Types Of Life Insurance Policies – Which Is Right For You?

Term Life by definition is a life insurance policy which provides a stated benefit upon the holder’s death, provided that the death occurs within a certain specified time period. However, the policy does not provide any returns beyond the stated benefit, unlike an insurance policy which allows investors to share in returns from the insurance company’s investment portfolio.

Annually renewable term life.

Historically, a term life rate increased each year as the risk of death became greater. While unpopular, this type of life policy is still available and is commonly referred to as annually renewable term life (ART).

Guaranteed level term life.

Many companies now also offer level term life. This type of insurance policy has premiums that are designed to remain level for a period of 5, 10, 15, 20, 25 or even 30 years. Level term life policies have become extremely popular because they are very inexpensive and can provide relatively long term coverage. But, be careful! Most level term life insurance policies contain a guarantee of level premiums. However some policies don’t provide such guarantees. Without a guarantee, the insurance company can surprise you by raising your life insurance rate, even during the time in which you expected your premiums to remain level. Needless to say, it is important to make sure that you understand the terms of any life insurance policy you are considering.
Return of premium term life insurance

Return of premium term insurance (ROP) is a relatively new type of insurance policy that offers a guaranteed refund of the life insurance premiums at the end of the term period assuming the insured is still living. This type of term life insurance policy is a bit more expensive than regular term life insurance, but the premiums are designed to remain level. These returns of premium term life insurance policies are available in 15, 20, or 30-year term versions. Consumer interest in these plans has continued to grow each year, as they are often significantly less expensive than permanent types of life insurance, yet, like many permanent plans, they still may offer cash surrender values if the insured doesn’t die.

Types of Permanent Life Insurance Policies

A permanent life insurance policy by definition is a policy that provides life insurance coverage throughout the insured’s lifetime ñ the policy never ends as long as the premiums are paid. In addition, a permanent life insurance policy provides a savings element that builds cash value.
Universal Life

Life insurance which combines the low-cost protection of term life with a savings component that is invested in a tax-deferred account, the cash value of which may be available for a loan to the policyholder. Universal life was created to provide more flexibility than whole life by allowing the holder to shift money between the insurance and savings components of the policy. Additionally, the inner workings of the investment process are openly displayed to the holder, whereas details of whole life investments tend to be quite scarce. Premiums, which are variable, are broken down by the insurance company into insurance and savings. Therefore, the holder can adjust the proportions of the policy based on external conditions. If the savings are earning a poor return, they can be used to pay the premiums instead of injecting more money. If the holder remains insurable, more of the premium can be applied to insurance, increasing the death benefit. Unlike with whole life, the cash value investments grow at a variable rate that is adjusted monthly. There is usually a minimum rate of return. These changes to the interest scheme allow the holder to take advantage of rising interest rates. The danger is that falling interest rates may cause premiums to increase and even cause the policy to lapse if interest can no longer pay a portion of the insurance costs.

To age 100 level guaranteed life insurance

This type of life policy offers a guaranteed level premium to age 100, along with a guaranteed level death benefit to age 100. Most often, this is accomplished within a Universal Life policy, with the addition of a feature commonly known as a “no-lapse rider”. Some, but not all, of these plans also include an “extension of maturity” feature, which provides that if the insured lives to age 100, having paid the “no-lapse” premiums each year, the full face amount of coverage will continue on a guaranteed basis at no charge thereafter.

Survivorship or 2nd-to-die life insurance

A survivorship life policy, also called 2nd-to-die life, is a type of coverage that is generally offered either as universal or whole life and pays a death benefit at the later death of two insured individuals, usually a husband and wife. It has become extremely popular with wealthy individuals since the mid-1980’s as a method of discounting their inevitable future estate tax liabilities which can, in effect, confiscate an amount to over half of a family’s entire net worth!

Congress instituted an unlimited marital deduction in 1981. As a result, most individuals arrange their affairs in a manner such that they delay the payment of any estate taxes until the second insured’s death. A “2nd-to-die” life policy allows the insurance company to delay the payment of the death benefit until the second insured’s death, thereby creating the necessary dollars to pay the taxes exactly when they are needed! This coverage is widely used because it is generally much less expensive than individual permanent life coverage on either spouse.

Variable Universal Life

A form of whole life which combines some features of universal life, such as premium and death benefit flexibility, with some features of variable life, such as more investment choices. Variable universal life adds to the flexibility of universal life by allowing the holder to choose among investment vehicles for the savings portion of the account. The differences between this arrangement and investing individually are the tax advantages and fees that accompany the insurance policy.

Whole Life

Insurance which provides coverage for an individual’s whole life, rather than a specified term. A savings component, called cash value or loan value, builds over time and can be used for wealth accumulation. Whole life is the most basic form of cash value insurance. The insurance company essentially makes all of the decisions regarding the policy. Regular premiums both pay insurance costs and cause equity to accrue in a savings account. A fixed death benefit is paid to the beneficiary along with the balance of the savings account. Premiums are fixed throughout the life of the policy even though the breakdown between insurance and savings swings toward the insurance over time. Management fees also eat up a portion of the premiums. The insurance company will invest money primarily in fixed-income securities, meaning that the savings investment will be subject to interest rate and inflation risk.

Is the Universal Life Insurance Policy Ideal for You?

