Reasons why you need to start investing in life insurance now [ MUST READ ]

Life insurance is one of those things that just about everyone needs but far too few people actually have.
Being a responsible adult means making sure loved ones who depend on you are financially safeguarded if you unexpectedly leave them behind. The way you provide that protection is with life insurance.
Insurance is tricky. It's not like buying a chair or a shirt or groceries. When you buy insurance, you're buying a promise. It's a promise that if something catastrophic happens to your business, your carrier is going to assist you to make your business whole again. Sometimes, though, it's tempting to question the value of insurance because it is an intangible product.
The importance of investing in life insurance cannot be stressed enough. Life insurance is designed to offer financial safeguards against death of the policyholder and also works as a good investment plan, which helps you meet several life goals in turn.
1. The younger you buy, the cheaper your insurance plan:
Life insurance plans will be considerably cheaper when you invest in the same at a young age. The younger you are, the cheaper your insurance plan will be. Plan out the insurance coverage that you require even if you are currently single and do not have direct dependents. Single individuals often have to provide financial assistance to siblings or parents. Insurability is another factor worth considering. The younger and healthier you are, the more insurable you will be. You can thus get the best possible insurance policy rates.
2. Income replacement
You and your significant other may have planned for a future based on two incomes. But what if one of you passes away unexpectedly?
Term life insurance can be used to replace the lost income so the survivor can maintain the same standard of living.
3. College funding
Alright, this one only applies if you have kids. But have you seen tuition rates lately?
Term or permanent life insurance can help fund a college education. If you pass away, the death benefit may be invested and potentially grow to the needed amount by the time your children reach college age. Feel better knowing that you helped prepare for their future.
4. Peace of Mind
What happens to your loved ones when you are no longer there? Death is an inevitable reality of life and we all worry about taking care of our families. Your family will depend on you throughout your lifetime and also when you are not there anymore. Invest in a good life insurance plan and put these worries to rest. Your insurance investment will take care of your family in any situation and will help in replacing lost household income, paying for the education of your kids or even providing financial security to your spouse if something happens to you.
5. Run a small business or family farm by managing the risks of ownership.
Take vacations without worrying about flight cancellations or other potential issues.
6. Own a home, because mortgage lenders need to know your home is protected.
7. Insurance Protects the Small Guys:
When you look at your industry, you see the "big guys" and the "small guys." If a risk goes wrong, the big guys will be able to survive. They can take a hit. But the little guys can't take a hit. As a result, they are more risk averse, and in some cases, they sell out to the big guys. If enough little guys leave the industry (and one big guy swallows them up), you're left with a monopoly. With insurance, however, the little guys have support if they want to take a risk, which means they stick around longer. What it comes down to is that insurance helps prevent monopolies from forming.
8. Pay Off Debt:
Just because you die doesn’t necessarily mean your debts will disappear. In the instance that you and your spouse have co-signed for a mortgage or other loans, your spouse may become entirely responsible for repayment. The other outcome could result in creditors trying to collect from your estate. While that gets rid of your debts, your heirs will receive the depleted remainder. Life insurance allows those you leave behind to take care of any lingering financial responsibilities.
9. Life insurance policies run on uncertainties. You may be healthy now and paying a premium for life insurance may seem to be an added financial burden, but if you suddenly fall ill, you may not be allowed to but a life insurance policy. Therefore, it is imperative to buy one early on in your life because it remains in force if your health deteriorates later on. Insurance companies allow you to attach certain riders or benefits to your existing or new policy.
10. To Buy a Business Partner’s Shares,
Since I’m involved in a business partnership, I need insurance on my partner’s life. The reason is so if he dies, I will have enough cash to buy his interest from his heirs and pay his share of the company’s obligations without having to sell the company itself. He has the same needs (due to the risk that I might die), and he simultaneously purchased insurance on my life.
11. To Pay Final Expenses,
The cost of a funeral and burial can easily run into the tens of thousands of dollars, and I don’t want my wife, parents, or children to suffer financially in addition to emotionally at my death.
12. Since it is an instrument that keeps you invested for the long term, it would help you achieve your long-term goals such as buying a home or planning your retirement. It also provides you with diverse investment options that come along with different types of policies.
Some policies are tied to certain investment products that pay dividends based on their performance. If you are opting for an investment-linked policy, be sure to read the fine print to be fully aware of the potential risks and returns.

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Banking: How to earn big interest / Money with your saving account

Banks operate different types of savings accounts, which allow the customer to keep money and earn little interest every month. These accounts usually require a little or a minimum balance to open. A customer could visit his/her bank to make enquiries about the different options available to save money. It should be noted that some banks pay higher interests than others.
Opening a fixed deposit account
For those who have some idle money that they may not need soon, this might just be an account that they should consider. It is an investment account that allows the owner to save money for a stated period of time and earn a fixed interest at the end of the period.
It is not open to other risky investment options such as shares. It encourages savings culture because it will not allow the owner to withdraw the money at will.
It also earns a higher interest rate than keeping funds in a savings account. A fixed deposit account ensures that a person definitely gets returns at the maturity date or the stipulated date of agreement with the bank.
A depositor can also open different types of fixed accounts with different maturity dates. Comparing the interest rates from different banks will help the depositor to choose the right bank for his fixed deposit.

