| ||||||||||||||||||||||||
|
Life Insurance
Life insurance policies are taken by an individual to give coverage to his family members if the person dies. In case of the death of the person the insurance company pays an amount decided in the policy to the person nominated by the insured person. To cover their life against such situations the insured has to pay a certain sum of money known as premium at a regular interval. In a life insurance contract the insurer is bound to pay the person nominated by the person insured a certain sum of money when the insured dies. Life insurance Policy may cover an of the following; 1. Death, The list is very long and may depend from one insurance company to another what features they wish to cover in the policy. The like insurance policies are considered as legal documents which has in details all the events that are covered by the policy and also the events that will not be considered in the policy like suicidal death etc. Insurance policies are considered as legal contracts. Life insurance policies can be divided in two major categories; 1. Protection policies: here the policy covers
any specific event that may occur and on its occurrence pay a lump
sum to the nominee of the insured.
The parties that are involved in an insurance policy are usually three or more people: the insurer, the insured and the policy holder, which in most cases are the same. In a life insurance policy the nominated person also
known as the beneficiary received the sum assured in the policy
after the death of the insured person. The owner of a life insurance
policy while taking it decides on who the beneficiary of the policy
would be, however the beneficiary is not considered as a party to
the policy. The beneficiary of the policy can be changed when ever
the policy owner feels it is necessary only if there is no clause
against this in the policy. Contract terms Life insurance policy is a legal contract and hence
the policy has to clearly state the terms and conditions of the
policy and the various risks that it will cover. These terms and
conditions may pertain to some major clauses like a suicide clause
where in the insurer will not be liable to pay the money to the
beneficiary if the assured person commits suicide as the policy will
become null and void under the terms of the policy. The policy can
also be held as void if the holder does not give proper details in
the application while taking the policy. Types of life insurance Policies are usually divided in two basic types temporary or permanent; these may be further divided in to sub classes like term policy, universal policy, whole life policy, variable policy and variable universal policy and endowment life insurance policies.
A term policy is taken for a specific period of time and the premiums to be paid by the insured are also specific. In this type of life insurance the premiums paid are used to cover only the risk of death and nothing else. In such a policy the cash value of the policy does not accumulate. The premiums to be paid in term insurance policies are usually low as the all the parties agree to a fact that the chance of death of the person in the specified period is very low. The key factors that are kept in mind while issuing a life insurance policy are the death benefits to be paid, the term of the policy and the premiums that are to be paid to cover the risk. The policies can be sold with a combination of the three factors mentioned above. The face value of the policy may change from time to time or remain the same; the term for the policy may be one year or more. The premiums to be paid may also change from time to time and increase as the policy comes close to maturity or may even remain the same. A very common form of term policy is an annually renewable policy where in the policy has to be renewed annually. The premiums in annual policies are decided from after every year and the insured person's age is a key factor that is considered while deciding the premium amount. Term insurance policy is one of the simplest policies available in the market and the insured buy the policy for a specific period by paying an amount of premium decided by the insurance company and if he dies in the term mentioned in the policy his nominee will receive the benefits of the insurance policy. However if the person does not die in the specified period he is not liable to get any money from the insurance company. These polices in past did not have the suicide clause, however over the last few years it has been changed and suicide clause has been added to the policy and if the insured commits suicide his nominee will not get any money. There are also some policies where the suicide clause is specific for a period mentioned and if the person commits suicide after the period the nominee will receive the benefits of the policy. And this period is usually two years and the clause is applicable for the first two years of the policy being taken. Permanent A permanent insurance policy is one in which the risk is covered until the period specified in the life insurance policy matures or if the policy expires due to the non payment of the premiums. A permanent insurance policy cannot be cancelled by the insurer unless he finds that a fraud has been committed when taking the policy and even this needs to be done in the time span specified by law which is usually two years from the date of the policy. Permanent Insurance Policies are of three
