How can I tell the differences in life insurance ?
Whole life- called ordinary life insurance and sometimes straight life insurance - is the original permanent life insurance coverage and is still the most commonly found in force life insurance policy today. The concept is simplicity itself:
- 1. Premium payments are made for life at a rate fixed by the company and agreed by the applicant.
- 2. When the name insured dies, the company pays the face amount to the named beneficiary. It’s that simple.
The company can never raise the premium rate nor can it cancel the policy as long as the premium is paid on a timely basis (absent fraud, in which case the policy can be rescinded, but fraud claims are rare). The insurance company therefore promises to pay the face amount upon death, whether that occurs the day after coverage becomes effective at age 99. To keep this promise, the company employs actuaries who determine the premium payment levels that will be adequate to fund the guarantees in the policy. Life insurance company actuarial science is, as the term implies, very scientific and fairly precise. It involves the pooling of risks over a large population of insured persons. The company has no idea which specific insured persons will die in any given year, but it knows which considerable accuracy how many will die each year, and their likely age distribution.
This knowledge allows actuaries to calculate premiums and set adequate reserve levels necessary to keep the promises made by the company. Although this is not actually in the life insurance policy, if the insured person lives to the end of the specified mortality table, the company usually considers the policy ‘endowed’ and pays the full face amount to the policy owner.
Whole life has become much less popular over the past 20 years, with the introduction of universal life, variable life and variable universal life. Such policies are more rigid than adjustable life, universal life and variable universal life in the sense that premiums must be paid on time otherwise the policy lapses.
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