Universal life insurance policy is a more recent life insurance policy option. It seeks to take the advantages of both term life and whole life while mitigating on the limitations of these policies. Some of the advantages of this insurance policy over both term life insurance and whole life insurance policy are explained below;

  • Life Time Cover – Universal life policy is a permanent cover unlike term life. This means that the insurance company cannot cancel the policy for your lifetime unless you opt out. Depending on the type of universal life policy you go for, you may have level insurance costs throughout the coverage or you may have a guaranteed cost for a period of time after which the insurance company may increase the cost of insurance. Life-time coverage means that once you start on the policy, you do not ever need to take any medicals for the policy or renew your policy. Your beneficiaries are guaranteed of the sum assured whenever you pass on.
  • Structured Policy – Universal life, unlike other life policies has all aspects of the insurance premium disclosed and well structured. The policy premium is divided into the cost of insurance, administrative costs and cash value.
  • Adjustable Premiums up to Zero – One of the major advantages of the universal cover is that you can adjust the amount of premiums that you pay as the premiums are not fixed. If you are in a financial hardship or have pressing cash needs, you can reduce the amount of premium that you pay. You can even choose not to pay any premiums for a period of time and this will not terminate your policy. When you reduce or choose not to pay premiums, the cost of insurance and the administrative costs are withdrawn from your cash value account.
  • You Choose Investment Option – With the universal policy, you choose the investment vehicle that you want your cash value to be placed in. The insurance companies have a range of investment accounts that you can choose from. The investment accounts include fixed return accounts, variable returns, offshore investments, stock market investments, investment on government bonds or a mix of various investment options.
  • Premiums Earn Interests – With the universal policy, your cash value earns interest based on the investment account that you choose. The growth in the cash value enables you to have a higher payout and also enable you to get a higher value of loan against your cash value. This is unlike whole life where your cash value is equivalent to your premiums and you do not earn interest.
  • Cash Value Loan With no Repayment – Unlike the term life policy, the universal policy also allows you to take out a loan against your cash value. What is great about this loans is that you do not make any repayments for the loan. All you pay is the interest element of the loan. The repayment of the principle is removed from your cash value account.

Limitations of Universal Life

Though the universal life insurance policy has such great advantages, it also comes with some limitations. For the average seeker of life coverage, universal life insurance is usually seen as being too complicated and many people shy away from the cover because of this complexity. Furthermore, the universal life insurance policy is more expensive than the term life insurance though it is cheaper than the whole life insurance policy.

Exclusions in a Health Insurance Policy

What does a health insurance policy not cover i.e exclude?

The moment of truth in an insurance policy is at the time when a claim arises. One of the most common reasons for a health insurance claim not being paid by an insurance company is when they say that the particular disease is not covered by the policy and is an “exclusion”. It leaves a bitter taste in the mouth of the policyholder and can sometimes put the policyholder in great financial difficulty. Thus, it is very important to know in detail about the exclusions in a health insurance policy before purchasing it. In our opinion, it is a far more important variable than price. A policy might be 10% cheaper than a competitor’s policy but might have many more exclusion clauses-in such a case, the policy with the lesser number of exclusion clauses would be the better choice for the policyholder.

In this article, we deal with some of the common exclusion clauses in a health insurance policy. Of late, we are seeing some innovation in this area with the new companies not excluding certain ailments which had traditionally been within the exclusions area

  1. Maternity: In most cases, maternity and maternity related expenses are not covered in an individual or family floater health insurance policy. Maternity is typically covered in a group policy. In certain cases, we are seeing maternity being covered after 5 years into the policy.
  2. Diseases or illness contracted within the first 30 days of the policy. The insurance company does this to safeguard itself against customers buying a policy immediately after a disease has been detected
  3. Cataract, Prostrate, Hernia, Piles, fistula, gout, rheumatism, kidney stones, tonsils and sinus related disorders, congenital disorders, drug addictions, non allopathic/alternate treatments, self inflicted injuries, hysterectomy, fertility related treatments, etc are normally not covered under a health insurance policy. Dental treatment and cosmetic surgery is also typically excluded. Contact lenses cost is also not covered. HIV/AIDS is excluded, which has been a subject of great debate and criticism in the last few weeks. Some insurance companies do not cover treatment incurred outside the country, so you should check once before buying the policy
  4. Pre existing diseases are not covered in a health insurance policy. Preexisting means a disease that you have had prior to joining a health insurance policy. The policyholder may or may not have been aware of the pre-existing disease. Further complications which arise due to the preexisting disease are also not covered. For example, renal problems which arise due to a person having diabetes at the start of the policy would not be covered. This can sometimes lead to a lot of confusion and heartburn. Someone gets admitted for a kidney related treatment, and the insurance company turns down the claim saying the kidney problem has arisen because the patient had diabetes, and rejects the claim. It can get a little grey here as medical science cannot sometimes clearly pinpoint the root cause of a particular disease outbreak. In most cases, preexisting diseases are covered after 3 or 4 consecutive policy years. This is the single biggest reason why one should buy a health insurance policy at a young age, and continue with the same insurer. Because if you shift to a new insurer, you lose your previous credit and a disease that was being covered by the old insurer might be treated as a pre-existing disease by the new insurer. We have noticed that insurance companies start facing more claims from the health insurance customers from their 4th or 5th policy year, as pre existing begins to get covered and the profitability of the portfolio goes down
  5. Most policies do not cover day care, but a few like Max Bupa cover daycare, although the premium is higher in this case
  6. War related health insurance claims are mostly excluded from the policy coverage
  7. Abortion related health expenses are not covered in a health insurance policy

Pl do note that with competition heating up, some of the exclusions mentioned above will begin to get covered by a company or two so that it can be used as a selling point. Thus, the lists mentioned above are subject to change. The moot point here is that 10 minutes spent to read the exclusions list of the policy you are considering to buy could save you a lot of headache buyer. Be an informed buyer- there will be no else to blame but yourself.