types; A whole life policy is one in which the premium to be paid is fixed and you are insured for life and this helps in maintaining the cash values of the company and also the individuals. The biggest advantage of a whole life policy is that there is a very good flexibility in the premiums that needs to be paid. The insured can also increase the death benefit amount by paying higher premiums to the insurance company. However the premiums to be paid in the whole life policy are much more than the premium to be paid in term life policy. The cash value of these polices can be checked anytime by taking policy loans, these loans are deducted from the life cover if they are not paid on time and hence the payback of these loans are not compulsory. The beneficiary only receives the death benefit and not the cash values upon the death of the insured. The cash values can also be used by the insured to buy additional death benefits and this is transferred to the beneficiary upon the death of the insured. Universal life coverage A universal life insurance policy is a new product of the insurance industry and is supposed to provide a life insurance coverage that is permanent and gives the insured a greater flexibility in paying the premiums and also to get higher internal rate of return. A cash account is included in universal life coverage. The premiums paid are accrued in the cash account and the interests received on such policies are added into these accounts. Various charges levied on the policy like mortality charges and other charges are levied on this account. The amount that is accrued on this account is considered as the surrender value of the policy. This helps the insured to put in a premium amount which is equal to or more than the amount specified in the policy and thereby earn more and more interest on the policy, this give a great flexibility option to them. The two functions of a life insurance policy that makes it work are the mortality function and the cash function. The mortality function relates to the fact that many people contribute and pay premiums which may be used to pay the benefits to a few people who might die. The cash function states that even if the insured lives for 95 or 100 years the premiums received will sufficient to cover the face value of the policy. However the cash function alone is not sufficient to cover the mortality function and the insurance company should have a good source of return on investments to cover all the expenses that may be incurred and also to pay the interest earned on the policy. On similar grounds in a universal life policy the insured can have the option to pay less premium of the interest received on the policy is high and the insurance company can ask for more premium of the interest paid is less than the minimum to be paid. The universal life policy covers all the disadvantages
of whole life policy and provides the insured flexibility in paying
the premiums. As the sides of a coin even a universal life policy has its disadvantages, this occurs usually due to the flexibility option that is given on the policy. The policy can be treated as discontinued if sufficient premiums are not paid on the policy and even the cash values are not a guarantee. A universal life policy is also known as a self sustaining policy. In the 80's the interests received on these polices were very high and hence many insurance agents sold this policy as a self sustaining policy and many of these policies were actually able to sustain on its own however when the interest rates started to fall the cash value of the policies also stared depleting and the aggregate value of the policy also reduced. This was is the reason many of the polices lost the cash option given on them Variable universal life insurance policies are different from the universal polices due the way the cash account were managed. They are considered as two different types of policies even though they have cash values attached to them. The management of the cash accounts have their effect on the way these polices are taxed. The cash accounts of the Variable universal life insurance are treated as a separate account by the insuring company. Limited-pay Limited pay life insurance policy is a different type of permanent life insurance policy. In a limited pay insurance policy the premiums that are to be paid are for a specific period. These periods are usually for 10 to 20 years paid till the age of 65 years. Endowments The cash value that is built on the endowment policy
is usually the cash value that is accumulated on the policy. The
death benefit on such a policy is equal to the cash value of the
policy. An endowment policy is one of the more expensive types of
policies that are offered in the insurance business as the premiums
to be paid on such a policy is usually very high. Accidental death This type of policy is provided to cover the risk of the insured if the person death is caused due to an accident. Accidental death polices are a type of limited life insurance policy. They also cover the charges to be borne if the person needs medical help due to an accident that the insured was a part of. This type of policy however does not cover the insured if the person dies due to a health problem or if the person commits suicide. These policies only cover any risk involved with accidents and are cheaper that other types of insurance policies. These policies covers and risk that occurs due to an accident be it the death of the insured or the loss of any part of the body or any disability caused due to an accident. These types of policies very rarely are beneficial and the cause of death is usually not covered by the policy. Therefore it is very important for the insurer to check the terms and conditions of the policy properly before taking up the policy. These policies many a times have clauses which do not insure the person if he does any activity which involves high degree of risk like, paragliding, surfing flying planes etc. A standard life insurance policy can also have the
benefits of accidental death policy; these policies usually pay
double the amount assured if the person dies in an accident. This
type of coverage is also known as double indemnity coverage.
|
||||||||||||||||||||||||
|
#1 American Insurance(c)2007. All information provided "as is" for informational purposes only, not intended for mortgage/real estate/mortgage rate, insurance purposes or advice. Neither #1 American Insurance nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance upon information contained herein. By applying, this does not obligate #1 American Insurance, its authorized affiliates, lenders, brokers, successors and/or assigns to make a loan to any applicant, nor does it imply an offer to lend or loan to any applicant. For all of the Services, #1 American Insurance is not involved in any transactions between you and any of its advertisers or any of the Linked Sites, and is not responsible for, and does not guarantee the price or performance of any goods, services or information provided by advertisers or Linked Sites. #1 American Insurance is not a lender or a broker. Please refer to our Privacy Policy | Terms of Use | Insurance Leads |
