Home > Life Insurance Overview This type of insurance has developed in order to provide payments to the insured person's family in the event that they become deceased. In the case that the policy holder dies, the insurance company pays the face amount of the policy to the beneficiaries which have been named within. The reasons for purchasing life insurance include: -Income protection for a policy holder's family -Assurance that debts will be paid, including a mortgage -Arrangement of business contracts and disputes, and distribution of business ownership to beneficiaries. A life insurance contract In most cases, the owner, or person who establishes the life insurance policy, has certain rights which apply specifically to their control over the policy. The owner can exercise their discretion when making decisions regarding the policy, without the consent of the beneficiaries. Some of the rights of the owner include the right to arrange or change beneficiaries, the right to control matters of cash value, and the right to decide on when to utilize the policy options. The Types of Life Insurance Term life insurance - The policy holder is covered for a specific time period, or term, as established in the contract. The insurance company must pay the benefits if the insured person dies during the term. Once the term is over, the covered person may not gain any refunds of premiums. Also, there is no accrual of cash value with a term life insurance policy. Cash value policies - This type of policy gains cash value over the years. This increase in value can be accomplished, depending on policy, by accruing dividends, or by gaining interest from investments. If the covered person dies, the company is not obligated to pay the cash value, but must pay the face amount of the policy. If the policy is canceled, the insured person may claim the cash value that has accumulated to that point. Annuities - These policies are intended to produce the benefits while the insured person is still alive, instead of after being deceased. In some cases the annuity payments end upon the policy holder being deceased. Settlement Options Payment of life insurance benefits can be made in the following ways. Lump sum - When this type of settlement structure is chosen, the benefits are paid in a one-time lump sum of all money obligated to be paid as arrranged in the policy. Interest only payments - If death of the policy holder occurs, this type of settlement establishes a savings account for the beneficiaries out of the death benefit, and the interest on the funds is paid to the beneficiaries. The funds in the account are usually also available for withdrawal by the beneficiaries. Installment payments - Under this arrangement, payments can be made to the beneficiaries over time. Any funds waiting to be disbursed collect further interest for the beneficiaries. The funds in the account are usually also available for withdrawal by the beneficiaries. These plans can be arranged to disburse a set amount of money per payment, or arranged so that funds are paid out over a set period of time. Life income - This settlement structure provides periodic payments which last the life of the beneficiary. In this case, the beneficiary cannot exercise the right to withdraw principal funds. Custom Structure - Many insurance companies will work with you to establish a unique settlement payment plan. Common Exclusions Suicide - Usually any payment is limited to a refund of premiums if this occurs within a period of two years from the date of issue. Aviation exclusion - Applies to private aircraft, not commercial. Dangerous activity - If the policyholder dies while engaging in a dangerous activity. (example surfing) War - Acts of war