Life and Health exam

RETURN OF PREMIUM RIDER

Life insurance carriers began offering return-of-premium riders on their term policies, because traditional term policies were deemed to not be beneficial to policyholders unless they die. Therefore, this rider lets policyholders regain a part or the total of premiums they paid to the insurer over the policy's life, if they do not pass away during the coverage term. Not only is this provision consumer-friendly, it also allows the insurer to use the premiums paid as an investment during the 10, 15, or 20-year term and refund them back to the insured, giving the insured zero net cost over the policy's life. The rider itself does add extra cost to the policyholder's premium.

PRIMARY AND CONTINGENT BENEFICIARIES

A beneficiary is defined as a "person or interest" whom the insured picked to receive the policy's death benefit, or life insurance policy proceeds, upon the insured's death. The primary beneficiary is identified as the individual with the first claims right to the policy proceeds upon the insured's death as designated by the insured. However, it's important to note that a primary beneficiary can be multiple parties. A contingent beneficiary has been designated by the insured as the secondary claimant with rights to the policy proceeds disbursed after the insured's death. The contingency means that if the primary beneficiary predeceases the insured, the contingency beneficiary receives the death benefit.

JOINT LIFE ANNUITY AND JOINT AND SURVIVOR LIFE ANNUITY WITH PERIOD CERTAIN ANNUITY

A joint life annuity pays income for the lifetime of two people. Because it is a joint policy, after both annuitants die, the contract ceases. An exception exists if the policy has a guaranteed timeframe of payment. In a joint life annuity, income is paid to the primary annuitant. Then, upon the primary annuitant's death, the second annuitant continues to get income until he or she passes away. A decision can be made to have the income remain level or be reduced when the first individual dies. With the Joint and Survivor Life Annuity with Period Certain Annuity monthly income is guaranteed for the longer of the lifespan of the final annuitant. Another option is for the policy to have guaranteed income for a defined number of years. For example, a joint and survivor annuity, with 20 years certain, guarantees payments for a minimum of 20 years. If both annuitants die before the 20th year, the payments continue to the identified beneficiaries in the policy until the end of the 20th year. If the last annuitant dies in the 22ndyear, payments would stop then based on the policy guaranteeing payment for 20 years or for the life of both annuitants.

ENTIRE CONTRACT PROVISION

A life insurance contract typically states that the policy and the application form for coverage are combined to become the entire contract agreed to between the applicant and the insurer. Therefore, the "entire contract" includes both the application for insurance and the policy, as well as any declarations, riders, insuring agreements, exclusions, conditions, and endorsements. Once the contract is completed and the policy is signed, no changes can be made by anyone, unless the policyowner chooses to make adjustments through riders, endorsements, or amendments.

SURVIVORSHIP LIFE (SECOND TO DIE)ANNUITY

A married couple that purchases a joint life with last survivor annuity gets a set payment each month until both spouses have passed away. The survivorship aspect means that payments are made until the second (or surviving) spouse dies; they do not end when the first spouse passes on. As an added benefit option, the couple may choose to have a beneficiary receive payments following the death of the first spouse. In this scenario, the monthly income payment could be split between the surviving spouse and the beneficiary. The beneficiary then receives payments until the death of the surviving spouse.

PAYER BENEFIT PROVISION

A provision that is most often found in children's life insurance policies is the payer benefit provision. This provision provides that premiums will be suspended if the person responsible for paying the insurance premiums, often the child's parent or guardian, becomes disabled or passes away before the child reaches adulthood. If this occurs, premiums are waived. This provision allows the continuous payment of premiums for a time detailed in the insurance contract if the payer of a child's life insurance policy becomes totally disabled or passes away.

WAIVER OF PREMIUM

A waiver-of-premium rider allows an insured to have his or her life insurance premiums forgiven if the insured incurs a disability that limits his or her ability to earn a living. Without this rider, the inability to pay the insurance premium could often lead to cancellation of the coverage. The waiver-of-premium rider allows those life insurance policyholders who qualify and develop disabilities to have their premiums waived for the length of the disability, without the burden of losing coverage. Some insurers also allow insureds who develop a disability and who have the added waiver of premium rider to convert their term policies into permanent insurance policies.

