Taking out a life insurance policy to secure your future and that of the people we care about is a wise and responsible choice. To accomplish it in the best way we offer you this mini-guide to guide you and identify the solution that best suits your goals and your situation.
Who should
be insured on life and why
- To those who have taken out a loan or an important debt that does not want to risk leaving the heirs or does not want to risk that they lose ownership of the property purchased
- To all those who have a family budget with income and expenses close to each other and, therefore, a saving capacity that does not allow them to cope with major unexpected events
- To those who do not have family members who could take care of him in the event of a permanent disability that prevented him from working
- To those who have started a new business or have refinanced it and want to protect their personal assets from the company's investment
- To entrepreneurs who need some specific people to produce income, without which they would have economic damage
- To those who want to optimize the inheritance tax burden in favor of the heirs
If at least one of the situations on this list corresponds to one of your needs, reading this guide will be very useful for you to make an accurate and responsible choice for yourself, your loved ones and your aspirations for the future.
Why choose a temporary life insurance policy in the event of death?
- Life insurance or temporary death insurance (sometimes abbreviated) is the most common form of life insurance and often the cheapest.
- The operation of this insurance is very simple. It provides that, in the event of the death of the insured person (or of invalidity if this possibility is also provided), a third party will be paid the sum that was chosen at the time of signing the insurance contract.
- The subjects involved in this contract are, therefore, at least three, in some cases even more.
- The first is the insurance company that undertakes to pay if the event for which it was decided to insure occurs during the validity of the contract, an event that is defined as a claim.
- The second is the person who enters into the contract and bears the costs, i.e. the so-called policyholder. The latter can insure himself and therefore also assume the role of insured, or a third person (spouse, family member, employee). Regardless of whether the policyholder coincides with the insured person or not, it is nevertheless up to him to identify the beneficiary or beneficiaries who will receive the insured sums in the event of a claim.
- It goes without saying that life insurance is a very useful tool to protect people who economically depend on the presence and ability to work of others.
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The loss of a family member is an irreversible event and, therefore, terribly difficult for a family to accept. Being able to benefit from a life insurance policy, however, allows you to face difficulties, relieved of economic worries and, therefore, with the opportunity to still be able to complete future projects: the payment of a mortgage, the university studies of the children, investment in own business. Without thinking too big, a life insurance policy allows you to meet current expenses - for example, rent - and to replenish sudden expenses due to disability or death, such as medical expenses or inheritance taxes .
Why take out a temporary death case instead of a savings and investment policy
Many think that incurring the expense of the insurance premium for a policy that pays only in the event of the death or disability of the policyholder is an ineffective solution. This is because the premium is not "recovered" if nothing happens and therefore it is more appropriate to save, putting the money aside or using savings products.
In truth, if we compare the amount insured with the premium paid, we realize that no savings formula on the market is able to provide the same type of help as a DK Insurance policy.
The premium paid therefore represents the value paid to be able to enjoy the safety of the standard of living of the loved ones we have chosen as beneficiaries.
How to decide the amount to be insured
The sum that the insurance company would pay in the event of a claim is called the insured capital. In order for the policy to be truly effective in protecting the future of the family, it is important to think well about the amount to be insured.
In general, the following parameters should be considered:
- the presence of non self-sufficient people from an economic point of view and their age,
- expenses incurred for the current standard of living and for carrying out projects for the future (studies, weddings, etc.)
- the presence of debts
- the presence of other forms of protection or other expected revenues (e.g. sale of real estate, inheritance)
The sum insured must be sufficient to cover current expenses until the beneficiaries are able to do so independently, to finance the projects for the future and to pay off any debts so as not to make the heirs responsible.
If the current income is sufficient to maintain the standard of living, the capital can be calculated more simply, considering the annual income, net of taxes and duties, and multiplied by the number of years necessary for the beneficiaries to be able to maintain themselves independently.
How to establish the duration
Once the sum to be insured is defined, it is time to identify the period of validity of the insurance. It is a parameter that should not be underestimated, as it is closely related to the objective for which we have decided to insure and having a direct influence on the premium to be paid.
