What You Should Know About...Insurance

PLANNING What You Should Know About... Insurance LIFE INSURANCE DISABILITY INSURANCE LONG-TERM CARE INSURANCE YourMoneyCounts® Like most people, you probably don’t live your life expecting the worst to happen. But you do take certain precautions to protect yourself and your loved ones from potential dangers. Just as health insurance provides important protection when you’re ill, other types of insurance have a role to play in making you more secure financially. But you may not be sure what kinds of insurance you should have or how much coverage you need. © 2005, HSBC Finance Corporation. All rights reserved. This content is provided as educational material only and is not intended to solicit you for any product or service. These materials are not a recommendation by HSBC for any product, service or financial strategy. The suggestions and recommendations contained within are general in nature, and may or may not apply to your particular circumstances. Securities, annuity and insurance products are: not FDIC insured or insured by any federal government agency of the United States; subject to investment risk, including possible loss of principal invested. All decisions regarding the tax implications of your investment(s) should be made in connection with your independent tax advisor. Should you need further assistance, HSBC strongly recommends contacting an independent attorney, tax professional or financial consultant. INSURANCE Your insurance needs When you buy an insurance policy, you are paying some money now to ensure against financial loss and to provide economic stability for your family. )NSURANCE #OMPANY In some cases, you buy insurance hoping that you will never need it. Collision insurance on your new car is one example. No one pur-chases car insurance with the belief they’ll be involved in an accident and have to file a claim. However, the prospect of a bill you would have to pay that could amount to thousands of dollars justifies the cost of the insurance. In other cases, you buy insurance because you know you will need it—though you don’t know when. The best example is life insurance, which is paid to your survivors when you die. While it’s perfectly reasonable to expect that you’ll be around for a long time, you also realize that sometimes sad events occur unexpectedly which can have a major impact on your loved ones, including a financial impact. Insurance works because of shared risk. The insurance compa-nies that sell the various policies to you—and other customers—are willing to commit themselves to pay your potential future claims because they are confident, based on past statistics, that they can make wise investments with your premium payments, to offset fu-ture claims, and still make a profit. In part, the premiums you pay are determined based on the level of risk that the insurance company thinks you pose to their having to 3 INSURANCE pay a claim. For example, people with poor driving records tend to be charged more for car insurance than people who have no marks on their records. Required insurance Certain kinds of insurance may be required by law or by your lender. State laws usually require liability insurance if you want to register a car, and mortgage lenders require homeowner’s insurance if you have a mortgage on your home. Most states require you to have au-tomobile liability insurance so that if a person or property is injured or damaged in an accident for which you’re responsible, there will be money available to cover at least some of the damages. Similarly, lenders who provide mortgages want you to have homeowner’s in-surance that will repay them what you owe if your home, which you are using as collateral on the loan, is destroyed. Most consumers buy additional insurance to cover their own potential losses as well. Similarly, if you own your own business, you may be required to have workman’s com-pensation insurance to pro-tect your workers or commercial liability insurance to protect the business against claims by clients or customers. Insurance to consider Among the kinds of insurance that you might consider purchasing to protect your financial security and the security of your loved ones are life insurance, disability insurance and long-term care insurance. Life insurance Life insurance can protect your family’s finances by providing them, or whomever you choose as the beneficiary of your policy, with a lump sum of cash called a death benefit when you die. Your beneficiary does not owe income tax on the payment, but its value is included in your estate if you own the policy. 4 INSURANCE Why buy life insurance? If your income supports a spouse and child, the payment from a life insurance policy can ensure that they will be able to pay final expenses and routine household expenses during the period im- mediately following your death. If you anticipate your family’s future goals as you begin your insurance planning, your policy may provide enough income to also pay future college expenses or help your sur-vivors meet other important goals. You may also want to buy life insurance if your income goes into a jointly funded household budget. The absence of one income stream could create a similar need for cash in a time of stress. Or your income may be the reason your family enjoys the lifestyle they do— something you’d rather they could continue to enjoy. Even if you’re not earning income, you may still want to consider life insurance. If you stay home with your children or your elderly parents, think about what it would cost your survivors to pay for the value of the home-making services you provide. But before you buy insurance, be sure you have a clear picture of why you need the coverage, how long you expect to need it, and how much you can afford to pay in premiums. 4%2- Types of life insurance There are two basic types of life insurance, term and permanent. "ENEFICIARIES $EATH "ENEFIT Term insurance The policy lasts for a certain amount of time, called the term. You pay premiums dur-ing that time, and if you die during the term, your benefi-ciary will receive the amount of the death benefit. Once the term is over, you can either renew the policy or choose to no longer be covered by life insurance. 5 ... - tailieumienphi.vn