ACCIDENTAL DEATH AND DISMEMBERMENT

Accidental death and dismemberment (AD&D)insurance provides coverage for accidents to a policyholder that cause either serious bodily harm or death. Therefore, AD&D coverage is limited in scope with a lump sum payout benefit in the event of either an accidental death, loss of body members (such as both legs), or similar injuries due to an accident. AD&D coverage is not provided for illnesses. The loss of body members means the loss of an insured's hands or feet or the loss of sight in one or both eyes. Loss of body members is usually referred to as a limb actually severed from the body. However, it can include the general loss of use of the limb as well. Usually the AD&D benefits are payable no matter where the injury occurred, including while at work. Hospital, surgical, and other medical expenses are not generally covered by AD&D policies. Some AD&D policies provide a partial benefit if the insured loses one limb or eyesight in one eye. AD&D coverage is made available in a variety of ways. It can be part of an individual disability income policy, a life insurance policy rider, or it can be purchased as a single policy. AD&D coverage can also be purchased or obtained as part of a group life or group health plan as a rider benefit for an additional fee. A common way to purchase AD&D coverage is through an offering from a credit card company. Frequently these companies provide a small amount of AD&D coverage, say $1,000, without charge or for a limited time, and offer the opportunity to increase this amount for a small premium added to each month's credit card statement. Accidental Death and Dismemberment insurance policies protect individuals against injuries sustained from emergencies and accidents. These events inherently have high costs associated, and so this extra protection in the form of a rider is an added benefit to policyholders and serves to supplement life and health policies. AD&D coverage also provides guaranteed acceptance to individuals who in the past may not have been insurable for a typical health insurance plan because of pre-existing conditions. The coverage also serves as a low-cost alternative to people who want protection from financial hardship. Perhaps the most common rider attached to a life insurance policy is the Accidental Death Benefit Rider (AD&D rider). The AD&D rider is a provision attached to a life insurance policy providing a separate, additional benefit if the policyholder's death occurs due to an accident, often double the amount of life insurance payout. Accidental death benefits are not paid for all accidental deaths; there are some notable exclusions for inherently dangerous activities, such as a death that is the result of military service during war or while in the armed forces generally. Death or injury due to the insured's participation in illegal activities, self-inflicted injuries, or "hazardous hobbies" (such as skydiving, rock climbing, cliff diving, etc.), are also excluded. If an insured participates in these activities, the insurer may require the insured to pay a higher premium or have the activities excluded from coverage.

IMMEDIATE AND DEFERRED ANNUITIES

An immediate annuity is set up to give annuitants immediate income at the start of the annuity. In an immediate annuity, the insurance company agrees to make regular payments to the insured for the chosen timeframe—most commonly for the remainder of his or her life, however long that may be. In contrast, a deferred annuity delays payment of income and has two primary phases. The first is the savings phase, in which the annuity holder invests funds into the account. Then, the income phase is when the plan is converted into an annuity, and payments are received from the annuity. A deferred annuity can be either variable or fixed, and a minimum interest rate is a given-on payments made by the owner during the accumulation phase.

INDEXED ANNUITY

An indexed annuity is a contract issued and guaranteed by an insurer and offers investment returns that are based on the actual experience of stock indexes. The insured invests an amount of money (premium) in return for security against substandard market experience and the potential for investment gains when the market is vibrant. Some policies provide a guaranteed rate for lifetime income through optional riders. An element of indexed annuities that can be confusing to annuitants is how investment returns are calculated. To determine how the insurance company calculates the return, understanding how the insurer tracks the stock index it uses is helpful. Annuitants also need to know how much of the return of the index is credited to the insured.

STANDARD FEES THAT APPLY TO ANNUITY PRODUCTS

Annuities often have fees or charges attached that annuitants need to understand very well. These fees include insurance charges, surrender charges, investment management fees, and rider charges. Insurance charges are sometimes referred to as mortality and expense (M&E) fees and administrative fees. These charges are generally low and often range from 0.5-1.5% annually. Surrender charges are included by insurance companies to limit the amount of withdrawals an annuitant can take over an annuity's first couple of years of being active. To do this, insurers install a surrender charge on any withdrawals above an established threshold. These charges provide assurance to the insurer that it will receive some income if an annuitant decides to end or alter the policy. The insurer adds investment coordination fees that it alters depending on the investment choices made within the annuity product.