Furthermore, unless you choose a policy with an annual duration, setting a duration that is too short can be not very convenient because it can hardly be extended. A new policy should be taken out and, having increased the age, if the health conditions are not the same as a few years before, the risk is to spend more.
If it ensures us to protect the future of the children, we should choose a number of years that will lead them to be at least 20 or 25 years old. If we are insuring ourselves because we have taken out a mortgage, the right duration will be that of the mortgage.
If we are participating in a short-term project for which we have an irreplaceable role whose absence would cause economic damage, we can insure ourselves for the duration of the project. Some film productions insure main actors and directors for the duration of the making of the film for example, which can last one or two years.
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In order not to be mistaken, you can always choose the maximum duration since the policies can also last up to 30 years. Abundant can increase the price of the policy, because the longer it is prolonged, the more the insured will be "old" at maturity and age is one of the criteria on which the insurance premium is calculated, as the risk of death depends on it .
As mentioned, good life policies offer flexibility over the duration, it being understood that all provide for a maximum age of the policyholder beyond which the coverage ends, typically this varies between 75 and 80 years, while for invalidity, in general, it reaches up to 65 years.
Some companies offer solutions with an annual duration, with the possibility of renewal (automatic or explicit). It can be a solution when you do not want to commit to a duration at the beginning, but it is important to know that in this case the price will increase every year because the insured has one more year. To avoid surprises, it is advisable to ask the company for the plan that shows how the renewal premium evolves, in order to have an immediate idea of the real cost of the policy and to evaluate whether it is convenient compared to the formulas with predefined duration and fixed price up to deadline.
How to choose the guarantees
When choosing guarantees, we must keep in mind what the purpose of the insurance is and how much we can afford to spend on insurance.
The guarantee of death from any cause allows us to protect the future of the people we care about in case we can no longer take care of it and is certainly the basic option of this type of policy.
It can be enhanced with options that offer increased compensation if death occurs in particular conditions - for example due to an injury or a road accident. This possibility is especially interesting for those who spend a lot of time driving, for example a commercial agent or a representative, because normally the extra expense is limited against an increase in the compensation that can even reach two or three times the sum insured. .
If we are interested in protecting not only our loved ones, but also ourselves in the event of an accident or illness irreversibly preventing us from working, it is also important to add total permanent disability.
Many policies also provide additional guarantees that provide compensation for the diagnosis of serious diseases, very useful if you are looking for complete protection without budget constraints.
What medical tests should be presented and why
In order to insure a person for life, that is to say, to take out cover for death or disability from all causes, the insurance company needs to know some information about the health conditions of the potential insured. A person suffering from a particular disease or for example suffering from hypertension has, at least from a statistical point of view, a different life expectancy from a completely healthy person who leads a correct lifestyle. Consequently, the insurance premium paid by the latter will be less expensive. Evaluating the state of health is therefore functional to establishing the amount of the insurance premium.
This assessment can be made either through statements from the person to be insured, through a questionnaire or, more in depth, with clinical examinations. Normally, if the person wishing to insure is young and the policy limit is low - as in the case of a 40-year-old who takes out a policy of € 150,000 - the company is available to activate the policy simply by asking the customer a few questions.
As the age and the amount of the insured capital increase, the need to make a more precise assessment increases, which can also include the presentation of the reports of some analyzes, also different according to the age and sex of the client: we start blood and urinalysis, but an electrocardiogram or other tests may also be needed.
The simplest case, that is, the one in which the policy can be issued with only the declarations of the insured person or his GP, involves a waiting period (on average 180 days), or a phase in which the policy covers in case of death or disability from injury, but not if these events occur due to an illness (except for some sudden causes, such as a tropical illness). This measure serves to mitigate the effects of the less thorough evaluation than medical visits. For a person in good health it may be advisable, even after the activation of the policy, to present the exams in order to ask the company to cancel the shortage and have full peace of mind right away.
How to choose and inform the beneficiaries
The subject or subjects to whom the sum insured with the temporary death insurance policy is to be allocated can be freely chosen by the policyholder and there are no specific requirements required by law If the holder of the contract has not expressed preferences, the company will consider the legitimate heirs as beneficiaries and will divide the compensation equally between them.
