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Life Insurance - Term Whole and Mortgage Policies - Compare Rates and Terms of Policy

June 27th 2006

Life Insurance - Term Whole and Mortgage Policies - Compare Rates and Terms of Policy

Life Insurance Peace

Life insurance is one of those things none of us want to think about.  The time to get life insurance is when you are healthy because insurers do not want insure people who are likely to file a claim. Expect a medical exam for most policies.

The policy, like all insurance policies, is a legal binding contract.  The contract will specify the terms and conditions of the risk assumed.  There are usually special previsions, including a suicide clause, where the policy becomes null if the insured commits suicide within a specified time from the policy date (usually two years).

Any misrepresentations on the policy can cause the policy to become null and void as well.  Most life insurance policies have a contestability period of two years.  If the insured dies within this period, the insurer (i.e. life insurance company) has the legal right to contest the claim and request additional information before deciding to either pay or deny the claim.

 

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.

 
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Dan Wilson
Best Syndication

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Important:  The material on Best Syndication is for informational purposes only and is not meant to be advice. You should always seek professional advice before making financial decisions. 
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Copyright 2005 Best Syndication                   Last Updated Saturday, July 10, 2010 09:48 PM