The forms of life insurance policy are very numerous, and novel methods are being continually introduced, owing to the competition between various companies. The usual policies issued, however, are either whole life or endowment. A Whole Life Policy is one under which a definite sum is payable on the death of the assured to his executors, administrators or assigns. An Endowment Policy provides that the sum insured shall be paid at the end of the fixed term of years, if the life insured is in existence, or immediately at death should this occur before the expiration of the fixed term. The premium is naturally much higher in the case of endowment policies than in that of ordinary whole life policies.
Life insurance policy (Part 2)
The policies granted by most insurance companies fall into two main classes. They are either with profits or without profits. Under the former class, the premiums are higher than in the latter, in consideration of the right of the policy holders to share in the profits of the company, a privilege which is denied to the holders of “without profit” policies.
Annuities – This is another term of assurance. A substantial amount is paid to the company which in return pays to the annuitant an annual sum during his or her lifetime. The amount thus received by the company is called consideration for Annuities granted, and is shown in the Revenue Account of the year in which it is received. The annuities paid are shown each year on the expenditure side of the revenue account.
Surrender value – When a certain number of premiums has been paid under a policy, usually three or sometimes two, the company that granted the policy will pay a sum of money, called a cash surrender value, to the holders, in the event of the policy being discontinued by non-payment of premiums. In the first few years, the surrender value of a policy bears a small proportion to the premiums paid, but this proportion increases in later years.
Loans on Policies – After a policy has acquired a surrender value, the company would grant a loan on the policy of an amount not exceeding the surrender value, if such be needed by the assured. Loans on policies are also often made by companies to enable the assured to pay premiums falling due, rather than allow the policies to lapse.
Reinsurance – Every office, no matter of what financial strength, has a limit beyond which it will not retain liability upon any one risk. When an insurance company has taken a risk beyond the limit, it re-insures with other companies, so that the possible loss may be distributed.