Of course, those who have signed the policy can decide on a different division of the sum or identify as beneficiaries persons other than the heirs, even in the absence of family ties.
The beneficiary can be indicated at the time of signing the policy, specifying it in the application forms, but also at a later time and can be changed during the validity of the policy, by formally communicating it to the insurance company. The civil code also recognizes the possibility of establishing the beneficiaries of the policy by indicating them in the will, considering this solution equivalent to the written communication to the insurance company.
Beneficiaries may or may not be aware of the existence of the policy and their right to compensation. Informing them or not is therefore a free choice of the policy holder. It is clear that the awareness of the beneficiaries helps the insurance company to meet the payment obligation , as people are more easily identifiable and found. Informing another family member or a trusted person of the existence of the policy may be an alternative to consider to ensure that the claim is effectively presented to the insurance company on time and that the latter is able to quickly find the beneficiaries.
The times for requesting compensation in the case of life insurance are very long: the law grants 10 years from the date of the event, precisely to protect the rights of the beneficiaries. What is certain is that, to maximize the usefulness of the policy in the moment of greatest difficulty, the sooner you proceed with the request to the company, the better it is for the family.
How much does a life insurance cost?
The classic temporary death policy which provides for death and disability from any cause has the particularity of not having a standard price, because the amount of the premium is established based on the amount of the insured sum, the duration of the policy and personal characteristics of the insured, namely his age, health conditions and lifestyle habits. To give an example, a policy for a smoker is more expensive than that for a non-smoker, for the same amount insured, age and fitness.
In case of a client with advanced age, smoking habit or particular health conditions, the costs may be higher. An alternative to have immediate protection can be to take out insurance against death and total permanent disability due only to accidents. In this case the costs are lower and not influenced by age and lifestyle. With Secure Now from DK Insurance,
How to enjoy the tax benefits
Speaking of budget, it must be remembered that the policies that protect against death and total permanent disability are those that have retained most of the tax advantages following the recent changes.
First of all, the premium paid is tax deductible up to a threshold that has been subject to several revisions in recent years. The deduction foreseen for the 2016 tax return is equal to 19% of the premiums paid for death and total permanent disability guarantees (provided that it is greater than 5%).
To benefit from the deduction it is sufficient to have the annual summary of the premiums paid the previous year which, normally, the companies send to the customer specifying the amount to be deducted.
The most interesting benefits concern the indemnity paid to the beneficiaries which, in addition to being unencumbered and inseparable, is not part of the inheritance and is exempt from inheritance taxes. Recently there have been many doubts about this last aspect, because the tax legislation on life policies has been updated, providing for different treatments for temporary life insurance policies, compared to policies that have savings and investment purposes.
How to read the information package and the contractual documentation
The contractual documentation that is delivered to you by the company or by the intermediary is very rich. There are some parts of it that we advise you to focus on particularly.
First of all, all the documents that prove the activation of the policy, or the certificate (sometimes replaced by the combination of Insurance Proposal and Cover Confirmation Letter). In them you will find the data of the insurance company and the characteristics of the product you have subscribed to (expiry date, guarantees, ceilings, etc.) and it is important to keep them in a place where you do not risk losing them and, why not, make a digital copy if the company has not sent you the documentation in this form.
The Information Booklet is the document which, among the numerous information, contains the contractual conditions of your insurance. It is worthwhile, before signing it, to dwell above all on the articles that describe the guarantees, but also other aspects that affect the effectiveness of the policy itself, for example if there are professions or activities that cannot be insured or other exclusions.
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Some jobs have such risks that they cannot be insured with a standard policy, but require an ad hoc solution: this is why these professions or trades can appear in the article that lists the so-called "non-insurable" subjects. The articles that, on the other hand, describe the exclusions explain in which situations, in the event of a claim, the payment of the compensation is not foreseen. Those common to most policies are, for example, the practice of very dangerous sports - for example parachuting - or some behaviors of the insured that can cause the accident - such as the use of drugs for non-therapeutic purposes. The cases described by the exclusions are often extreme, but to understand how a policy works it is good to know that they exist.
