Characteristics of Life Insurance Policies - Explained
Insurance for the occurence of Death
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What is Life Insurance?
Life insurance provides financial benefits in the event a covered individual passes away. The beneficiaries of the policy are generally third parties rather than the insured or the insureds estate. An insured must provide permission or consent for a third-party to purchase a policy covering her. The following are common categories of life insurance:
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What is a Whole-Life Plan?
A whole-life policy provides a benefit to a named beneficiary upon the insureds death. Coverage lasts for the remainder of the insureds life. Because of the certainty of payout of the policy, the policy has an accumulated cash value that can be cashed out or used to secure a loan during the insureds life. The owner of the policy pays regular premiums (that are generally locked in at a fixed rate) until the time of the insureds death. Generally, there is no medical exam required for issuance of the whole-life policy to individuals below a specified age. The policy applicant will be evaluated upon answers to specific health questions.
What is a Limited-Payment Life?
This is a variation upon the whole-life policy. All things are similar under these plans, except that the policy becomes fully funded after a certain number of payments. Once these payments are met, the owner of the policy no longer pays a recurring premium.
What is a Term-Life Policy?
Term life insurance provides benefits to a named beneficiary for a specific term from the initiation of the policy. The owner of the policy pays premiums until the end of the term. At the end of the term, if the insured is alive, the policy ends and no longer offers benefits. The premiums for the policy are generally locked in for the entire term. Some policies are renewable for one or more terms after the original terms has expired. Most policies have an age limit for policy renewal. Renewing a policy, however, generally increases the available premiums. Many term policies allow for conversion of the policy to a whole-life policy. This is known as a "convertible term policy". These policies allow the policyholder to elect to exchange the policy for a whole-life policy or endowment policy after a certain period of coverage. The premiums for term policies are generally far lower than those of a whole-life policy.
What is Endowment Insurance?
This is a less common form of life insurance in which the owner of the policy pays premiums for the term of the insurance. At the end of the term, a fixed amount is paid to the beneficiary on a certain date.
What is a Life Annuity Policy?
This form of policy requires the owner of the policy to make a single lump-sum payment or a series of premium payments to the insurer. The insurer agrees to begin making recurring payments to the beneficiary after a certain date. The payments will last until a specific date or (more commonly) until the end of the insureds life. The lump sum is paid at one time and recurring payments to the beneficiary generally terminate upon the death of the insured.
What is a Universal Life Policy?
This type of policy combines term and life insurance into a combination policy. Wikipedia provides an in-depth look at the various provisions of a universal life policy. These policies often exclude specific causes of death, such as suicide, war, criminal death sentence, or murder of the insured by the beneficiary.
Why do you think people seek to purchase life insurance? Why do you think an insureds consent is required for a third party to insure her life?
John is considering purchasing life assurance. He has specific plans to leave funds for individuals after he passes away. What are some of Johns options of life insurance policies?
- John should choose a whole-life policy or some other form that allows for whole-life coverage or certainty of payment. Term policies expire at a specific point in time in the future. This is not true for whole-life policies. We cannot be sure as to when John will pass away, so a term-life policy would be risky. A whole-life policy will be more expensive and will pay a smaller amount upon death. Nonetheless, it is a sure payment. Also, the whole-life policy generally has a cash value that can be borrowed against or cashed out in the future if necessary. Another option may be the endowment policy, which provides certainty of payment upon death. Normally, these policies are also more expensive than term policies and provide a lower payout upon death.
- What is insurance?
- Captive Agent
- Independent Agent
- Captive Insurance Company
- Combined Ratio
- Claims Adjuster
- Capital at Risk
- Assigned Risk
- Incurred But Not Reported
- Qualified Actuary
- Cession (Re-Insurance)
- Burning Cost Ratio
- What is an insurance contract?
- Accidental Means
- Anti-stacking Provisions
- What is an insurable interest?
- What are the common categorizations of insurance?
- National Association of Insurance Commissioners
- Insurance Regulatory Information System
- American Academy of Actuaries Definition
- American Association of Insurance Services Definition
- American Council of Life Insurance Definition
- American Insurance Association Definition
- American Risk and Insurance Association Definition
- LLoyd's of London
- Associate in Insurance Services (AIS) Definition
- Associate in Loss Control Management Definition
- Associate in Marine Insurance Management Definition
- Associate in Personal Insurance Definition
- Associate in Reinsurance (ARe) Definition
- Associate in Risk Management Definition
- Associate in Commercial Underwriting Definition
- Associate in Insurance Accounting and Finance Definition
- Associate in Surplus Lines Insurance Definition
- Chartered Insurance Professional Definition
- Chartered Life Underwriter Definition
- Chartered Property Casualty Underwriter Definition
- Vehicle insurancePrivate Passenger Auto Insurance Risk Profile
- Underinsured Motorist Coverage
- Uninsured Motorist Coverage
- Omnibus Clause
- Health Maintenance Organization
- Capitated Contract
- Point of Service Plan
- Children's Health Insurance Program
- Disability Insurance?
- Credit Disability Insurance
- Life Insurance?
- Cash Surrender Value
- Absolute Beneficiary
- Acceleration Life Insurance
- Accelerated Benefit
- Accelerated Option
- Accelerative Endowment
- Charitable Gift Life Insurance
- Incontestability Clause
- Waterfall Concept
- Assumed Interest Rate
- Clean Sheeting
- Hazard Insurance
- Homeowners, Renters, and Fire Insurance?
- Participating Community (Flood Insurance)
- Insurance Considerations for Business
- Business Liability Insurance
- Commercial General Liability
- Liability Risk Retention Act
- Excess Insurance and Umbrella Insurance Policy
- Business Interruption Insurance
- Key Person Insurance Definition
- Own-Occupation Policy
- Self-Funded Health Insurance Plan
- Basket Retention Policy
- Commercial Blanket Bond
- Alternative Risk Transfer Market Definition
- Commercial Property Casualty Market Index Survey
- What are the primary obligations of the insurer?
- Earned Premium
- Reservation of Rights Letter
- Collateral Source Rule
- What are the primary obligations of the insured?
- Insurance Premium
- Affidavit of Loss
- What is the general structure of an insurance contract?
- Ambiguity Principle
- Accommodation Line
- What are the common disputed provisions in an insurance contract?
- Absolute Exclusion
- All Risks Clause
- What is required for the termination of an insurance contract?
- Risk Management
- Professional Risk Manager
- Associate in Management (AIM)
- Financial Risk Manager
- Forecasting (Business)
- Objective Probability
- Unconditional Probability
- Enterprise Risk Management (ERM)
- Operational Risk
- Business Recovery Risk
- Political Risk
- Asset Protection
- Performance Bond
- Barra Risk Factor Analysis Definition
- Above Ground Risk (Mining Industry)
- Bumbershoot Policy (Maritime)
- Abandonment Clause (Boat or Vessel)
- Bobtail Liability Insurance (Trucking Industry)
- Anti-Indemnity Statute (Construction)