ILLIQUID ANNUITIES

Deposits into annuity contracts are typically untouchable for a period of time and are not able to be accessed. This is why annuities are termed illiquid. Annuities vary widely in how liquid they are as far as their ability to be converted to cash. If funds are withdrawn earlier than stipulated in the annuity contract, in the period known as the surrender period, the annuitant would need to pay a penalty. These surrender periods can last anywhere from 2 to more than 10 years, depending on the specificity in the product language. Surrender fees generally begin at 10%, and the penalty typically lessens annually over the surrender period.

ADJUSTABLE LIFE

Flexibility is a key attribute of adjustable life insurance policies as they allow the alterations of key components including premiums paid, the face amount, and other factors. These policies are more flexible versus other life insurance products. Adjustable life policies use Ordinary, Straight Life insurance as their starting point. With adjustable life policies, the insured can be flexible with the premium payment schedule and the premium amount, and can also make changes to both the period of protection and the face amount. Within these policies there is a give-and-take—the insurer gives the insured greater flexibility in these key factors discussed while taking from the insured, higher premium amounts in comparison to whole or term life insurance. Ordinary, straight life insurance is another name for traditional whole life insurance. These policies have very defined premium payment schedules and have generally very static premium payment structures. In contrast to adjustable life insurance policies, ordinary straight life policies are very inflexible and not adjustable. Therefore, in contrast to adjustable life policies, ordinary, straight life policies are very restrictive in that insureds do not have the ability to change elements such as the face amount, period of payments, and the insurance policy structure itself related to the protection provided. However, if the insured seeks to elevate the face amount, the insurer will generally seek evidence of insurability.

FLEXIBLE PREMIUM ANNUITY

Flexible premium annuities grant annuitants access to retirement funding with flexible terms regarding how they add to the annuity. These annuities are tax-deferred, helping policyholders develop savings toward retirement, maximizing their contributions up front. The annuitant can change the amount and occurrence of payments to fund the annuity as he or she chooses. The annuity includes a savings account that credits higher interest rates to gain higher balances. The savings feature does not guarantee a policyholder a defined return on investment, however. Instead, the value fluctuates while interest and investment earnings develop on a tax-deferred basis. Flexible premium annuities usually do not include surrender or withdrawal fees. However, because contributions are tax-free, withdrawals of the tax-deferred interest and gains are taxed in compliance with the annuitant's ordinary income tax rate at the time of withdrawal.

CONSIDERATION CLAUSE

For an insurance contract to be binding on the entities involved, each one must provide consideration, or something of some worth, to the other. With insurance products, the insured provides a premium payment as his or her consideration to the insurer and then receives the insurer's corresponding consideration in return, i.e., insurance coverage and potential payment of claims, in compliance with policy provisions. So "consideration" is a contractual item that identifies the premium payment schedule and monthly or annual figure paid for a defined level of coverage offered through the policy.

LIMITED PAY AND SINGLE PREMIUM

For those insureds who desire to only pay life insurance premiums for a limited amount of time, the limited payment whole life policy is an option that delivers a lifetime of protection but requires only a limited number of premium payments. Because of the more limited premium payment period, policy premiums are regularly significantly higher under this type of life insurance policy. Rather than paying premiums for essentially, the majority of an insured's adult life, the shorter time period for payments with this arrangement can be just 10 or 20 years, for instance. Insurers often offer limited payment plans based on age such as when the premium is paid up at age 65. In contrast, a single premium whole life policy is as its name implies: a limited payment whole life insurance plan with one very large premium payment due at the time of issuance. The policy is fully paid up, and no further premiums are needed after that initial large payment. Because the premium is immediately paid in full, the policy at the start has a cash value and loan value from the beginning.

REVOCABLE AND IRREVOCABLE BENEFICIARIES

In addition to being classified as primary and contingent, beneficiaries are also classified as revocable and irrevocable. When the insured is the owner of the insurance contract, he or she can name anyone as his or her beneficiary, even if the person possesses no insurable interest in the insured's life. If the person named as the beneficiary is a revocable beneficiary, the insured can change his or her mind as often as liked and at any time, revoke that designation. In contrast, an irrevocable beneficiary is one that cannot be changed unless the insured has agreement from that beneficiary.

