Specialized Life Insurance Policies

There are a number of life insurance polices that have been designed to meet the needs of special situation or circumstances. These plans are actually combinations or modifications of whole and term life policies. Some of the more common programs are listed below.

The family protection policy provides coverage for each of a family's members at the time the policy is issued. This combination policy usually provides coverage for the principal wage earner equal at four times the spouse's and five times the children's coverage amounts. For example, the Smith's family policy might provide $100,000 of coverage for Mr. Smith, $25,000 for Mrs. Smith and $20,000 on each child. In this example, the wife and children's coverages would ordinarily consist of term insurance while Mr. Smith's would be a permanent policy. These additional coverages are commonly known as spouse term- and family riders, respectively.

Under a family policy, term coverage is provided at no additional cost for children born or adopted after the policy is issued. This coverage expires on each child as he or she reaches a specified age – usually18 or 21, but sometimes as late as 25. The term coverage on children is usually convertible to any permanent insurance without evidence of insurability.

The retirement income policy accumulates a sum of money for retirement while providing a death benefit. Upon retirement, the policy pays an income such as, for example, $10 per $1,000 of life insurance for the insured's lifetime or for a specified period. Retirement income policies are expensive, and cash value accumulation is high to pay for the monthly income. It must also be noted that once the accumulated cash value approaches the policy's face amount, the face amount must be increased to maintain the policy's status as life insurance.

A joint life policy insures the lives of two or more people. This plan may pay the face amount upon the first death among the persons covered by the policy or upon the last death among the persons covered. Under a 'first-to-die' joint-life policy, the death benefit is paid and the contract comes to an end at the first death and there is no further insurance protection for the other person or persons covered by the policy.

'Second-to-die' (or survivor) life insurance covers two lives and provides payment only when the second insured dies. Premiums – which can be significantly less than if the two lives were insured separately – usually continue to be payable until the second death. Second-to-die policies are very useful in estate planning. When a surviving spouse dies, the policy can provide money to pay taxes on assets that may have been sheltered at the first death by the marital deduction.

Juvenile policies can consist of whole life or term insurance, depending on the purpose of having the policy. The criterion for juvenile insurance is that it be written on the life of a person who is not yet considered an adult for life insurance purposes. In most areas, this includes anyone who's under the age of 15. One of the more popular juvenile plans that parents purchase for their children is called the jumping juvenile policy. Initially, the face amount of this policy may be as little as $1,000. However, when the child turns 21, the policy's face value automatically 'jumps' to a level that's usually five times greater than the original face amount with no increase in premium and no evidence of insurability required.

Using a modified premium plan, an ordinary life insurance policy's premium payments are redistributed. Premiums are lower during the first three- to five years of the policy, usually comparable to the amount that would be paid for a level term policy of the same length of time. After this initial period, the premiums go up so that they're somewhat higher than would normally be paid for an ordinary whole life policy. The advantage of this plan is that it allows a person to purchase permanent insurance at a time when his or her income might otherwise not permit it, and transfers much of the cost to a later time when the policyowner's income can be expected to be higher.

The graded premium plan is similar to the modified plan listed above in that the initial premiums are very low. Like the modified policy, it's also designed to allow the policyowner to purchase a version of whole life insurance without the initial higher cost. However, unlike modified life (which has one increase to a higher, level premium for the remainder of the contract), graded premium plans provide for an annual increase in premium for each of the first five- to ten years of the policy. At the end of this 'stepped' premium period, the premium remains level for the life of the policy.

Both graded premium and modified life policies build cash value, but the amount accumulated is invariably less because of the smaller premium payments. Typically, a graded policy will have very little, if any, cash value during the graded premium period.

Multiple protection policies are combinations of whole life and term insurance whereby the amount of protection is higher in the early years of the policy and less in the later years. For example, a multiple protection policyowner's current death benefit might be described as equal to two times the benefit at age 65 (this, of course, would be known as double protection). If the age 65 (and older) benefit is $25,000, then the insured has $50,000 of current protection up to that age. In essence, the additional death benefit prior to age 65 is term insurance.

Pre-need funeral insurance is a type of life insurance used to pay for an insured's funeral at a particular funeral home. In actuality, this type of insurance is simply a contract to provide a pre-planned funeral and cemetery services funded by a life insurance contract. Typically, the funeral home requests that the insured buy a life insurance policy naming the funeral home as the beneficiary. The funeral home is often paid a commission on the sale of the policy as well. The policy purchased may have an increasing face amount so that the funeral will be fully funded even if burial costs increase.

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