadian. The coverage being considered though is coverage you would have to choose to buy.
Because insurance can be so misunderstood, approaches by insurance sales representatives are sometimes brushed off prematurely. The unknown is feared and distrusted.
Then, there are also some people, usually those who have just started working, who buy insurance coverage because “it is a good thing to have”, not fully understanding what the insurance agent has presented. They buy a product which they expect will give some future benefit. They trust the agent. They also may be following the advice and example of friends and relatives.
For those of you who long to have a better understanding of insurance, here follows some explanations and options. Even before an agent approaches you, you can and should review and consider your real need for insurance coverage.
Insurance coverage provides protection for loss by reducing the consequences of the loss. Today, you can insure against almost any kind of potential loss. This article deals with life insurance.
Coverage involves the economic sharing of risks. The insurance industry is becoming more and more sophisticated. The most popular example is life insurance coverage. Some of us will die young. We just do not know exactly who will die and when. We can pool together funds and on the death of a member, the family of the deceased gets a payment from the funds to mitigate the consequences of that loss.
Payout provided to beneficiary
A life insurance company is a formal business operation which pools such funds in a structured way and provides a payout to the beneficiary of the insurance policy at death or on the maturity of the policy. Formal contracts or policies are sold to people seeking insurance coverage for different reasons.
Before you can purchase life insurance coverage, though, you need to prove that the life to be insured is insurable and that you have an insurable interest. Insurability typically means that you have a reasonable expectation of prolonged life. You will be required to establish the insurability of the life to be insured.
The person to be insured would usually attend a medical examination or provide a medical reference. The extent of negative factors turning up in the health profile is the extent to which a premium may be added to the cost of coverage.
You can insure your own life. However, you need to have an insurable interest in another person to be able to insure their life. For example, parents can insure children, husbands can insure wives and vice versa, employers can insure employees and so on. On the other hand, you would not have an insurable interest in your neighbour unless there is some other familial connection between you. Notice that when you take out insurance on someone else’s life, you are the owner of the policy although the life insured is theirs.
The life insurance product basically offers three different ways of coverage: term, endowment or universal life coverage. A term insurance policy provides payout only on the death of the insured life. The coverage is for a fixed period, say a year or a number of years. In many ways, term insurance can be considered the intrinsic insurance product since it accumulates no cash value or does not provides for any savings. It provides insurance coverage only.
The sole benefit ever paid out is on the death of the insured life and that death must be during the period of coverage.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