Special accounts
Different banks have introduced different banks accounts to woo customers and discourage them from making regular withdrawals from their accounts.
A special account will also encourage bank customers to maintain a stipulated minimum balance in the account.
The features of the account include providing a reasonable high interest rate.
The special account also provides incentives to make the customer to save towards a specific target. Sometimes, the bank gives the depositor a bonus for maintaining a certain balance, usually within a year. It can also give the depositor access to loan facilities. Savings accounts
Savings accounts allow the owners to withdraw money at any time either using their savings book, debit card or withdrawal book over the counter.
It gives free options to access money than other types of accounts. Different banks have different savings accounts, which attract different interest rates. However, the rates paid on savings accounts are not usually high like fixed deposit account.

The best place to earn interest is in a Savings Account. Don't waste your time looking for a checking account with a decent interest rate.
Think of a savings account like a loan to a bank. Banks borrow that money and lend it to someone else. They make profit on the difference between what they pay to you for lending (close to 0%), and what they charge people to borrow (on credit cards, usually more than 15%). Nice business! But really, why give banks a 0% loan? Often it’s because of sticky retail deposits. That's the bank's term for account holders who put a lot of money in a savings account and never touch it. Fortunately, many online banks now offer up to 0.9%, and by using our simple rules, you can start earning better returns on your money.
Switch to a high-interest online savings account
If you’re OK with moving money to a bank without branches, it’s possible to find accounts that pay 1% or more. You don’t have to necessarily close your existing savings accounts, but keep enough in them to avoid fees. Though some consumers may feel nervous about online banking, it’s becoming increasingly popular, and mobile apps make it very convenient. Rest assured that as long as your online bank is a member of the FDIC, your deposits of up to $250,000 are insured by the government.
Save and Earn
Its that easy with Savings Account you can start saving today with as little as ₦1, 000.
Save your money.
Earn interest.
Get money from any ATM nationwide for free to spend on whatever you like.
Competitive interest rates. (Interest is forfeited if more than 3 withdrawals are made in a month)

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These How Insurance Companies Make Money In Nigeria

Insurance Companies in Nigeria and around the world operate in the financial services sector. The business of insurance involves the insurance company guaranteeing replacement or repairs or shorty for an asset or service that may have been damaged or impaired or defaulted under terms and conditions in exchange for a premium. For example, an insurance company insures your vehicle against it being stolen or damaged by accident by replacing it or repairing it at no additional cost to you in exchange for the premium you must have paid upfront.
In the example above, if the value of the sum insured is N5million you typically will pay a premium of N250k to the insurance company. If the car gets stolen or gets damaged the insurance company is obligated to pay a maximum sum of N5million towards repair or replacement of the vehicle depending on the claim type. Your premium typically has a duration of one year. If during the year you do not have any claims, the insurance company does not return any part of the premium to you.

Above is a basic overview of the insurance business model. However, from an investors point of view there is a little more to it than above. The insurance business as you must have drawn from above is a risky one and so Insurance companies that are profitable are also associated with proper risk assessment to ensure the risk they are taking on is not too much to drive them into losses. So lets look at how they make money?
Insurance Companies make money in two major ways. Net Premium Income and Income from Investments.

Net Premium Income – Net premium income is the income the insurance company makes after it deducts claims against it in a particular year from the gross premium it receives. This is called Underwriting Profits. Using the vehicle example above, the insurance company receives a premium of 5% (N250k) in exchange for insurance of N5million. So assuming it agrees to insure 5000 cars worth N5million each it basically has taken a risk of N25billion in exchange for a premium of N1.25billion. They also know that it is unlikely that all vehicles insured will make claims during the year. This is part of their risk assessment. So if during the year, they pay claims of N500million then their underwriting profits is N750million. So the higher the claims during a financial year the lower the underwriting profits and vice n versa.

Income From Investments – Insurance companies also make money through investing. Remember they receive a lot of money from premiums during the year in exchange for a commitment to pay claims. These premiums are also interest free unlike bank deposits where banks pay some form of interest for the amount deposited with them. Rather than allow the premiums lay idle, they also invest the premiums in several assets such as bonds, shares, treasury bills, private equity, real estate etc. The income derivable from these investments is an addition to the underwriting profits. Around the world Insurance companies are often bigger than banks and next to Pension funds own billions of dollars in investments. Warren Buffet for example, is able to finance a lot of its investments from premiums received from GEICO (a multibillion dollar insurance company it owns). Premiums are purely cash backed and free of interest making them one of the most liquid armory required for investing.
What about Profits? If you noticed, I have not talked about other expenses. Insurance companies do run a huge operation and employ staffs. Therefore, profits are actually made after you deduct operating cost and taxes from  Underwriting Profits and Investment Income you have a positive number.

