Fraternity-Testvériség, 2007 (85. évfolyam, 1-3. szám)
2007-01-01 / 1. szám
Report of the Secretary—Treasurer Many of us need a refresher on the kinds of insurance policies HRFA offers for your benefit. This report discusses the purpose of life insurance, the need for life insurance, the cost determination of policies, the two basic types of policies, and the supplemental benefits. First of all, your need for life insurance will vary with your age and responsibilities. The amount of insurance you buy will depend on the standard of living you wish to assure your dependents. You should evaluate the amount of assets and sources of income available to your dependents. Social security benefits, available cash and other sources of income and investments may not provide the standard of living you have in mind. Life insurance helps bridge the gap between the financial needs of your dependents and the amount available from other sources. This is the amount that should be provided by life insurance. Your branch manager can help you with these calculations. One approach to determine how much life insurance you should carry is to analyze the various needs of your family in the event of the passing away of the main wage earner. Life insurance satisfies a number of these needs by providing a fund that can be used to: . Pay off debts such as medical bills and funeral expenses. • Pay off a mortgage. • Pay for the children’s education. . Provide funds for retirement. The premium rate for a life insurance policy is based on two underlying concepts: mortality and earnings. A third variable is the expense factor which is the amount HRFA adds to the cost of the policy to cover its operating costs of selling insurance, investing the premiums, and paying claims. Life insurance is based on the sharing of the risk of death by a large group of people. The amount at risk must be known to predict the cost to each member in the group. Mortality tables are used to give HRFA a basic estimate of how much money it will need to pay for death claims each year. By using a mortality table, HRFA can determine the average life expectancy for each age group. The second factor used in calculating the premium is earnings. HRFA invests your premiums in conservative bonds, stocks, and mortgages. HRFA assumes it will earn a certain amount on these invested funds. The third consideration is the expenses of operating HRFA and includes salaries, agents’ commissions, postage, etc. The amount charged to cover each policy’s share of expenses of operation is called the expense factor. HRFA offers two types of life insurance plans-term or permanent. Term insurance provides protection for a specified period of time. Coverage can provided for as short as one year or for as long as you desire, if renewed annually. If you die during the term period, HRFA will pay the face amount of the policy to your beneficiary. If you live beyond the term period, no benefit is payable. As a rule, term policies offer a death benefit with no savings element or cash value, but the coverage is less expensive than a permanent policy. While term insurance is designed to provide protection for a specified time period, whole life insurance is designed to provide coverage for your entire lifetime. To keep the premium rate level, the premium at the younger ages exceeds the actual cost of protection. This extra premium builds a cash value which helps pay for the policy in later years as the cost of protection rises above the premium. Whole life policies stretch the cost of insurance over a longer period of time in order to level out the otherwise increasing cost of insurance. Under some policies, premiums are required to be paid for a set number of years. Under other policies, premiums are paid throughout the policyholder’s lifetime. Whole Life policies, which are sometimes called cash value life insurance, generates a savings element. Cash values are critical to a permanent life insurance policy. The policy’s essential elements consist of the premium payable each year, the death benefits payable to the beneficiary, and the cash surrender value the policyholder would receive if the policy is surrendered prior to death. You may get a loan against the cash value of the policy at a specified rate of interest but such outstanding loans, if not repaid, will reduce the death benefit. At the time you purchase a life insurance policy, certain supplemental benefits are available to you. Usually the addition of a rider is reflected in an additional charge by HRFA and may require that the insured provide evidence of insurability. Some of the more important riders to add are: Waiver of Premium-this provides that your policy will be kept in force by HRFA without further payment of premiums if you become totally disabled before age 60, after an initial waiting period. Premiums are waived as long as your disability continues, and policy benefits including cash values continue just as if you had paid the premiums. This cov4 Fraternity - Testvériség / Spring 2007