KEEPING LIFE INSURANCE BENEFITS ADVANCING WITH INFLATION

Inflation erodes the purchasing power of an insured's dollar. To prevent inflation from decreasing the life insurance death benefits for an insured, insurers introduced indexed whole life. Indexed whole life increases the insured's benefits in proportion to a selected measurement of the economy. The index used for this purpose most frequently is the Consumer Price Index (CPI). The death benefit under an indexed policy rises in relation to the rate of inflation as measured by the CPI or some other widely recognized index. There can be yearly increases in the policy premium to provide for this graded increase, or the insurer may build in enough additional premium in the basic rate to cover the anticipated added death benefits.

MODES OF PREMIUM PAYMENT

Insurers set up many methods and payment schedules that insureds can use to make their life insurance premium payments. Depending on the insurer, the following modesof premium paymentmay be allowed: annually, semi-annually, quarterly, or monthly. Premium payment amounts are either: level(as with ordinary life insurance): Usually this is a monthly or quarterly fixed or defined payment schedule single payment(as with single premium whole life): The policy calls for a one-time, lump sum premium payment graded premium(as with graded premium whole life): Premiums are set on either an increasing or decreasing payment schedule flexible premium(as with universal life): The insured can alter his or her premium payments as seen fit within policy guidelines, making payment options very flexible

INTEREST-SENSITIVE WHOLE LIFE AND EQUITY-INDEXED LIFE

Interest sensitive whole life is often known as either excess interest or current assumption whole life. These policies provide facets of both traditional whole life with universal life features. Instead of using dividends to gain improved cash value, the interest gained on the policy's cash value is tied to the stock market and fluctuates in alignment with current market conditions. As with a whole life policy, death benefits with these policies also stay constant for life, although policy premium payments can vary. In contrast, equity-indexed universal life insurance offers insureds the ability to increase their policies' cash value in concert with the stock index. These policies offer growth potential without the risks that accompany the equities market. Equity indexed policies offer policyholders possible cash value growth, but also add tax deferred benefits associated with life insurance. Equity indexed life insurance, as with other permanent life insurance policies, generally offers three unique tax advantages to policyholders that are unlike other benefits within life insurance products. These include: tax deferred accumulation of cash values potential for tax managed income for retirement or other goals tax free proceeds transferable at death Equity indexed universal life insurance gives insureds possible gains in cash values that grow in line with gains in the stock market. These policies couple the benefits of growing the policies' cash value with benefits that are tax deferred while getting at least minimum interest rate.

INTEREST AND MARKET-SENSITIVE

Interest-sensitive whole life is sometimes also known as current assumption whole life. The insurer creates expectations regarding the insured'spolicy related to investment gains, mortality, and expenses. If the company is successful and makes good estimates of performance, then the policy functions as the insurer hoped. But then if the market climbs and the company does well as a result, the insured's premiums will lessen, and the policy's cash value will go up. Interest-sensitive life insurance is a form of permanent life insurance coverage that adds both the benefits of whole life and universal life policies. This type of policy can also be called an "excess interest" or "current assumption" whole life policy. Similar to other permanent life insurance policies, the policy will remain in effect as long as the premiums are paid timely and the named insured lives. Like other whole life policies, the face value, called the death benefit, of the policy keeps on a level plain.

MAKING CHANGES IN LIFE INSURANCE POLICY BENEFICIARIES

Life insurance policies define the process for an insured to make a beneficiary change on the health insurance policy within the beneficiary information portion of the contract. The policy owner may designate and change either or both of the primary and contingent beneficiaries, as often as desired, while the policy is in force. In most cases, the owner of the policy is the insured as well. When ownership of a policy is transferred, a change in the designation of beneficiaries is not a given, so care must be taken to ensure this change happens correctly. Rather, the existing designations of beneficiaries can remain. But when desiring a change of a beneficiary, the insured must contact either the agent or the insurance company to begin the process and complete required paperwork to document the designation change.

LONG-TERM CARE RIDERS

Long-term care riders added to permanent life insurance allow policyholders to combine two very important coverage needs and allow the opportunity for the two benefits to work hand-in-hand. If long-term care is needed by the policyholder in any covered facility, including assisted living and home health care, the life insurance policy can convert the coverage to provide long-term care benefits. In these circumstances, instead of a death benefit paid out to beneficiaries, long-term care benefits then become available instead. The transfer of coverage draws down the existing life insurance death benefit. But at the point that long-term care is no longer needed and the coverage value has not been exhausted, the policy will revert back to its original permanent life insurance state at the reduced amount.

