Life Insurance
Policy types
Term insurance provides pure death protection for a stated period with no cash value. Whole life is permanent, level-premium, and builds guaranteed cash value. Universal life separates mortality charges from cash value and permits flexible premium and adjustable death benefit. Variable life and variable universal life place cash value in separate accounts, are securities-regulated, and require a prospectus. Indexed universal life credits interest by an index formula with a guaranteed floor. Annuities are the mirror image of life insurance - they liquidate an estate - and are classified by timing (immediate versus deferred), premium mode, and payout option.
Provisions to know
Entire contract; grace period of 30 or 31 days; reinstatement on evidence of insurability with back premiums plus interest; incontestability after two years; misstatement of age or sex adjusts the benefit; suicide exclusion lasting about two years and paying a premium refund; free look of at least 10 days; automatic premium loan; policy loans that accrue interest and reduce proceeds; nonforfeiture options (cash surrender, reduced paid-up, extended term); dividend options; settlement options (lump sum, interest only, fixed period, fixed amount, life income with period certain).
Owners and beneficiaries
Only the owner controls the policy; the beneficiary merely receives proceeds. Revocable beneficiaries may be changed without consent, irrevocable ones may not. Per stirpes divides by family branch; per capita divides equally among survivors.
Trap watch
Incontestability does not bar denial for nonpayment of premium. Suicide during the exclusion period returns premiums, not the face amount. Policy loans are not taxable income unless the policy lapses or is surrendered.
Worked example
The insured dies in year three from a condition omitted on the application. Because the two-year contestable period has run, the claim is paid; the insurer cannot rescind, though the separate misstatement-of-age provision could still adjust the benefit.