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Duration of policies:

Whole life insurance offers guaranteed insurance for the duration of the policyholder's life. Such
policies include a tax-deferred cash value that increases until the contract has been surrendered.
Premiums for whole life insurance policies remain unchanged, and the policyholder has a
guaranteed death benefit.
Universal life insurance is much like whole life insurance, except that the protection, premiums
and cash value can all be adjusted during the term of the contract. The cash values also accrue
interest at a rate set by the insurance company.
Variable life insurance policies combine aspects of an investment fund with a whole life
insurance policy. A general account acts as the policy provider's liability account, and a separate
account is composed of several investment funds from the insurance provider's portfolio. The
policy is called a variable life insurance policy because the overall death benefit and value of the
cash can change.
A common practice is for an individual to take out a term life insurance policy as protection
against risk before investing his savings into a mutual fund, brokerage account or another type of
alternate investment.

Whole Life policies


A form of permanent life insurance, whole life insurance features guaranteed premiums, death
benefits, and cash value. Whole life insurance policies also give you the potential to receive
dividends, which can increase the value of the policy when the insured is living or provide an
increased death benefit for your beneficiaries.1

Death benefit
The death benefit of a whole life policy is normally the stated face amount. However, if the
policy is "participating", the death benefit will be increased by any accumulated dividend values
and/or decreased by any outstanding policy loans. (see example below) Certain riders, such as
Accidental Death benefit may exist, which would potentially increase the benefit.
In contrast, universal life policies (a flexible premium whole life substitute) may be structured to
pay cash values in addition to the face amount, but usually do not guarantee lifetime coverage in
such cases.

Maturity

A whole life policy is said to "mature" at death or the maturity age of 100, whichever comes first.
To be more exact the maturity date will be the "policy anniversary nearest age 100". The policy
becomes a "matured endowment" when the insured person lives past the stated maturity age. In
that event the policy owner receives the face amount in cash. With many modern whole life
policies, issued since approximately 2000, maturity ages have been increased to 120.

Taxation
The entire death benefit of a whole life policy is free of income tax, except in unusual cases.[3]
This includes any internal gains in cash values. The same is true of group life, term life, and
accidental death policies.

Uses
Personal and family uses
Individuals may find whole life attractive because it offers coverage for an indeterminate length
of time. It is the dominant choice for insuring so-called "permanent" insurance needs, including:

Funeral expenses,

Estate planning,

Surviving spouse income, and

Supplemental retirement income.

Individuals may find whole life less attractive, due to the relatively high premiums, for insuring:

Large debts,

Temporary needs, such as children's dependency years,

Young families with large needs and limited income.

In the second category, term life is generally considered more suitable and has played an
increasingly larger role in recent years.

Business uses
Businesses may also have legitimate and compelling needs, including funding of:
1. Buy-sell agreements
2. Death of key person
3. Supplemental executive retirement plans (S.E.R.P.)
4. Deferred compensation

Level Premium
Level premium whole life insurance (sometimes called ordinary whole life, though this term is
also sometimes used more broadly) provides lifetime death benefit coverage for a level premium.
Whole life premiums are much higher than term insurance premiums, but because term insurance
premiums rise with increasing age of the insured, the cumulative value of all premiums paid
under whole and term policies are roughly equal if the policy continues to average life
expectancy. Part of the insurance contract stipulates that the policyholder is entitled to a cash
value reserve that is part of the policy and guaranteed by the company. This cash value can be
accessed at any time through policy loans that are received income tax-free and paid back
according to mutually agreed-upon schedules. These policy loans are available until the insured's
death. If any loans amounts are outstandingi.e., not yet paid backupon the insured's death,
the insurer subtracts those amounts from the policy's face value/death benefit and pays the
remainder to the policy's beneficiary.

Term life insurance


Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of
payments for a limited period of time, the relevant term. After that period expires, coverage at
the previous rate of premiums is no longer guaranteed and the client must either forgo coverage
or potentially obtain further coverage with different payments or conditions. Term life insurance
can be contrasted to permanent life insurance such as whole life, universal life, and variable
universal life, which guarantee coverage at fixed premiums for the lifetime of the covered
individual unless the policy is allowed to lapse. Term insurance is not generally used for estate
planning needs or charitable giving strategies but is used for pure income replacement needs for
an individual. Term insurance functions in a manner similar to most other types of insurance in
that it satisfies claims against what is insured if the premiums are up to date and the contract has
not expired and does not provide for a return of premium dollars if no claims are filed

Usage
Because term life insurance is a pure death benefit, its primary use is to provide coverage of
financial responsibilities for the insured or his or her beneficiaries. Such responsibilities may
include:

Annual renewable term


The simplest form of term life insurance is for a term of one year. The death benefit would be
paid by the insurance company if the insured died during the one-year term, while no benefit is
paid if the insured dies one day after the last day of the one-year term. Because the likelihood of
dying in the next year is low for anyone that the insurer would accept for the coverage, purchase
of only one year of coverage is rare.

