Types of Insurance

September 13, 2016

Planning to buy a life insurance plan? Here’s what you need to know about the different types of life insurance:

Term Life Insurance

Term life insurance is the simplest type of life insurance where you buy life coverage for a specific period of time and pay a monthly premium. It only pays if death occurs during that set period, which usually ranges from one year to 30 years.

Term life insurance is the cheapest form of life insurance starting from as low as few hundred dollars a year for $300,000 worth of coverage. Term life insurance, in most of the cases, doesn’t have any investment component linked to it. You are just paying an annual premium to protect your dependents in case anything happens within the policy term.

There two further sub-categories of term life insurance:

Level term – Fixed premiums and death benefits stay the same throughout the term of the policy

Decreasing term – Death benefits decrease each year incrementally throughout the term of the policy

When opting for Term life insurance, choose a term that fits your current financial situation and figure out the number of years you and your family are more financially vulnerable.

Whole Life Insurance

Also known as permanent life insurance, whole life insurance is more expensive than a term insurance policy but has many additional benefits. A whole life insurance policy provides lifelong death coverage even if you die aged 100 and comes with an investment component known as policy cash value. You can also borrow money against the cash value of your policy plan or even surrender the policy for cash.

There are three main types of whole life insurance; traditional whole life, universal whole, variable whole life.

Traditional whole life – This is the most common type of whole life insurance where the premium stays the same throughout the policy’s term and the death benefit is guaranteed. The policy cash value also grows at a guaranteed rate and best of all, you don’t have to pay taxes on the gains while they are accumulating.

Universal whole life – This is a type of permanent insurance policy that provides the most flexibility. It provides the option of increasing death benefit later on in the policy term by passing a medical examination. The insured also has the option to change the policy premiums if enough money has been accumulated in the cash value account. The only downside with universal life insurance is that the returns are not guaranteed since it is tied to a money-market type investment that pays a market return rate – which can be positive or negative.

Variable Life Insurance – This type of permanent life insurance provides the opportunity of combining death benefits with an investment component that comprises of stocks, bonds and money market mutual funds. The risk factor for variable life insurance policy is higher but the returns can be equally rewarding as well. If the investments tank, the death benefit and cash value may decrease, however, some policies guarantee a minimum death benefit.

Variable life insurance policy also comes with great flexibility for the insured in terms of the ability to change and adjust the annual premiums. So if your financial situation changes during the policy’s term, you have the ability to increase or decrease your premium. The policy cash value account can also be used to pay the premiums, if needed. While there are certain added benefits of variable life insurance, one big downside is that the cash value returns are not guaranteed and the risk of investments lie completely on the policyholder.

Final word

Whichever type of life insurance you eventually opt for, it is essential to be aware of the risks and rewards and choose a plan that fits your current financial status and future life goals.

Unclaimed Life Insurance

August 19, 2016

A life insurance policy works such that the policyholder pays a monthly or yearly premium and when he or she dies, the insurance company pays the benefits to the deceased’s spouse or children or anyone who has been nominated by them.

However, this is not always the case.

According to a recent investigation, as many as 35 of the biggest insurance companies in the United States have not settled the claims with beneficiaries and have been sitting on billions of dollars of money that does not belong to them.

Most of this happens due to the beneficiaries not being aware that a policy exists so the benefits end up not being claimed. As per estimates, as many as one in four policies remain unclaimed in the United States.

Legal Status of Unclaimed Life Insurance Benefits  

The legal status of what happens to insurance payouts that are left unclaimed depends on the type of policy – term life insurance or whole life insurance – that was in place and whether it was paid up and in force at the time of death.

Whole Life Policy

In the case of whole life policy, if the premiums were up to date or fully paid, the beneficiaries are entitled to receive the full policy benefits regardless of the time duration of the claim after the policy holder’s death. In fact, during the time the benefits remain unclaimed, accrued interest is added to the basic unclaimed amount.

In case benefits remain unclaimed so that the insured would have reached the limiting age on the mortality table which is usually 100-115 years, the benefits may be considered legally abandoned. In such a case, the unclaimed funds convert to state property and escheat statutes. Even then, in most cases heirs reserve the right to reclaim the funds.

Term Life Policy

Unclaimed term life policies have more or less the same legal status as whole life policy. The only difference is that these policies are only for a selected number of years so the beneficiaries may or may not be entitled to the policy payout depending on the forfeiture clause defined at the time of purchase and whether the premiums were up to date.

How to find a lost life insurance policy

Most insurance companies consider it the responsibility of the beneficiaries to contact them in order to collect the policy benefits which is a flawed practice and the basic reason for millions of unclaimed life insurance policies in the country.

If you or someone around you wants to find out about a missing policy, here is how to approach the situation:

• Check with deceased’s employers since many companies offer group life insurance to employees. They should have a record of everything.
• Check the deceased’s personal documents and look for anything that can lead to the insurance company – telephone numbers, policy documents and/or the names of the insurance agents.
• Be on the lookout for deceased’s incoming mail for some period after the death and watch out for due premium notices or statements, which are sent monthly or annually depending on the insurance company.
• Banks, lenders, credit card companies and other financial service companies often offer free or low-cost life insurance policies. Check out the deceased’s financial documents to see if such a policy was in force.
• If all else fails and no record of a policy is found but you are sure that a policy was in place, contact the underwriters in your city/state directly. To narrow down underwriters, start with the most popular ones in your area.

Final word

Whether you have just discovered about lost insurance claims or many years have passed since the insured’s death, there are many legal ways to acquire the funds that you and other heirs of the deceased may be entitled to.