Understanding Life Insurance: Guarantees, Types, and Policy Features
Life Insurance Guarantees
The guarantees usually covered by the policy are:
Death Benefit
If the insured dies due to an accident within two years from the policy’s start date, the insurer will pay the guaranteed sum to the beneficiaries named in the policy.
Permanent Disability Benefit
If an accident causes permanent disability to the insured, in whole or in part, within two years from the date of the accident, the insurer will pay the specified amount.
Temporary Disability Benefit
If an accident causes the insured a temporary disability that prevents them from fully or partially performing their normal duties, the insurer will pay a daily amount for the duration of medical treatment, up to a maximum of two years from the date of the accident.
Healthcare Coverage
For a maximum period of two years from the date of the accident, the insurer agrees to cover all medical, pharmaceutical, hospital, and treatment costs the insured incurs as a result of the accident.
Classification of Life Insurance
The insurer agrees to pay a fixed sum or regular income to the recipient when the insured dies during the contract term. These contracts can be for a fixed period or indefinite.
1. Whole Life Insurance
The insurer’s obligation remains the same regardless of when the insured’s death occurs.
2. Term Life Insurance
The insurer’s obligation is limited to the insured’s death occurring within a specified period.
3. With Capital or Income to Survive
In this type, the insurer agrees to pay a fixed amount or temporary income, provided that the beneficiary does not die before the insured.
4. Credit Insurance
The insurer agrees to pay a fixed annuity for a term agreed upon the death of the insured. This type of life insurance is often required by financial institutions when a loan is taken out, to ensure the repayment schedule.
Policy Characteristics
Life insurance policies have specific characteristics, which are addressed in legal regulations. Key features include:
1. Reduction of the Policy
Even if the insured fails to pay a premium, they do not lose their rights. Unlike other cases where the contract is terminated, the insurer is required to reduce the policy, i.e., decrease the value of compensation stipulated in the policy, to compensate for unpaid premiums.
2. Rescue of the Policy
The insured has the right to terminate the contract before maturity and retrieve or recover the amounts paid to date. It is imperative that the policy lists the conditions under which this can be done.
3. Pledge of the Policy
The policy can be pledged in the same manner as any securities. If an order was issued, the assignment or pledge should be made by endorsement. The policy is delivered to the creditor as security for payment. If there are unpaid amounts, the creditor may require the insurer to pay the amount provided in the policy.