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Life insurance seems complicated -- what are the basics?
Life insurance is often made to look complicated but it really is very simple.
Term Life Insurance is pure "death insurance" -- the policy owner pays a premium to the insurance company (often annually or quarterly). If the insured -- the person whose life the insurance company insured -- dies while the policy is in force (within the period for which payment was made), the insurance company pays the "face amount" of the life insurance to the beneficiary. As the risk of death increases as people get older, the premium also increases with age, sometimes each year, or every 5 to 10 years. At the older ages, term insurance costs become VERY expensive, because the chances of an 85 year old dying within the next year become very high.
Cash Value Life involves a combination of both Term Life Insurance with sort of a savings or investment account built in. The savings element creates a fund that can be used to pay the higher term insurance costs that go with older age. This is supposed to enable the premiums on cash value policies to be kept level during the insured's lifetime. Among the range of Cash Value Life policies are:
Traditional Whole Life and Universal Life products, in which the cash not needed to pay term costs (and the insurer's expenses -- including the sales person's commissions) are invested by the insurance company in fixed dollar type investments, and
Variable Life and Variable Universal Life, in which the "extra" cash is invested in securities mutual fund type accounts selected by the owner from among the insurer's available choices. Variable products thus have elements of life insurance and securities and are regulated as securities under the Federal Securities Laws and must be sold with a prospectus.
In the insurance industry there are two other basic categories that sometimes become important: Individual Life and Group Life. |
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Are there any limitations on what an insurance company can charge for insurance?
Can an insurance company cancel my policy for any reason it chooses?
Can I cancel my policy at any time and will there be a penalty?
What is an ‘insurable interest’?
What am I required to do when I have a claim?
What factors are considered in individual life insurance underwriting?
Is a physical exam needed?
What is group life insurance?
Can I buy a policy on someone else's life? What is an ‘insurable interest’?
Can I name any beneficiary I choose?
What happens if the insured person dies?
Do I need a lawyer to help me file a death claim?
Can a life insurance company deny a claim on a valid policy if the insured dies?
What are ‘exclusions’ and ‘limitations’ and how do they affect my life insurance coverage?
Why are life insurance companies regulated by the government?
Can an insurance company refuse to sell me insurance for any reason it chooses?
Life insurance seems complicated -- what are the basics?
What is a life insurance policy?
What problems might we run into when filing a death claim?
What if the insured lied about a heart attack?
What if the insured lied about his age?
What if the insured lied about his smoking?
Who regulates them?
What is individual life insurance?
If I miss a premium payment and get a cancellation notice, is there anything I can do to be able to keep the policy?
If I think certain words in my policy mean something different from what my insurance company says they mean, how do we resolve it?
I am pretty sure that my deceased grandmother had a life insurance policy, but I have no paperwork or other record. Is there a way that I can find out?
Should a minor child be named as a beneficiairy of life insurance proceeds?
I have a large term-life policy in which my sister and brother-in-law are sole beneficiaries. On my behalf, they are paying the annual premium. Are there any tax consequences if they remain (1) beneficiaries or (2) joint owners of the policy? Is it necessary to inform the insurance company that my beneficiaries are paying the premium?
I was denied life insurance recently because, as a minor, I had been committed for attempted suicide. That incident occurred a number of years earlier. Can the company after a lapse of so many years use mental health as a reason to deny my application?
Life insurance companies do a process called ‘underwriting’. What does that entail?
My mom is applying for a life insurance policy for my father who, up until now, has been the picture of health. A recent medical examination however showed an inoperable growth, which may be cancerous. What happens if my mom lies on the medical questions?
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