The policy will designate a beneficiary. This person or persons is not
considered a party to the policy, but is designated by the owner. The
owner of the policy can change the beneficiary except in the case of an
irrevocable beneficiary designation. With an irrevocable beneficiary,
that beneficiary must agree to changes in the beneficiary, policy
assignment, or borrowing of cash value.
Usually, the face amount of the policy is the amount paid when the
policy matures. The policy matures when the insured dies or reaches a
specified age. The cost of the policy is determined by mortality tables
calculated by actuaries. Actuaries use probability and statistics to
determine the chance of mortality for any given individual. There is an
effort to update the mortality tables for 2006.
There are two types of life insurance: Temporary and Permanent. Term
life insurance is a temporary insurance. Guaranteed renewability is an
important policy feature for any prospective owner to consider because
it allows the insured to acquire life insurance even if they become
uninsurable.
Whole Life Insurance is a permanent type of insurance. These policies
provide a level premium, and a cash value table included in the policy
guaranteed by the company. The primary advantages of whole-life
insurance policies are the guaranteed death benefits; guaranteed cash
values, fixed and known annual premiums, and mortality and expense
charges will not reduce the cash value shown in the policy.
Typically, the premiums are much higher for whole life policies compared
to term policies. There may be “riders” in the policy that allow policy
holders to increase the death benefit by paying additional money. With
these policies the insured can access loans through the policy. But
these loans will decrease the death benefit.
Universal life insurance is a type of permanent insurance. It is a
relatively new product intended to provide permanent insurance coverage
with greater flexibility in premium payment. If interest rates rise,
the premium may actually go down. This is due to the increased
dividends paid by the company. There is a disadvantage though. The
policy lacks the fundamental guarantee that the policy will be in force
unless sufficient premiums have been paid and cash values are not
guaranteed.
There are three other types of permanent policies including: limited
pay, endowments and accidental death coverage. Limited pay policies
include a provision in which all the premiums are paid over a specified
period after which no additional premiums are due to keep the policy in
force. The most common kind of limited pay is twenty-year limited pay.
Another kind is paid-up when the insured is sixty-five.
Endowments are policies where the cash value builds up inside the policy
and equals the death benefit at a certain age (the endowment age). They
are typically more expensive because the premium paying period is
shortened. In the United States, the Technical Corrections Act of 1988
tightened the rules on tax shelters (creating modified endowments).
These follow tax rules as annuities and IRAs do.
The last type of policy is accident death. These policies usually cost
less because they do not pay when deaths are caused by health problems
or suicide. They only pay when the death is deemed accidental.
It is also very commonly offered as "accidental death and dismemberment
insurance", also known as an AD&D policy. In an AD&D policy, benefits
are available not only for accidental death, but also for loss of limbs
or bodily functions such as sight and hearing, etc.
