ARM’s Guide to Life Insurance

What is Life Insurance?

Life Insurance is a contract between the owner of the Life Insurance policy and a Life Insurance company, whereby the life insurance company agrees to pay a defined sum of money upon the death of the policy owner.

In return, the policy owner or payer (they are usually one and the same) agrees to pay a defined amount called a premium regularly, usually monthly.

The policy owner is nearly always the life insured: you insure yourself in order to protect your family. However, a wife can, for example, buy a policy on her husband’s life; or a business can buy life insurance on the lives of one of their employees to protect them against the impact of that employee’s death on the business. In these situations there has to be a clear insurable interest i.e. the policy purchaser must demonstrably suffer some kind of loss if the insured person dies. Otherwise it is open to abuse and turned down by life insurance companies.

Events other than death can be insured such as terminal illness, accidental death or critical illness.

Life Insurance should be viewed as a form of protection, but certain types of policies effectively act as enforced saving and investment vehicles useful for retirement planning purposes.

Policies usually have notable and understandable exclusions. They won’t pay out in cases of suicide, war, riot and civil commotion.

Life Insurance contracts are also written on the basis that both parties are acting in good faith. The policy purchaser should be able to assume that the contract offers what it says without having to fine comb the small print to look for exclusions and loopholes. However, it is also wise to go with reputable companies through an adviser, and to check you understand the details and exclusions. Equally, the insurer assumes you are being honest about the details, especially health and lifestyle, that you provide. Not being truthful about these details can invalidate the policy.

What are the benefits of Life Insurance?

  • Primarily, Life Insurance is a protection against financial loss arising from death. It is a way of ensuring that your dependants or beneficiaries such as a spouse or children can maintain their standard of living in the event of death.
  • It is easy to underestimate the impact of your death on others and therefore to forget the varied uses to which Life Insurance can be put. For example, Life Insurance could pay off your personal or business debts so that your dependants are not saddled with paying them off.
  • It can ensure that your children would be able to continue their education without interruption.
  • It could pay for childcare so that your spouse could go out to work to compensate for the loss of your income.
  • It could pay for your funeral and other death expenses such as lawyer’s fees.
  • It could pay for a family member with special needs who is dependent on you.
  • Life Insurance can also be treated as separate from your estate as far as probate is concerned. This has a couple of benefits. One is that it can pay out quickly without having to wait for probate to be granted. Secondly, it means that creditors – those to whom you owe money at death – cannot make a claim against it.
  • Life Insurance can be a good way of enforced savings: putting away regular amounts over many years.
  • It also preserves your capital in a safe, conservative form.

What different types of Life Insurance are available?

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There are two different types of Life Insurance available.

The first type is called Term Life Insurance which provides protection for a specified period of time or term. These policies provide a stated benefit upon death of the insured, providing that the death occurs within the policy period. There are no investment returns beyond this simple but vital benefit.

The second type is called Permanent Life Insurance because it covers the whole life of the insured. Unlike Term Life Insurance it has two elements: a death benefit and a savings component. The savings component can be used for wealth accumulation e.g. for use in retirement. The guaranteed cash values can provide money later on to help with temporary needs or emergencies.

There are two types of Permanent Life Insurance.

  • The first is Whole Life policies which have a predetermined premium, a guaranteed rate of interest and a fixed death benefit.
  • The second type are called Universal policies and they separate out the investment and death benefit elements rather than having them intertwined. The investment choices include some equity investments and can potentially therefore grow your wealth more rapidly. You can also change your premiums and death benefits to suit your budget and circumstances.

Is it for me?

Everyone who has dependants should have Life Insurance if they can afford it. It is one of the most fundamental forms of protection.

If you have children and a non-working spouse it is especially important.

You should see Life Insurance as a dynamic, fluctuating need. As you marry and have more children your level of life insurance should increase. As those children become independent and /or you retire, you can decrease your protection.

Your premium will be determined by the life insurance company based on your health and level of risk. You have to undertake a medical examination. The cost is then calculated using mortality tables compiled by actuaries. Actuaries are professionals who use mathematics and statistical probability and who constantly analyse the mortality data in their countries.

The main factors that are assessed are your age, your gender (women tend to live longer than men) and whether you smoke. Other factors include your alcohol intake, and your family’s health record as many illnesses have a genetic component to them.

