Life insurance is a contact between insurer and as surer in exchange of premium. When as surer promises or assured the insured person to pay privileges (bemefits0 in exchange for a premium, upon the death of insured person. Depending on the contract an insured person can get a tiger payment in the critical or normal illness. They may get this payment in premium, regular or a lump sum. Funeral express can also be included in the benefits.
Though life insurance is a legal policy there is a limitation in the insured events. Except specific events which were written, insured will not get payment in suicide, fraud, war, riot and civil commotion.
Life-based contracts tend to fall into two major categories:
Protection policies- Based on the specified event, getting a sum payment is termed as projection of insurance.
Investment policies –Based on the growth of premium, payment may increase. They may whole life or Universal life policy.
Contents
History
Life
insurance first starts in China
then world wide for the welfare of people.
Modern
life insurance was established in 18th century. In the US life
insurance was started in the late 1760 s. It was established for the created
the Corporation for Relief of Poor and Distressed Widows and Children of
Presbyterian Ministers in 1759. After that two dozen insurance was established.
Among them a half dozen of them was survived. Only a few company continued
their work with pride.
Overview
Parties
to contract
Although the insurer and the policy owner are the same there are a bit
Difference between them. Here the
insurer is the participant in policy on the other hand owner is the person who
pays for the policy. Beneficiary receives the policy upon the death of the
insurer. The beneficiary may be changed if he in inn vocal.
Contract
terms
Special
exclusion may apply, such that insurer may die within a short time or died
caused by suicide the commitment may be nullified. In most US state
insurer have legal rights to get interest if he died within the two years
according to contestability period.
The maturity
of policy is that reaches to a special age or dies of insurer. On the other
hand face amount of the policy is the initial amount. The insurer may get face
amount in the maturity of policy. But actual death of insurer may increase or
decrease the amount.
Costs,
insurability, and underwriting
The insurer (the life insurance company) calculates the policy prices
mortality tables calculated by actuaries. Which is based on mathematics
and statistical probability? The three main variables in a mortality table are
commonly age, gender, and use of tobacco. But more recently in the US, preferred
class-specific tables have been introduced. On the basic of health and family
history, they select premium. The newer tables include separate mortality
tables for smokers and non-smokers. This table predict mortality rate
of male or female. 65 (without regard to health or smoking status).
The
revenue received by insurance companies consists of premiums. Rates charged for
life insurance increase with the insured's age because, statistically, people
are more likely to die as they get older. The insurer has an investigation in
the same way that a bank would investigate for health.
Underwriters
will determine the purpose of insurance. Purposes include estate planning or,
in the case of cash-value contracts, investment for retirement planning. In USA never
legally require to anyone which was written. The policy can be declined or
rated (increasing the premium amount to compensate for a greater probability of
a claim), or proportional to the face value of the policy.
Many companies separate applicants into four general categories. These
categories are preferred best, preferred, standard,
and tobacco. Preferred best insured means has no medical history. Have no
history of early-onset cancer, diabetes, or other
conditions. Preferred means that the proposed insured is currently under
medication for a medical condition and have a family history of particular
illnesses most people are in the standard category. People in the tobacco
category typically have to pay higher premiums due to the inherent health
problems that smoking tobacco creates. But the insurance company encouraged in traveling
in risk country. Underwriting practices can vary from insurer to insurer,
encouraging competition.
Death
proceeds
Upon
the insured's death, the insurer pays the claim. The insurer requires showing
notarized proof. If the insured's death is suspicious payment from the policy
ma Types
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 insurance
Term assurance provides life insurance coverage for a
specified term. Term is generally considered as
“pure” insurance. There are three key factors to be considered in term
insurance:
· Face
amount (protection or death benefit),
· Premium
to be paid (cost to the insured), and
. Length of coverage (term).
Annual renewable term is a one-year policy, but the
insurance company guarantees it will issue a policy of an equal or lesser
amount regardless of the insurability of the applicant, and with a premium set
for the applicant's age at that time.
Level premium term can be purchased in 5, 10, 15,
20, 25, 30 or 35 year terms. The premium and death benefit stays level during
these terms.
Annual renewable term is a one-year policy, but the
insurance company guarantees it will issue a policy of an equal or lesser
amount regardless of the insurability of the applicant, and with a premium set
for the applicant's age at that time.
