Life Insurance

Life Insurance, by definition, is a plan under which large groups of individuals may equalize the burden of loss from death by distributing funds to the beneficiaries of those who die. In Indiana, life insurance is a way for an individual, to create an estate for the benefit of one’s heirs and dependents.  Upon the death of the insured, the beneficiaries would receive the proceeds of the policy.

Life insurance in the United States is a multi-trillion dollar industry.

The major types of life policies include term, whole life, and universal life. The simplest of these contracts is term life insurance. This type of life insurance policy is designed to be issued for a set number of years. The protection under these policies expires at the end of a specified period and no cash value remains upon expiration of the contract.

When looking at whole life contracts, you need to know that they run for the entirety of the insured’s life with the gradual accumulation of a cash value. The cash value of the contract is less than the face value of the policy and is paid to a policy holder when the contract reaches maturity or is surrendered.

Universal life policies are relatively new and was introduced into the United States in 1979. The policy has become a major class of life insurance. The contract allows the insured the flexibility to decide the size of the premium and amount of benefits within the policy. The insurer charges (the insured) each month for general expenses and mortality costs, crediting the amount of interest earned to the insured. There are two types of universal life contracts: Type A and Type B. In Type A policies, the (death) benefit is a set amount, and in Type B policies, the (death) benefit is a set amount plus any cash value that has accumulated within the policy.

Insurance may be issued with premiums set up (for payment) in two different ways. The premium may remain the same throughout the premium paying period; or the insurance may be issued with a policy that provides for a periodic increase in premium relative to the age of the individual.

Almost all ordinary life policies are issued with a premium that is the same throughout the payment history of the policy. This makes it necessary to charge more than the actual cost of the insurance in the earlier years of the policy. The necessity of charging more than true cost is to make up for higher costs down the road. Therefore, the additional charges in the earliest years of the contract are not technically overcharges, but an essential element or part of the total insurance plan. This establishes the fact that mortality rates increase with age. The policyholder does not overpay for protection due to the claim on accumulated cash values during the early years of the policy. The policyholder at his or her discretion may borrow against the cash value of the policy or totally recapture the value by allowing the contract to lapse. The insured does not, however, have a claim on any earnings accrued  by the insurance company through the investment of funds paid by its policyholders.

An insurer is able to provide many different types of policies by combining term life insurance and whole life insurance. Two examples of package contracts are the family income policy and the mortgage protection policy. In each package a primary policy type, generally whole life is combined with term insurance and calculated in such a way that the amount of protection continues to decline during the duration of the policy. Mortgage protection insurance is designed in order that the  decreasing term insurance is approximate to the amount of mortgage remaining on a property. In other words, as the mortgage is paid down, the amount of insurance declines accordingly. The declining term insurance expires at the end of the mortgage period, leaving the base policy still in effect.

Looking at family income policies, they will  provide decreasing term insurance  in order to provide a specified income to the beneficiary over a period equivalent to the period of time when the dependent children are young.

Some whole life policies allow the policyholder to place a limitation on the period during which the premiums are to be paid. Examples of this include: Twenty year life policies; thirty year life contracts, and life policies paid to age sixty five. The insured initially pays a higher premium in order to compensate for the limited premium paid in the future. At the end of the stated paying period, the policy is declared to be “paid up,” however policy remains in effect until death or the policy is surrendered.

Term life policies are adequate when the need for protection is for a specified period of time. Whole life policies make the most sense when the need for protection is permanent.

The universal life plan earns interest at a rate approximately equal to rates available on long term bonds and thus can be used as a convenient savings plan. In addition, the insured may adjust the death benefits as needs change. The policy offers the owner cost savings in the way of commission expense providing flexibility for the insured by eliminating any necessity of canceling one policy and purchasing another when the insured’s requirements change.

While it takes a little time to determine which Indiana life insurance policy is best for you and your family, you can save a lot of money as well.  Use a site like IndianaInsuranceBroker.com to find out what options would work best for you and what your rates might be.  Then you can sit down with an Indiana life insurance broker to put the policy into effect.

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