ANNUALLY RENEWABLE TERM LIFE

Many term life insurance policies are described as being "renewable. "This feature allows the policy to be renewed for another term period without the insured having to show that he or she is still in good health. If the insured continues to pay the premium, the policy will automatically renew for another term period subject to a maximum age limit. The premium due upon renewal will most likely be higher than the premium the insured paid during the initial term period. A downside is that the premiums are only guaranteed for one year at a time. The insurer may raise the insured's premiums every year even though it may not cancel the policy for the defined period of years. Renewable term life policies guarantee the policyholder will be insurable for a set number of years (often 10 to 30), but premiums are only assured for a single year at a time. As the policy is renewed for subsequent years, the premium increases over time. So, the insurer may raise premiums annually, but cannot cancel the policy for the stated number of years. Annual renewable term insurance is usually less beneficial for the policyholder than for the insurer. But if the insured chooses term life insurance in an annual renewable policy, a benefit is that he or she can renew coverage each year without filling out a new application or needing to pass a physical exam.

ORDINARY STRAIGHT LIFE

Ordinary life insurance is often also called whole life insurance or straight life insurance. When an insured has an ordinary life or whole life insurance policy, the benefit level is steady over its lifetime commencing from the date of purchase, usually, to the age of 100. If the policy has a value of $1,000,000, the beneficiaries will receive that same monetary amount. There is one exception, and that is when suicide is the insured's cause of death. If the insured's death by suicide occurs during a time period specified in the policy (e.g., 2 years), the death benefit paid to the beneficiary is only equal to the amount of premiums paid up to the time of his or her death. The elimination period for most ordinary life contracts is two years and applies to this suicide clause.

OWNER'S RIGHTS

Policy rights for an owner of a life insurance policy include exercising all policy rights and privileges without the consent of any beneficiary. The owner's rights do not require agreement or the consent of the beneficiary. These rights include: assigning or transferring the policy, either selecting or changing the payment schedule, choosing a new beneficiary (as long as the beneficiary is not an irrevocable), selecting settlement choices, and having conversion options or non-forfeiture options. The policyholder may also exercise options related to dividend disbursement and need not consult beneficiaries to receive or borrow any cash values and/or dividends that have accrued to that point. Owner's rights also include the ability to cancel the coverage altogether.

GUARANTEED INSURABILITY

Policyholders, through a guaranteed insurability rider attached to a life insurance policy, can have the opportunity to buy additional life insurance with no under writing or medical screening. A rider attaches added coverage to a life insurance policy over and above the simple death benefit in the standard policy. Riders can either be a free added benefit, or add some cost to the base policy. With the guaranteed insurability rider, a policyholder can choose when to add to the policy's death benefit without the need to provide any proof of good health or insurability and without the need to take a medical exam.

PRE-EXISTING CONDITIONS

Pre-existing conditions are no longer a show-stopper for applicants considering the purchase of life insurance coverage. This is the case more so than ever, particularly if the insured shows that the condition or illness is under control with medication or that it is in remission. Simply being diagnosed previously with a serious condition—or having been treated for one—no longer means being accepted for life insurance is unlikely. For example, depending on the insurer, a man whose skin cancer was caught at an early stage might be eligible for life insurance, once it's in remission for a period of time. It's possible the insured may pay more in premium than an individual without a serious pre-existing condition, but an applicant is less likely than in years past, to be rejected outright only based on the existence of a past pre-existing condition.

SINGLE PREMIUM ANNUITY

Single premium annuities come in two forms, deferred and immediate. With a single premium deferred annuity (SPDA), the insured makes just one lump-sum premium payment in exchange for defined income to access in his or her retirement years. With a deferred annuity, the insured gets the benefit of tax deferral. Tax deferral means the annuity's value gains interest without being taxed until the funds are taken out. The insured has the choice of how long he or she wishes to receive payouts from the annuity. In comparison, a single premium immediate annuity gives the annuitant income security after he or she pays one up-front premium. The individual then has a stable payout for life, or longer, depending on the payout option the annuitant chooses.

