Life Insurance Policies

Flores, Dina P.
 Insurance
 Insurance cover that serves two major purposes:
(1) to substitute for the insured’s income if he or she dis, and
(2) to qualify the insured for favorable tax treatment.
The policy holders buy insurance cover from an insurance company, and pay specific
periodic amounts (premium) for the term (duration or life) of the policy. If the insured
dies before the term is completed, a guaranteed sum (the face amount of the policy) is
paid to one or more named beneficiaries. If the insured survives the term then, depending
on the type of policy, he or she may receive the full or part of the face amount of the
policy.
For young families, a life insurance policy creates an ‘instant
estate’ before they have enough time to accumulate other
assets. And it provides liquidity to the named beneficiary (or
beneficiaries) long before the deceased’s estate matters (which
often call for substantial expense) are settled.
Life Insurance has its origins in the old practice of saving
money for one’s own funeral costs, and is called also Life
Insurance.
 Classifications of Life Insurance Policies
1. According to Nature (i.e., policies are differentiated based on the nature
of benefits offered.)

1. Temporary Policies – these policies offer only protection or death benefit

over a limited period of time

2. Permanent Policies – these policies offer death and living benefits within the
insured’s lifetime . Living benefits may be in the form of dividends,
anticipated endowments, universal life policies, and cash values.
2. According to Coverage – policies are differentiated based on the number
of persons enjoying protection under specific policy.

1. Individual Policies – a policy which provides insurance protection to one person

only

2. Joint Life – a policy which cover the lives of two or more persons. Under this
policy the first death which occurs among the lives covered effectively terminates
the policy.

3. Group – a life insurance policy which covers the life o a group of people.
3. According to Participation in Divisible surplus (i.e.,
policies are differentiated based on whether or not such
are entitled to receive dividends.

1. Participating – a policy which entitles policy owners to

receive dividends. Dividends are sourced from the
surplus earnings of the insurance company which the
board of directors could decide to share with policy
owners with participating policies.

2. Non-participating – does not share in the dividends

4. According to Line of Business (i.e., policies are differentiated based on the
market segments to which a policy caters.)

1. Ordinary – a policy which caters to the middle and upper income-earners.

Premiums of the policy are payable on an annual, semi-annual, or quarterly
basis.

2. Industrial – a policy which caters to low income-earners. Premium of this

policy are payable on a monthly, weekly, or daily basis.

3. Group – a policy which caters to the insurance needs of employee groups,

unions, and the premiums of which are generally deducted from the salaries of
employees.
 Main types of Life Insurance
• Term Life Insurance
• Whole Life Insurance
• Endowment Life Policy
 Term Life Insurance
• This is the simplest form of life insurance you can obtain. Upon death, the beneficiaries are
paid the benefit.
Uses of Term Insurance
Term insurance is designed for use in situations where a person needs maximum protection at the lowest
premium outlay, particularly where the need is temporary. Term can properly be used to cover permanent
needs, but only if the insured understands that is to be done on a temporary basis.
1. To cover debts, loans, mortgages that will be repaid within a limited period of time.
2. To provide protection for dependents f young husband or wife who can’t afford the necessary
amount of whole life insurance.
3. To furnish protection and at the same time, insure the insurability of young person on the way up or
whose new business undertaking requires all available capital.
 Whole Life Insurance
1. In contrast with the term insurance, whole life will pay the face value
whenever death occurs. It gives the most permanent coverage over the
insured’s entire lifetime for the least amount of premium.
2. Kinds of Whole Life Insurance. From the standpoint of premium
payment characteristics’ there are two kinds of whole life: (1) ordinary or
straight life; (2) limited payment life
 Two Kinds of Whole Life Insurance
1. Ordinary
a. Premiums are payable for life
b. Most flexible type of life insurance, can most easily adapted to changes in the
insured’s financial situation or family responsibilities.
c. Offers the most permanent protection
d. Preferred choice of the need for family protection outweighs the need for higher
cash values or the need for a fully paid-up policy at an early date.
 Limited Payment Life
1. Premium payable for a specified number of years only
2. After the premium – paying period, the policy becomes paid up for its full face
amount. However, It does not mature for the face amount until 100
3. Suited or situations where the insured
a. Desires to pay premium during his productive years despite the premiums being higher
than ordinary life
b. When an individual’s remaining best years are expected to be few ( for example; middle-
aged persons, professional athletes, entertainers)
c. For juvenile insurance situations where a parent wants to start a child's policy that will be
paid up at an early age
 Endowment Insurance
• This type of life insurance policy grants a lump sum after a specified amount
of time or upon death. The policy owner is required to pay the premium for
a predetermined number of years or until a specific age is reached.
 Benefits of Life insurance

Pays for Medical and Funeral costs

Funding Various Financial Goals
Acts as a Retirement Nest Egg
Covers costs incurred from taxes and debt