Level term life insurance


More common than annual renewable term insurance is guaranteed level premium term life
insurance, where the premium is guaranteed to be the same for a given period of years. The most
common terms are 10, 15, 20, and 30 years.Most term life policies include an option to convert
the term life policy to a Universal Life or Whole Life policy. This option can be useful to a
person who acquired the term life policy with a preferred rating class and later is diagnosed with
a condition that would make it difficult to qualify for a new term policy. The new policy is issued
at the rate class of the original term policy. This right to convert may not extend to the end of the
Term Life policy. The right may extend a fixed number of years or to a specified age, such as
convertible to age seventy.

Return Premium Term life insurance


A form of term life insurance coverage that provides a return of some of the premiums paid
during the policy term if the insured person outlives the duration of the term life insurance
policy.
For example, if an individual owns a 10-year return of premium term life insurance plan and the
10-year term has expired, the premiums paid by the owner will be returned, less any fees and
expenses which the life insurance company retains. Usually, a return premium policy returns a
majority of the paid premiums if the insured person outlives the policy term.

Payout likelihood and cost difference

Both term insurance and permanent insurance use the same mortality tables for calculating the
cost of insurance, and provide a death benefit which is income tax free. However, the premium
costs for term insurance are substantially lower than those for permanent insurance.
]

Simplified Issue Insurance


A scaled back underwriting process that is simplfied. Coverage amounts are lower than
traditional fully underwritten policies. Simplified issue policies typically do not require a
medical exam and have less application questions to answer. Many of these policies can be
approved within several days.

Guaranteed Issue Insurance


A life insurance policy that is guaranteed approval. Coverage amounts will be
lower than traditional policies. Premiums will be considerably higher. Since
there are no medical questions and everyone is approved, these policies will
have a waiting period before benefits are paid out. If insured dies during the
initial waiting period, only premiums plus interest will be returned. Once the
waiting period has been satisfied, the full death benefit will be paid out to
the beneficiary.

Endowment policy
An endowment policy is a life insurance contract designed to pay a lump sum after a specific
term or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit.
Some policies also pay out in the case of critical illness.
Policies are typically traditional with-profits or unit-linked (including those with unitized withprofits funds).
Endowments can be cashed in early (or surrendered) and the holder then receives the surrender
value which is determined by the insurance company depending on how long the policy has been
running and how much has been paid into it.

Traditional With Profits Endowments


There is an amount guaranteed to be paid out called the sum assured and this can be increased
on the basis of investment performance through the addition of periodic (for example annual)

bonuses. Regular bonuses (sometimes referred to as reversionary bonuses) are guaranteed at


maturity and a further non-guarantee bonus may be paid at the end known as a terminal bonus.

Method of payment of claim amount


There may be three types of claim in life insurance policies
1. Survival Benefit Claim
2. Maturity Benfit Claim
3. Death Benefit Claim
We shall discuss hereunder the details of each category of claims.
1. Survival Benefit:Survival benefit is not payable under all types of plans. It ispayable in
endowment or money back plans after a lapse of afixed period say 4 or 5 years, provided firstly
the policy is in force and secondly the policyholder is alive.
2. Maturity Claim It is a final payment under the policy as per the terms of thecontract. Any
insurer is under obligation to pay the amount on the due date. Therefore the intimation of
maturity claim and discharge voucher are sent in advance with the instruction to return it
immediately. If the life assured dies after the maturity date, but before receiving the claim, there
arises a typical problem as to who is .
3. Death Claim If the life assured dies during the term of the policy, the death claim arises. If the
death has taken place within the first two years of the commencement of the policy, it is called an
early death claim and if the death has taken after 2 years, it is called a non early death claim
Conventional life insurance policies are not financial investments Bonuses accumulate on
conventional life insurance policies during the term of the policy. Bonuses are not assessed as
ongoing income during the life of the policy. However, on withdrawal, surrender or maturity of
the policy, the difference between the total amount received on withdrawal, surrender or maturity
and the sum of the purchase price and premiums paid by the investor is assessed as income for
12 months

Bonus payments in pre-pension years


The difference between the total amount received by a pensioner on withdrawal, surrender or
maturity of the policy, and the full cost of the policy over its lifetime, is regarded as a net return
to the pensioner and is assessable as income at the time it is received. Bonus payments nominally
accruing to the policy during pre-pension years are not excluded from the income assessment, as
they fall within the definition of income at the time of receipt.

Accessible amounts are income


Where the policy has matured but none, or only a partial withdrawal of the entitlement on
maturity is accessed, the assessment is the same as if a withdrawal of the full amount had been

made. This is because income is assessable when a person first has legal entitlement to it. It is
not necessary that the funds be actually received by the pensioner, as legal control over the funds
at the time that the policy matures is sufficient to satisfy the income test.

Matured funds not withdrawn


Arrangements between the pensioner and the insurance company for the matured funds to remain
with the insurance company in a different form should not be recognised, as the exemption of life
insurance policies from the normal deeming rules for financial investments is based on the funds
not being accessible to the pensioner prior to maturity.

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