The primary purpose of life insurance is to ensure that, in the unfortunate event of your passing, all of your financial obligations are taken care of. If you’re single these obligations could be limited to burial costs, student loans, a car payment, a mortgage, etc.ย If you have a family, these obligations may also include ensuring that your family has sufficient future income to maintain a reasonable quality of life (this is especially important if you are the sole breadwinner), that your kids can attend college, etc. [Read more…] about Introduction to Life Insurance
Participating vs. Non-Participating Insurance Policies
This concept primarily related to the topic of life insurance.ย Both types of insurance policies, term and cash value, can act as either participating or non-participating (par or non-par, respectively).ย Most policies are par policies.
Par Policies
Insurance companies will charge higher than necessary premiums with the intent of returning the excess.ย Excess premiums are charged because the insurance company will operate based on more conservative estimates.ย For example, they will base premiums on higher operating costs and lower rates of return than are actually expected.ย This allows the insurance company to better protect against non-diversifiable (highly correlated) risk. [Read more…] about Participating vs. Non-Participating Insurance Policies
