Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Investment policies: the main objective of these policies is to facilitate the growth of capital by regular or single premiums. Common forms (in the U.S.) are whole life, universal life, and variable life policies.
The sale of life insurance in the U.S. began in the 1760s. The person responsible for making payments for a policy is the policy owner, while the insured is the person whose death will trigger payment of the death benefit. The policy owner is the guarantor and he will be the person to pay for the policy. The beneficiary receives policy proceeds upon the insured person's death. For life insurance policies, close family members and business partners will usually be found to have an insurable interest. Most of the revenue received by insurance companies consists of premiums, but revenue from investing the premiums forms an important source of profit for most life insurance companies. Life insurance may be divided into two basic classes: temporary and permanent; or the following subclasses: term, universal, whole life, and endowment life insurance.
Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term insurance is significantly less expensive than an equivalent permanent policy but will become higher with age. Group life insurance (also known as wholesale life insurance or institutional life insurance) is term insurance covering a group of people, usually employees of a company, members of a union or association, or members of a pension or superannuation fund. Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturation. The three basic types of permanent insurance are whole life, universal life, and endowment.
There are several types of universal life insurance policies, including interest-sensitive (also known as “traditional fixed universal life insurance”), variable universal life (VUL), guaranteed death benefit, and has equity-indexed universal life insurance. Universal life insurance policies have cash values. Universal life insurance addresses the perceived disadvantages of whole life—namely that premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. With the exception of guaranteed-death-benefit universal life policies, universal life policies trade their greater flexibility off for fewer guarantees. Flexible death benefit” means the policy owner can choose to decrease the death benefit. Option A is often referred to as a "level death benefit"; death benefits remain level for the life of the insured, and premiums are lower than policies with Option B death benefits, which pay the policy's cash valueOption B policies normally feature higher premiums than option A policies.
The endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Because they only cover accidents, these policies are much less expensive than other life insurance policies. Such insurance can also be accidental death and dismemberment insurance or AD&D. Accidental death insurance can also supplement standard life insurance as a rider. These are often low to moderate face value whole life insurance policies, allowing senior citizens to purchase affordable insurance later in life. Pre-need life insurance policies are limited premium payment, whole life policies that are usually purchased by older applicants, though they are available to everyone. Riders are modifications to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some feature desired by the policy owner. Joint life insurance is either term or permanent life insurance that insures two or more persons, with proceeds payable on the death of either.
Some policies afford the policyholder a share of the profits of the insurance company—these are termed with-profits policies. Included in these overall limits are insurance premiums. The tax ramifications of life insurance are complex. Non-investment life policies do not normally attract either income tax or capital gains tax on a claim. If the policy has as investment element such as an endowment policy, whole of life policy or an investment bond then the tax treatment is determined by the qualifying status of the policy. Pension term assurance is effectively normal term life assurance with tax relief on the premiums. Stranger-originated life insurance or STOLI is a life insurance policy that is held or financed by a person who has no relationship to the insured person. In the case of life insurance, there is a possible motive to purchase a life insurance policy, particularly if the face value is substantial, and then murder the insured. Recently, viatical settlements have created problems for life insurance providers. A viatical settlement involves the purchase of a life insurance policy from an elderly or terminally ill policy holder. The policy holder sells the policy (including the right to name the beneficiary) to a purchaser for a price discounted from the policy value. Insurers calculate their rates with the assumption that a certain portion of policy holders will seek to redeem the cash value of their insurance policies before death.
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