Is it Possible to have an underwriting Loss – Underwriting losses are very common in economies where competition is rife. In this instance, Insurance companies offer several layers of discounts to customers making their premium fall below what they typically would have received. For example, instead of 5% they can ask for 2.5%. The aim here is similar to a turnover model. They believe if they collect a lot of premium at a cheap percentage to claims, even if the claims is more than gross premium and leads them to an underwriting loss they adequately make up for it through income from investments. This is because the larger the premium (cash) the more investment you can make and the more investment income you get which covers for the underwriting loss. To them, as long as you make better than the year before profits at the end of the year it really doesn’t matter whether you make underwriting losses.
What I look out for as an Investor – As an investor, I try as much as possible to take my self away from what the markets think and stick to the basics. Insurance companies must make improved underwriting profits, increase investment income and post increased profitability. This is how they are judged. They must have a very good risk management system and balance the need for increased gross premium growth due to competition with the need to mitigate risk. You can forgo one for the other. But that is my take, others might think differently.

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Ways Insurance Companies Make Money [ Start making your own money ]

What is Insurance?
The dictionary defines insurance as –
An arrangement by which a company or the state i.e the insurer undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death of the insured in return for payment of a specified premium.

Basically, an insurance company does three things-:
Risk Control-: Insurance companies help their clients to reduce and control risks.

Risk Financing-: If a client is still unavoidably exposed to risk, an insurance company takes the risk off him by accepting to bear the costs of the damage whenever it occurs.

Risks Sharing-: An insurance company also brings together different people who are willing to insure themselves or property against risks together.
The type of risks that insurance companies cover for includes-:
a. Personal risks-: These are health and safety risks that may affect an individual such as illnesses, diseases, accidents or death.
b. Property risks-: This involves risks that an individual or business would lose its property due to natural or unforeseen circumstances like fire, floods, earthquakes etc.
c. Liability risks-: A person or business might be found guilty of negligence when they cause other people to lose their property or lives through careless or willful acts. For instance, a doctor may be found guilty of negligence if he engages in acts that put his patients at risks like giving wrong prescriptions or not carrying adequate tests.

In such a situation, if something bad happens to the patient and he decides to sue the doctor, he may be found guilty of negligence and asked to compensate the patient; this is where the insurance company would come in and take up the responsibility of compensating such patients.
An insurance company accepts risks from the insured and so that it can make profit, the insurance company has to estimate the extent to which losses may occur and then the insurance company sets an amount known as the premium which would cover for losses, expenses and also leave enough for profit.

What happens if your car crashes or your house burns down or your baggage gets lost on your next flight or you are diagnosed with a critical illness whose treatment is going to cost you tons of money? Will you dig deep into your coffers every time such a crisis occurs? What if you don’t even have the necessary amount in the first place?

How Insurance Companies Make Money
There are different types of insurance companies offering different kind of products but the way they make their money is the same. Insurance companies make their money through-:

1. Insurance premiums-: Insurance companies are ‘risk poolers’. This means that they bring together, people who are willing to protect their businesses or property against potential future losses under one umbrella. Let’s say an insurance company has 1,000 clients whose vehicles it has insured for $5,000 each, the insurance company would have all 1,000 customers pay a certain amount as insurance premium.
In this case, let’s assume that the premium is set at $250 each in exchange for insuring those vehicles for $5,000. Now it’s almost impossible that all 1,000 would make claims that year. So, let’s assume that out of the 1,000 insured, only about 200 made claims, the company pays out claims to the 200 and what is gotten from the remaining 800 who did not make claims is kept as profit. This kind of profit is known as underwriting profit.

2. Investments-: Insurance companies get a lot of money from premiums and instead of leaving the money lying around fallow, they invest it in different assets that would yield profits for them eventually. Such investments are mostly real estate, government bonds, treasury bills and private equity so that when the insurance company has claims to deal with, it not only has enough to settle the claims but also has enough profit left to keep. Insurance companies are always careful with investments which is why most of their investments are in government bonds and low-risk investments.

3. Reserves-: Due to the nature of its business, an insurance company would usually have more money than it needs most of the time. These extra funds are usually kept as reserves and used to pay claims when the need arises.

4. Risk Measurement-: An insurance company also makes money by measuring risks. If a business or area is prone to high levels of risks, an insurance company may elect to avoid offering insurance coverage for that type of business.
For instance, if an area is prone to earthquake, insurance companies may avoid insuring homes in that area. So an insurance company makes money by measuring risks and covering property or business that pose low level risks and that way the number of people that would file claims would reduce and that would also lead to an increase in the company’s profits.

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