Read: Life Insurance
A. Term Life Insurance
Term insurance provides benefits only if the insured dies within a specified period. If the insured survives up to the end of the specified period, the contract is terminated unless renewed. Because the premium for a term policy pays only for the cost of the insurance protection during the term of the policy, term insurance generally has no cash surrender value. The insured may be allowed to renew for another term without a medical examination. The premium, however, increases with each renewal because it is calculated on the age of the insured at the time of renewal. Term insurance is often used by the head of a family to obtain additional temporary insurance when the children are young. Term insurance policies frequently provide the insured with conversion options to whole-life policies.
Credit life insurance is term insurance against a loan taken out on some major purchase such as an automobile. It generally decreases in amount as the loan is repaid. It protects the borrower’s family as well as the lender against the debt that remains unpaid at death.
B. Debit Life Insurance
Two types of debt life insurance are available. Debit ordinary insurance was designed for wage earners with modest incomes. Premiums are collected by company agents at policyholders’ homes. Other than this mode of collection, the coverage has the same characteristics as ordinary life insurance. Industrial life insurance is also designed to meet the needs of low-income industrial workers. Premiums are payable weekly or monthly, and the face amount does not generally exceed $1000. A medical examination is not required to obtain such insurance.
C. Group Life Insurance
First introduced in 1911, group life insurance has grown since World War II chiefly because it has been included as a fringe benefit in collective-bargaining agreements. It provides a means of insuring a number of people in a business establishment, society, or other organization. A master contract is issued, and each insured person receives a certificate specifying the amount of the insurance and his or her beneficiary. Group policies contain a conversion clause that permits an insured, on separation from the group, to convert to an individual type of nonterm life insurance policy without evidence of insurability. The new policy, however, is issued at the premium rate applicable at the attained age of the policyholder. Because group insurance is a form of wholesale buying, its economies are passed on to policyholders in the form of lower premiums per dollar of coverage. Group life insurance usually is issued on a 1-year renewable term basis.
D. Savings Bank Life Insurance
First made available in Massachusetts in 1907, savings bank life insurance is transacted on an over-the-counter basis or by mail without the use of soliciting agents. This normally results in reduced expense and lower costs to policyholders.
The technical details of administering the business are performed by a central organization that provides actuarial, medical, and certain other services for the member banks. The central organization computes the premium rates and prepares policy forms and application blanks. Each participating bank, however, is an independent body that issues its own contracts, maintains records, and retains and invests the assets of its own insurance department. The surplus funds attributable to insurance operations of the bank are available only to its policyholders; moreover, the central organization maintains a contingency or guaranty fund to protect policyholders.
E. Government Life Insurance
The U.S. government, through the Department of Veterans Affairs (formerly the Veterans Administration), administers insurance programs for active members of the armed forces and veterans of military service. Instituted under the terms of the War Risk Insurance Act of 1917, U.S. Government Life Insurance permitted those on active duty during World War I to purchase low-cost life insurance in amounts up to $10,000. About 4.5 million persons applied for this insurance during the war. National Service Life Insurance, instituted in 1940, provided insurance for members of the armed forces in World War II on the same basis as had existed in World War I. This program was later extended to include World War II veterans, who were eligible for insurance whether or not they had obtained policies while in service. No new policies were issued under either program after April 1951.
Legislation enacted in 1965 established Servicemen’s Group Life Insurance (SGLI) for personnel on active duty in the uniformed services and Ready Reservists. This program is currently in effect. Under the present program, up to $50,000 of group life insurance is available on a voluntary basis to each individual, including all reservists and members of the National Guard. SGLI, now supervised by the Department of Veterans Affairs, is underwritten by more than 300 life insurance companies. A program begun in 1974 provides for automatic conversion of SGLI to a 5-year nonrenewable policy known as Veteran’s Group Life Insurance (VGLI). Coverage is available in units of $5000 up to the amount of SGLI in force at the time of separation. VGLI is available to service personnel separated on or after August 1, 1974, and to reservists injured while on active duty. At the termination of the 5-year policy, the insurance policy can be converted to an individual commercial policy with the participating companies at standard rates regardless of the policyholder’s health.
Veterans Mortgage Life Insurance is available to totally disabled veterans, primarily paraplegics, who receive a grant to purchase specially adapted housing. In 1976 the amount of insurance coverage was increased to $40,000.