Level premium term can
be purchased in 5, 10, 15, 20, 25, 30 or 35 year terms. The premium and death
benefit stays level during these terms.
Permanent Life insurance:
Permanent life insurance is a life insurance that can not
be cancelled for any reason except fraud. A permanent insurance policy
accumulates a cash value up to its date of maturation, reducing the risk to
which the insurance company is exposed as well as the policy expense to the
company. Such policy will be more to older people than to younger one. The four
basic type of permanent insurance are whole life, universal life, limited pay
and endowment.
Whole life coverage
Whole life insurance provides life time death benefit
coverage for a level premium. Advantages of whole life insurance are its
guaranteed death benefits, guaranteed cash value, fixed, predictable premium
and mortality. Expense charges that do not reduce the policy’s cash value. The
disadvantages of whole life are inflexibility of its premiums and the fact that
the internal rate of return of the policy may not be competitive with other
savings and other alternatives.
Universal life coverage
Universal life insurance is a relatively new insurance
product; intend to combine permanent insurance coverage with flexibility in
premium payment along with the potential for greater growth of cash value.
Universal life insurance addresses the perceived
disadvantages of whole life namely that premium and death benefits are fixed.
With universal life both the premium and death benefit are flexible. With the
expectation of guaranteed death benefit universal life policies, universal life
policies trade their greater flexibility for fewer guarantees.
Endowment
Endowments are policies whose face values equal a benefit
amount at a given age, rather than a death benefit amount. Endowments require a
higher premiums than whole life and universal policies because premiums are
paid over a shorter periods.
Accident death
Accident death insurance is a lie of limited life
insurance that is designed to cover the insured should they die as the result
of an accident. This was once called Double indemnity insurance. In some cases,
triple coverage may be available. Because it pay double or triple premium not
only for accidental death but also for the loss of limbs or body functions such
as sight and hearing.
Unit linked insurance Plans
These are unique insurance plans which are basically a
mutual fund and term insurance plan rolled into one.
The premium paid by the customer is deducted by initial
charges remaining amount is invested in a fund by converting the amount into
unit based upon the NAV of the fund on that date.
With-profits policy
Some policy affords the policyholder a share of the
profits of the insurance company-these are termed with profit policy. This
policy provides collective growth to insured person. Some policy don’t provide
an investment performance; these are often referred to as with out profit
policy.
Investment bonds
Pensions
A pension fund will be build up throughout a person’s
working life. When the pension will become in payment and some stage the
pensioner will buy and retires, contact which will guaranteed a certain pay out
each month until death.
Taxation
Australia
Life insurance company provides superannuation fund and
tax deductible for self employed persons and employers. However LIC held
outside of the superannuation environment. But there is a limitation of age on
the tax. This company deducts the employed and self employed person. The
insurance premium paid by the superannuation fund can be claimed by the fund as
a deduction to reduce to 15% tax on contributions and earnings.
United
States
Premium paid by the policy owner are normally not
deducible for federal and state tax purpose and proceed paid by the insurer
upon the death of the insured are not included in gross income for federal and
state income tax purposes.
Person term assurance
Although available before April 2006, from this date
Pension term assurance become widely available in the UK. All
premiums are paid at a net of basic rate tax at 22% and higher rate tax relief
via their tax return.
Stronger originated
Stronger
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. Main
purpose of this to give peace of mind by assuring that financial loss or
hardship will be alleviated in the event of the insured persons’ death.
Criticism
Although some aspects of the application processes make
it difficult, Life insurance policies have been used to facilitate exploitation
and fraud.
Recently viaticum statements have created problems for
life insurance provides. The policy holder sells the policy to a purchaser for
a price discounted from policy value. The seller has cash in hand and the
purchaser will realize a profit when the seller dies and the proceeds are
delivered to the purchaser. In the meantime, the purchaser continues to pay the
premiums. Although both parties have reached agreeable statements, insurers are
in trouble by his trend. The policy holder sells the policy to a purchaser for
a price discounted from the policy value. The seller has cash in hand and the
purchaser will realize a profit when the seller dies and the proceeds are
delivered to the purchaser. In the meantime, purchasers continue to pay the
premiums. Although both parties have reached an agreeable statement, insurers
are troubled by this trend.
