Commonly asked questions about Insurance
What is the difference between Critical Illness Insurance and Disability Insurance?
Both options will pay you money in case of an illness or disability, but they do it different ways. Disability insurance provides a monthly income if you’re unable to work due to a serious injury or illness, while critical illness insurance pays out a tax-free lump sum payment following the diagnosis of one of several illnesses covered by your policy.
What is an insurance Rider?
An insurance rider enhances coverage to the policy holder above the base plan option. Riders are often used as a financial cushion, to cover mortgage costs, or for a child's needs and education.
What is Temporary vs. Permanent Insurance?
Temporary insurance protects against the financial impact of death up to a certain point in one's life. Temporary insurance is generally affordable for younger families and business owners. Permanent insurance is considered part of estate planning as it awards lifelong coverage from the financial impact of death. The initial investment for permanent insurance is generally considered costly.
What are Lapse Rates?
Lapse rates measure the percentage of an insurance company's policies that have not been renewed by customers.
What is reinsurance?
Reinsurance occurs when insurers transfer portions of their risk portfolio to outside parties, thus diversifying their portfolio.
How does it work? Multiple insurance companies share risk by purchasing insurance policies from other insurers to limit their total loss.
When is it done? It is done to allow insurance companies to take on clients with a significant payout burden.
What is a Collateral Assignment?
A method of securing a loan facility using an insurance policy as collateral, such as life insurance. If the insured person passes away before the loan is repaid, the lender can collect the outstanding loan balance from the death benefit of the life insurance policy.
Common questions about Bonds
What are Surety Bonds used for?
Surety bonds replace letters of credit, thereby creating additional banking lending capacity for clients, including advanced payments, trade guarantees, construction, performance, warranty, and maintenance bonds. Two common surety bonds are contract bonds and commercial bonds.
How do surety bonds vs. performance bonds differ?
The main difference between these two bonds:
- Surety Bond is a broad type of contract between three parties
- Performance Bond is a type of surety bond used most often in construction or real estate.
How are surety bonds and performance bonds used?
Surety bonds replace letters of credit, thereby creating additional banking lending capacity for clients, including advanced payments, trade guarantees, construction, performance, warranty, and maintenance bonds. Two common surety bonds are contract or performance bonds and commercial bonds.
Performance Bonds, generally issued by an established lender or insurance company, are a type of surety bond designed to guarantee contractual obligations. A performance bond, often required by law, is used to confirm a contractor completes all terms and conditions outlined in a designated project.
Common questions about Lending
What are the benefits of fixed interest rates?
The main advantage of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in payment obligations. Choosing a fixed rate can provide peace of mind, knowing exactly what interest rate you will pay for the duration of the loan.
What does capitalized and accrued interest mean?
Capitalized and accrued interest is interest that is added to the total cost of a long-term asset or loan balance. This makes it so the interest is not recognized in the current period as an interest expense, but accrued until the time of total payment.
What is loan collateral?
Collateral loans are backed by assets that act as security against the loan. These items can include securities, cash, real estate, or additional assets. Collateral is generally used to minimize risk as the lender can use the collateral's value against any unpaid debt if the borrower defaults on their loan. The reduced risk helps to get larger loans approved and can aid in securing a favorable interest rate.
What are recourse and non-recourse loans?
A recourse loan is security for the lender based on the assets of the borrower. Recourse loans allow the borrower to go after additional assets, beyond the agreed-upon collateral, in the case of unpaid debts. With non-recourse loans, the borrower is restricted to the agreed upon collateral in the case of outstanding debts.