TERM LIFE

Term insurance and whole or universal life insurance policies are the two primary categories of life insurance. Term insurance provides coverage for a specific period of time, and it generally provides the largest timely death benefit at less cost compared to universal or whole life policies. Whole or universal insurance offers lifetime coverage, not just for a specific period of time, and a death benefit with cash value that grows over time. Term life insurance policies provide affordable, temporary coverage for a short term, rather than a lifetime in universal or whole life policies. Term policies do not build cash value and are designed for to provide a death benefit only. The premiums may be level for the first 10, 15, 20 or 30 years, depending on the policy selected. Because the death benefit protection is for a limited period, the term life insurance premium is often lower than other policy types. The main advantage of an increasing term life insurance policy is that it permits insureds to buy a guaranteed ability to raise their coverage into the future. Often, when a young policyholder purchases a life insurance policy, he or she does not have the budget capacity to buy a life insurance policy with the death benefit the policyholder would most prefer. To allow for an increased benefit later, the policy offers a constantly increasing death benefit by being tethered to either the Consumer Price Index (CPI)or inflation. Depending on the insurer, the policy may also include a potentially higher payout by a certain percentage each year. These policies also offer flexibility if an insured's circumstances improve or decline during the life of the policy. Policyholders can renew most term insurance policies for one or more terms, even if their health has changed. However, premiums may rise upon each renewal as the policyholder's age advances. Each insurer is different and uses its own criteria in renewing policies and may prohibit renewals beyond a certain age. For a higher premium, some companies will give policyholders the right to keep the policy in force for an assured timeframe at the same price each year. At the end of the term, the insurer may require the insured to pass a physical examination to continue coverage, and premiums may increase.

LEVEL,DECREASING,AND RETURN OF PREMIUM TERM LIFE POLICIES

Term insurance comes in two basic varieties—level term and decreasing term. Level term insurance provides the same death benefit payout whether the death occurs on day 500 or day 5,000 of the policy being active. The terms "level" and "decreasing" refer to the death benefit status while the policy is in force. Decreasing term insurance, meanwhile, uses the philosophy that a person's need for high levels of insurance lessen as he or she gets older and certain liabilities are lessened or have been resolved, such as a high mortgage balance. The rate of the death benefit lessens at a preset and steady rate over the term of the policy. Another term life insurance component involves a return of premium in which the premium is typically significantly higher than for policies without it. These generally require that the insured keeps the policy in place until the term ends or face forfeiting the policy's return of premium benefit. Return of premium policies for term life insurance provide a return on the premiums paid by the insured if the term ends without a death benefit being paid out. So, if the insured outlives the premium payment period, the insured will receive the premiums back from the insurer at the term's end. A policy with the return of premium, therefore, is an investment, with rates of return calculated based on the adjusted cost above the amount charged for regular term insurance. Return of premium policies are more expensive. That extra expense comes with a guarantee of the return of the insured's entire premium payments at the end of the life insurance policy's initial term period.

CONVERTIBLE TERM LIFE

Term life policies sometimes include a provision that allows them to be guaranteed convertible. The "convertible" provision provides policyholders the opportunity to change a term policy to a whole life or universal life without a need to take another physical exam. The insured can shift a term policy to a permanent policy if he or she chooses later, after the initial application for coverage. As long as the conditions of the policy complement the contract and the policyholder continues to pay timely premiums, the insured person does not need an additional review at the time the policy is converted. This type of policy allows the insured to buy less expensive term life insurance when he or she applies, while providing the option to change later to a permanent policy. A "convertible term" policy grants an insured the option to upgrade and improve his or her insurance coverage from a term life insurance policy to a permanent policy at a later date. As long as the stipulations agreed to in the policy between the insurer and policyholder remain steady, and the insured has made all the required payments, the policy can be converted. This is true even if the policyholder's medical status has changed. In that event, the policyholder is still not required to undergo additional medical screenings at the time of the policy conversion. This type of policy provides the benefit of obtaining less expensive term life insurance at application time, while maintaining the ability to change over to a permanent policy if the policyholder sees a greater insurance need or as improved financial resources warrant.