What tips can ARM provide?

  • If you have dependants, you should have Life Insurance.
  • You should review your Life Insurance needs as you go through life.
  • Shop around for the best deal from Life Insurance companies, and seek guidance from an advisor.
  • Make sure you know of any important caveats within the policy before signing.
  • You can reduce your premium by giving up smoking (if you do), by reducing your weight and taking regular exercise. More importantly, you will prolong your life.
  • Term policies are good for short-term goals such as paying off a loan or for straightforward protection during the child-raising years.
  • Permanent policies are better if you want investment value as well as protection. Universal, Permanent policies give you more flexibility and freedom.

How do I start?

Please talk to an ARM Wealth Advisor or buy online.

ARM’s Guide to Health Insurance

What is Health Insurance?

Since ancient times, people have pooled together their resources to help look after their families in times when the main provider would become ill or die, leaving the rest of the family vulnerable.

Each family paid into a collective pot which any family could draw on in times of ill-health or death. In this sense, Health Insurance is one of the oldest and most basic forms of financial planning.

In many countries where there is a public health service, many individuals or employees still choose to pay into private health insurance schemes in order to be treated quickly, at a time that suits them.

Health Insurance can cover medical care including dental care; critical illnesses which stop people from working; disability through illness or injury and long-term nursing care (usually for the elderly).

What are its benefits?

  • Health Insurance can help you pay for regular, preventative health checks which aid in detecting potential illnesses early before they develop. Prevention is not only better than cure, it’s cheaper and prolongs your life.
  • Health Insurance can reduce the cost of getting treatment and speed up the process of being diagnosed and receiving treatment.
  • It also spreads the cost of medical treatment by the payment of regular premiums rather than a sudden and possibly unaffordable sum of money.

What different types of Health Insurance are available?

There are government-sponsored social insurance programmes and private insurance schemes. In addition, policies can be taken out by individuals or by companies on behalf of their employees.

There are two major types of policy:

  1. The Fee-for-Service: patients see a doctor of their choice and the fee for each service provided by that doctor is paid for by the scheme.
  2. The Managed Care Plans: you don’t just use a doctor of your choice but a selected network of health care providers.

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The different types of Managed Care Plans are:

  • Preferred Provider Organisations, otherwise known as PPOs. The PPOs have contracts with a network of hospitals, doctors and health care providers. They deliver services for agreed fees, usually offered at a discount because of the negotiating clout of the PPO.
    As a customer of a PPO, you have to choose the primary health provider from an approved list. However, this type of scheme does offer some flexibility because you can still choose from outside the list but you then have to pay a larger proportion of the bill yourself.
  • Health Maintenance Organisations or HMOs, are schemes into which you pay a periodic premium, usually monthly. In exchange, the HMO provides healthcare including hospital visits, emergency care and operations, through its own group practice or other providers under contract. However, they will not allow you to choose outside of these providers apart from exceptional circumstances.
  • The third type of plan is called Point-of-Service or POS plans. These are indemnity type policies offering you security in case of injury or illness. The primary care doctors or hospitals usually make referrals to other providers who are covered by the plan. If they refer you outside this network then the plan will pay for all or most of the costs. If you insist on another hospital or doctor yourself, for a medical service specified in the plan, the insurance will pay part of the costs.
    In Nigeria, HMO schemes are the most popular medical care.

Is it relevant for me?

Health is basic to human happiness and therefore Health Insurance is, strictly speaking, relevant to everyone.

However, it is particularly relevant for anyone who is the principal breadwinner in their household, with a lot of dependants such as a spouse, children or ageing parents.

It also relevant to anyone over the age of 40 or 50 when ill health is more likely to occur, and for anyone who has a history of family illnesses, who smokes or who is overweight.

What tips can ARM provide?

  • Monitor your health and the health of your family members carefully on a regular basis and exercise regularly.
  • Think about how many people depend on you and assess the risks to your health.
  • Remember that prevention is better than cure and that advances in medicine have increased life expectancy dramatically in the last 50 years.
  • Do some simple diagnostic health checks such as calculating your Body Mass Index (BMI) and taking your own blood pressure.
  • Subscribe to an HMO in Nigeria and an International Health Insurance programme to cover complex medical treatments and evacuation.

How do I start?

Please talk to your ARM Wealth Advisor or a Health Insurance company.