Whole life insurance
Life insurance is an agreement between policy owner and insurer where the policy owner pays a certain stipulated amount in regular intervals called premiers and in turn the insurer agrees to pay certain amount of money upon the occurrence of policy owners death.
Certain benefit is paid to the designated Beneficiary if any insured event occurs which is covered under this policy.Incidental events include:
Death
Accidental Death
There are certain limitations in terms of contract to limit the liability of insurer like claims relating to suicide, fraud, war, riot and civil commotion.There are two categories in life based contracts.They are:
Protected Policy: In this policy we get a lump sum amount if a specified event occurs.
Investment policies: It focuses on growth of capital by single or regular premiums.
Contract Parties for the insurance
Though insurer and owner are same there is a considerable difference between these two terms.The policy owner is responsible for the insurers policy payment. Insurer is just a part of contract but he need not necessary be party of it.
Beneficiary receives policy amount upon the death of policy owner. With irrevocable policy the owner can change the beneficiary subject to the agreement of beneficiary.He must agree to any beneficiary changes, policy assignments, or cash value borrowing.
If the policy owner is not insurer usually the close family members and business partners found to have investment interests.
Terms of Contract
Usually for two years of time the insured receives no amount if he commits suicide.He receives no amount if there is any misrepresentation on the application form.The contestability period is 2 years in U.S.If the insurer dies in this specific period he has a right to pay or deny the claim based on misrepresentation.
Costs, insurability, and underwriting
The life insurance company calculates the policy prices with an intend to gain profits by using mortality tables calculated by Actuaries.Mortality tables are statistically-based tables showing expected annual mortality rates.
The three main variables in a mortality table are age, gender, and use of tobacco.Recently preferred class specific tables were introduced in the US.The mortality tables provide a baseline for the cost of insurance. In practice, these mortality tables are used in conjunction with the health and family history of the individual applying for a policy in order to determine premiums and insurability.The newer tables include separate mortality tables for smokers and non-smokers and the CSO tables include separate tables for preferred classes.
Death Proceeds
If the insured dies insurer needs a acceptable document of death usually death certificate and the insurer\'s claim form completed, signed, If the policy amount is large and insured death is suspicious then insurer investigates the circumstances surrounding the death before deciding whether it has an obligation to pay the claim.
Insurance vs.Assurance
In assurance policy the event is going to occur definitely and in an insured policy there is a risk of insured event to occur.
Types of Life Insurance policies
There are two types of life insurance policies.They are
Temporary Life Insurance Policy
Permanent Life insurance Policy
Temporary Life Insurance Policy
Temporary normal life insurance provides life insurance for a specific period of time with specific premiums.The three key factors to be considered in term insurance are face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term).
The tax ramifications of life insurance are complex.The policy owner would be well advised to carefully consider them.As always, Congress or the state legislatures can change the tax laws at any time.
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