TERM RIDERS

Term life riders provide coverage for a certain period of time, such as 10, 15, or 20 years. Permanent life insurance, such as whole life or universal life, provides coverage for the insured's lifetime, so the beneficiary receives a benefit no matter when the policyholder dies. Attaching this rider to a regular permanent life policy allows the policyholder the opportunity to convert a portion of coverage as term life insurance into permanent life insurance at a later time. Having portions of the life coverage be both term and permanent saves the insured premium dollars at the beginning of the policy's life with the option to convert the term coverage portion to permanent later. This conversion can be accomplished without going through the underwriting process or undergoing a medical exam normally associated with an application for a permanent life insurance policy. Term life insurance riders can be purchased by the policyholder adding it to his or her permanent life insurance policy to provide insurance coverage for his or her spouse. The Spouse Term Insurance Rider typically provides a small death benefit. An added benefit allows that the rider may be convertible without evidence of insurability at the spouse's attained age at various points available to the policyholder. These include: within 60 days before a rise in the policy's premium, the end of coverage through a Rider, or when the insured reaches 65 years of age. If the insured dies during the premium-paying period, the spouse's coverage carries on as paid-up term coverage, without any further premium due. Policyholders may also purchase term life insurance for their children through a rider attached to a life insurance policy. The Children's Term Insurance Riders convertible as well without the child needing to undergo a medical exam or provide evidence of insurability. This is available at the earlier of the child reaching age 25 or the insured turning age 65.

FREE LOOK

The "free look" provision, usually with a length of 10-30 days, provides the insured with a review period following the actual delivery of the policy. In this period, the insured can do additional homework and decide either to keep the policy, or return it to the insurance company and receive a full refund of the premium. The free look period begins when the policy is actually physically delivered to the insured and the policyholder pays any outstanding premium and a delivery receipt is issued, dated, and signed by the insured and witnessed by the agent. Obviously, the policy does provide coverage on the life of the insured during this time, because the initial premium has been paid and the policy has been delivered.

INSURING CLAUSE

The central component at the heart of an insurance contract is what's termed the "insuring clause." The insuring clause provision is an important clause and contains details on the type and specifics of coverage issued by the insurer. This clause is the linchpin of the insurance policy, because it details everything a life insurance policy accomplishes in protecting the insured. The insuring clause specifies that when an insured makes his or her premium payment, the company will provide a stated amount to the beneficiary or the insured as stipulated in the policy.

VARIABLE UNIVERSAL LIFE

The main feature of Variable Universal Life that is different from other life insurance policies is that it builds cash value for the insured. The cash value can be invested in many different ways, depending on the structure of this feature set up by the insurer. The insurer may offer numerous investment choices for the individual policyholder. Variable universal life is a permanent life insurance, meaning the death benefit will be paid if the insured dies any time as long as there is sufficient cash value to pay the costs of insurance in the policy. Premium payments are extremely flexible for the policyholder as they can range from $0 in a particular month up to amounts identified by the Internal Revenue Code for life insurance. One key differentiating element within variable universal life insurance policies is that they allow an insured to have options to consider in choosing how the death benefit can be paid to a beneficiary. These options include either a set death benefit amount or an increasing death benefit that equals the policy's face value, in addition to the policy's cash value amount. Variable whole life policies are riskier, because the policy's cash value and death benefits can rise and fall depending on market forces and the investment's performance. Therefore, if the policy's underlying investments perform well, the death benefit and cash value are likely to increase as well.

VESTING

The term vesting applies to annuities when an annuitant decides to withdraw all of the balance in the fund before the end of the term defined in the contract. For instance, an annuity vesting period can be ten years. Some annuities will credit zero or only part of the index-linked interest paid out to the annuitant. The percentage that is vested generally increases on a graduated scale as time advances toward the end of the term. At the term's end, an annuities vesting will be 100 percent. For instance, an annuity with a four-year term might be vested at 25%, 50%, 75%, and 100% at the end of each year.

