Life Insurance Policy Summary
The general concept of life insurance is easy to understand. However, with the many policy types, countless insurance companies and technical industry terminology, deciphering the details of an insurance policy can become overwhelming.
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Policy Type
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Every life insurance policy falls into one of two major categories: term and permanent. Term policies provide coverage for a specified period of time, at the end of which coverage is no longer in force. Permanent life insurance coverage lasts through the life of the insured.
Death Benefit
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A life insurance policy's death benefit is perhaps the most relevant aspect of the entire contract. The death benefit, also commonly referred to as the face amount, is the sum of money distributed to beneficiaries or heirs if the insured person dies while the policy is in force.
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Underwriting Class
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Life insurance premiums depend on the size of the death benefit and the insured person's underwriting class. Every life insurance customer is placed into one of several categories that identifies the level of financial risk they pose to the insurance company. This categorization occurrs during the policy application phase and is based on a multitude of factors including the person's medical history, driving records, occupation, hobbies and family history.
Cash Value
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Permanent life insurance policies accumulate cash value over time. With each premium payment, the cash value portion of the policy receives another contribution that then may be invested per the insurance carrier's specifications. Growth accumulates without tax and remains within the policy until it is withdrawn by the owner or used to pay premiums.
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Comments
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All of the following statements regarding the life insurance policy summary are correct EXCEPT: A) it must be given to each new policy owner no later than on policy delivery. B) it must illustrate all guaranteed policy dividend values. C) it must present the generic name of the policy as well as the company's name for it. D) it must illustrate all guaranteed cash surrender values.
