Month: September 2016

Far from its humble beginnings, the concept of life insurance has exploded in recent years into something much more far-reaching than a mere death benefit for a grieving family. It’s a tool for businesses to preserve and pass on assets, a tool for individuals to strengthen retirement goals, and a tool for families to combat risks. Let’s take a look at the humble beginnings of this versatile tool and follow its progress into the dynamic product that it is today!

The Law of Large Numbers

The concept of life insurance is based on the law of large numbers. This basically means that the larger the group of people you have, the easier it is to spread out the financial burden of risk to members. A group of 100,000 people only need to contribute $10 each in order to create a financial reserve of $1,000,000 whereas a group of 100 people must contribute $10,000 each for the same result. Creating large groups in which each member contributed a small amount of money allowed there to be a significant benefit to a widow after the death of her spouse without breaking the bank for all other members. 

Life Insurance — The Beginnings 

Life insurance began as a loosely organized way to help widows and their children survive after the loss of a home’s breadwinner. Hundreds of years ago, women were not able to inherit land—and many peasant families had nothing to inherit to begin with. As working men died, they left no one to care for and support their families, so churches and other groups organized funds for the payment of their support. Some of these groups didn’t provide complete financial support for the widows, but just burial benefits for the recently deceased. Eventually, the clubs even expanded to offer other benefits like disability and dismemberment payments. 

Life Insurance — The Middle Years

During the 1800’s, some companies determined that taking a premium in exchange for the promise of an insurance benefit was a more efficient and dependable way to offer a life insurance policy to a surviving spouse. This progress followed the Great Fire in New York in 1835 that left many families bereft emotionally and financially. During this time the face of insurance was changing as the automobile was making an impact and its insurance policies (created based on the historical policies of ship captains on the cargo their vessels carried) were becoming more and more popular. 

Life insurance quickly grew from being an occasional luxury policy of the rich to a necessity in every family—something that could not be said for auto insurance. It was offered as a benefit by employers and provided by unions. In the 1900s inexpensive burial policies became very popular with door-to-door salesmen selling them and collecting the premiums.

Life Insurance — Today 

Now life insurance has become as sleek and modern as the latest Apple gadget. Insurance premiums can be taken directly out of your bank account without you having to write a check and policies can be purchased online and issued electronically—without a piece of paper touching your fingertips. 

Even the benefit itself has changed. While life insurance’s main attraction is still its death benefit, there are many other benefits you can add on in the form of insurance riders. These include additional death benefits for spouses and children, accelerated benefits that allow you to access your funds after you are diagnosed with a terminal illness, and accidental death benefits that double your death benefit should you die in an accident.

Life insurance policies are more frequently being considered investments that are to be considered in a family’s net worth. Their cash value accrual methods range from simple, fixed growth to variable growth that relies on the movement of the stock market to help your accumulation along. 

No matter what you need your life insurance policy for or what benefits and riders you decide to take advantage of, it is a vital part of your family’s financial future. What was once merely a tool to help bury individuals and provide menial support to grieving widows has become a sophisticated tool to preserve wealth, as well as a utilitarian product to ensure a way of life.

Smoking is a nasty, hazardous habit. Doctors know it. Advertisers know it. Even you know it. You’ve probably been told time and time again about the many studies that have been conducted which concluded that the chemicals in cigarettes can cause or contribute to severe illnesses such as lung disease, stroke, various forms of cancer, and more. This is all old news already. But here’s some news that may actually be new to you. Smoking can send the cost of your life insurance premium skyrocketing.

Though the vast majority of the population believes life insurance is necessary, only about 40% of adults actually own it. Why? People generally think it’ll cost too much. However, depending on the policy, it’s usually inexpensive, often costing less than what you spend on your daily latte—unless you’re a smoker.

Smokers can expect to pay approximately double the price of a non-smoker in similar health.

Why is this?

As we’ve discussed, smoking significantly increases your risk of falling fatally ill earlier in life, which makes you a riskier customer for insurance agencies. They would rather collect money from healthy individuals over many years than collect money for two years from a smoker before having to pay out death benefits. It sounds grim, but it’s how insurance companies stay in business. Therefore, the greater risk posed by smokers has led insurers to charge more for the same, or sometimes even less coverage.

Insurance companies define smokers as individuals who have used tobacco products (even small amounts) within the past 12 months. These individuals may get flat out rejected by some insurers, while other insurers will simply charge more. You might be thinking that you can omit the fact that you smoke when applying for life insurance, however, this is not an ideal situation to put yourself in.

In order to purchase life insurance, you must either take a physical exam or provide recent medical records so your insurer can accurately gauge your health before determining your premium. It’s likely that your doctor already knows that you smoke, and if not, you’re doing yourself a disservice by not telling him or her. This knowledge can assist your doctor in fully monitoring your health and checking for smoking-related health concerns before they grow out-of-hand. Your doctor will pass this information on to your insurer, preventing you from omitting it.

However, if you somehow get away with neglecting to inform both your doctor and insurer of the fact that you smoke, you could still be caught later on down the road. If (or when) your insurer discovers your omission, they may declare you guilty of insurance fraud and can instantly drop your coverage. This means that the money you’ve paid to date will have been wasted, plus you will now lack protection and may be unable to get a new policy.

While you can’t change many of the factors that insurers use to calculate your life insurance premium, such as gender and age, smoking is a habit that you can quit. Not only will quitting do wonders toward improving your overall health, but it’ll also save you a lot of money considering the fact that smokers can also pay more for both health and home insurance.

If you have more questions about life insurance, feel free to call our office at (616) 897-1515. We have an experienced Life Insurance Specialist on staff to answer all of your remaining questions and offer a free assessment of your life insurance needs.