Life insurance policies may be owned by the one being insured, or by a second party. An example would be a man buying a policy on his own life, thus becoming both the owner and the one being insured, or another person buying a policy on this man’s life, which would make him the owner. The owner becomes the guarantor, and it is he who must make the premium payments. These are usually paid monthly.
When an insured person dies, all the money from the policy goes to the beneficiary, who is chosen by them but does not have any power in the contract. Beneficiaries may be changed without being consulted if the owner so wishes. In the case of irrevocable beneficiary designation the beneficiary does have to agree to any changes.
The owners of policies must have what is known as an insurable interest, in which case the owner would sustain a loss upon the death of the person they’re insuring. This clause, in effect, prohibits people from buying policies because they believe the person will soon die. It also helps prevent any kind of foul play against the person with the policy.
The cost of the policy is based upon mathematical tables, and includes fees for administrative work, paying the claim, and making a profit from the the transaction.
The age and health of the insured is a large factor also. Most of the income garnered by the insurance companies comes from premiums paid, but they also invest some of their income in other places.
The company will need to have demonstrable proof of death before paying the claim. The death certificate and the owner’s notarized claim form are sufficient in most cases. The company can halt payment and do a thorough investigation should there be any suspicion about the cause of death. This investigation could take as long as several months to be completed.
All people are not automatically insurable, and those who are smokers or have health problems, dangerous lifestyles, or other problems are not thought of as a reasonable risk for companies. The result would be either no policy at all. However, some may acquire a policy with a very high monthly premium. As the age of a person rises, so do the costs of their policy. A man of twenty-five, who is a non-smoker and is in good health, could buy a $100,000 insurance policy for ten years for the small sum of $90 a year. The types of policies available are whole life, term, endowment, and universal.
A Whole policy is valid for a person’s lifetime. A Term policy is only for a time such as ten years. This type of policy is not advisable for everyone. An Endowment pays a designated sum of money upon maturity or the person’s death. Universal is established on premium payments above and beyond the basic cost of the policy and are added to the policy’s cash value. Check into the type of life insurance you wish to have before you commit yourself to anything. Good agents will welcome the opportunity to talk with you at length.
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