Classes of Life Insurance PoliciesPermanent vs Term Life Insurance, Life Definitions
Permanent versus Term
The two basic types of life insurance policies are term life insurance and permanent life insurance.
Permanent life insurance
- Permanent insurance protection
- More expensive to own
- Builds cash value
- Loans are permitted against the policy
- Favorable tax treatment of policy earnings
- Level premiums
Term life insurance
- Temporary insurance protection
- Low cost
- No cash value
- Usually renewable
- Sometimes convertible to permanent life insurance
Participating versus Nonparticipating (Par vs . Non-par)
A mutual life insurer may issue policies on both a participating (sharing in the profits of the company) and nonparticipating basis, provided that the right or absence of participation is related to the premium charged. The policy must clearly state whether it is participating or nonparticipating.
Ordinary versus Industrial (Home Service)
Ordinary life insurance policies normally have larger face value amounts- more than $1,000, and have a variety of structures and benefits.
Industrial life policies are simple policies with benefits of $1,000 or less (but may be more) AND premiums that are collected at the insured's home on a weekly or monthly basis.
The name comes from the fact that they were originally sold to industrial workers who were paid weekly; they are also known as home service policies since the agent normally comes to the home to collect the premium. The agent's territory is called his debit. This method of marketing today represents less than 2% of life insurance in force in the U.S. Needs that Life Insurance can cover:
- Final Expenses: Medical bills from a final illness and funeral costs. These are generally handled with cash, borrowing, liquidating property, or with life insurance.
- Family Income Protection: This includes Retirement Income, Housing, and a Monthly Family Income.
- Incomplete Financial Goals: Estate Planning, Education Expense protection for one s children, and Charitable Giving.
- Unsatisfied Major Obligations: Business Life Insurance and Debt Repayment