UNIVERSAL WHOLE LIFE AND VARIABLE WHOLE LIFE

Universal life policies offer a unique blend of term and whole life insurance policies. These policies offer flexibility to insureds with low-cost premiums, similar to term life insurance as well as a savings feature(like whole life insurance) where funds are invested to allow for building of cash value within the policy over time. Through this, the policy can be an investment vehicle providing an insured with an extra means to grow investment diversity. These policies provide more flexibility than whole life insurance and permit the policy owner to move funds back and forth between the insurance and savings portions as he or she chooses. Another way these policies are flexible is that the policy premiums can be variable, allowing the policy owner to make adjustments as he or she likes. The premiums are split between the insurance portion and the savings function. Variable whole life insurance can span an individual's entire life, includes the ability to add cash value, and can be "permanent" if the insured pays each premium on time as required. Variable whole life policies are traditionally kept in place for the remainder of the policyholder's life, no matter how long the policyholder may live. This type of insurance provides life insurance coverage with an added savings component. The same is true of variable universal life insurance, another type of permanent life insurance. However, variable life insurance policies allow flexibility and discretion to the policyholder in how he or she makes premium payments. The policyholder can change how premium payments are invested within a set range of options as detailed in the policy guidelines. Both universal and whole life policyholders may increase and tap into the policy's cash value. The primary ways that universal life insurance contrasts with variable whole life insurance policies center on defined guarantees with universal life policies versus the greater flexibility in variable life policies. With universal life insurance policies, the insured pays premiums so that the beneficiary will receive a specified benefit upon the insured's death. In contrast, variable whole life insurance policies provide greater discretion allowing the insured to establish both the premium and the death benefit. As such, it lets people establish a permanent policy with a lower premium than they would otherwise pay for a universal life policy. And while the interest paid on variable whole life insurance is often adjusted monthly, interest on a whole life insurance policy is only altered annually and is therefore, less flexible to the market. This means that during periods of rising interest rates, variable whole life insurance policy holders see their cash values increase in tune with the market. Variable whole life insurance policies are considered a form of permanent life insurance as they offer permanent protection to the beneficiary if the policyholder passes away. Variable whole life insurance is more expensive than other life insurance options, because the policyholder can set aside a portion of the premium dollars in an investment vehicle managed by the insurance company. Therefore, with each premium payment, the policy's cash value increases on a tax-deferred basis. The availability of increased cash value allows the policyholder to borrow against the cash value if he or she chooses or even surrender the policy to get the cash value out. Because of the investment aspect, variable policies are considered a security. This means they are subject to federal securities laws, and an accompanying prospectus is required when they are sold.

FIXED AND VARIABLE ANNUITIES

Variable annuities involve greater investment risk than fixed annuities, because as the name implies, variable annuities do not offer a guaranteed minimum interest rate. Fixed annuities are a safer investment as they provide a minimum rate that is not impacted by fluctuations in market forces or the company's yearly profits. The insurer provides a specific credited rate of return using the financial performance seen in its general account funds. Variable annuities place more risk on the investor, but they also provide an advantage of financial gain if the market does well as he or she will achieve higher returns during the accumulation phase.

DETERMINING BENEFITS IF THE BENEFICIARIES ARE MINORS AT THE TIME OF THE EVENT

When a child under the age of 18 is named as a beneficiary, it is problematic since persons under age 18 cannot legally enter into contracts on their own. Because of their legal standing, minors are limited in receiving funds such as a death benefit from a life insurance policy—even when designated as a primary beneficiary. If a child is named as a beneficiary, a financial guardian will need to be appointed by a court to administer any death benefit of funds received on behalf of the minor beneficiary. In most states, this requirement must stay in place until the beneficiary reaches the age of majority (18 years of age).

DETERMINING BENEFICIARIES WHEN A COMMON DISASTER IMPACTS THE BENEFICIARIES OF A POLICY

When included in a policy, the common disaster clause provides that if the insured and the designated beneficiary die simultaneously or due to the same common event, it is assumed that the beneficiary died first. This clause is helpful to streamline the policy closure with the death benefit payout, as it enables the policy proceeds to be paid to the insured's estate or a contingent beneficiary, and avoids having the policy proceeds being paid to the primary beneficiary's estate. Another component of the common disaster clause provides that the policyholder can indicate a time period (e.g., 30 days, 90 days, etc.) by which the primary beneficiary must outlive the insured for the primary beneficiary to collect the death benefit and policy proceeds.

WHOLE OR PERMANENT

Whole life or permanent insurance pays a death benefit whenever the insured passes away, even if he or she lives to be 110 years old. There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life. Traditional whole life insurance covers the life of the insured and with stable premiums and guaranteed death benefits, and includes an added ability to build cash value on a tax-deferred basis. Traditional whole life insurance policies provide life insurance protection with an added bonus of a savings feature. Universal life insurance has attributes of term life coverage with a low-cost premium structure but also includes a savings component (similar to whole life insurance), which the insurer invests to create cash value. Variable universal life insurance gives a unique ability to the policyholder to direct a portion of the premium he or she pays to a separate investment account, but also includes the basic permanent protection to the beneficiary with a death benefit just like whole life coverage.