Dictionary
insurance paid to named beneficiaries when the insured person dies "in England they call life insurance life assurance"
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Wikipedia
mergefrom Life assurance + Life insurance (Life Assurance in British English) is a type of insurance. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. The risk assumed by the insurer is the risk of death of the insured.
How life insurance works - There are three parties in a life insurance transaction: the insurer, the insured, and the owner of the policy (policyholder), although the owner and the insured are often the same person. For example, if John Smith buys a policy on his own life, he is both the owner and the insured. But if Mary Smith, his wife, buys a policy on John's life, she is the owner and he is the insured. Another important person involved is the beneficiary. The beneficiary is the person or persons who will receive the policy proceeds upon the death of the insured. The beneficiary is not a party to the policy, but is designated by the owner, who may change the beneficiary unless the policy has an irrevocable beneficiary designation. With an irrevocable beneficiary, that beneficiary must agree to changes in beneficiary, policy assignment, or borrowing of cash value. The policy, like all insurance policies, is a legal contract specifying the terms and conditions of the risk assumed. Special provisions apply, including a suicide clause wherein the policy becomes null if the insured commits suicide within a specified time for the policy date (usually two years). Any misrepresentation by the owner or insured on the application is also grounds for nullification. Most contracts have a contestability period, also usually a two-year period; if the insured dies within this period, the insurer has a legal right to contest the claim and request additional information before deciding to either pay or deny the claim for proceeds. The face amount of the policy is normally the amount paid when the policy matures, although policies can provide for greater or lesser amounts. The policy matures when the insured dies or reaches a specified age. The most common reason to buy a life insurance policy is to protect the financial interests of the owner of the policy in the event of the insured's demise. The insurance proceeds would pay for funeral and other death costs or be invested to provide income replacing the deceased's wages. Other reasons include estate planning and retirement. Because the insured's death will be to the financial betterment of the policy owner, the owner, by law, must have an insurable interest (i.e., a legitimate reason for insuring another person’s life.) The insurer (i.e., life insurance company) prices the policies with an intent to recover claims to be paid and administrative costs, and to make a profit. Claims to be paid are determined by actuaries using mortality tables. ActuaryActuaries are professionals who use actuarial science which is based in mathematics (primarily probability and statistics). Mortality tables are statistically based tables showing average life expectancies. Normally, the only three considerations in a mortality table are the insured's age, gender, and whether or not they use tobacco. The current mortality table being used by life insurance companies in the United States and their regulators was calculated during the 1980s. There is currently a measure being pushed to update the mortality tables by 2006.The current mortality table assumes that roughly 2 in 1000 people aged 25 will die and rises roughly quadratically to about 25 in 1000 people for those aged 65. So in a group of one thousand 25 year old males with a $100,000 policy, a life insurance company would have to, at the minimum, collect $200 a year from each of the thousand people to cover the expected claims. The insurance company receives the premiums from the policy owner and invests them, using the time value of money and compound return principles to create a pool of money from which to invest, pay claims, and finance the insurance company's operations. Despite popular belief, the majority of the money that insurance companies make comes directly from premiums paid, as money gained through investment of premiums will never, in even the most ideal market conditions, vest enough money per year to pay out claims. Rates charged for life insurance are sensitive to the insured's age because statistically, an insured person is more likely to pass away and trigger a claim as they get older.Since adverse selection can have a negative impact on the financial results of the insurer, the insurer investigates each proposed insured (unless the policy is below a company-established ''de minimis'' amount) beginning with the application, which becomes part of the policy. Group Insurance policies are an exception.This investigation and resulting evaluation of the risk is called underwriting. Health and life style questions are asked, answered, and dutifully recorded. Certain responses by the insured will be given further investigation. Life insurance companies in the United States support The Medical Information Bureau, which is a clearinghouse of medical information on all persons who have ever applied for life insurance. As part of the application, the insurer receives permission to obtain information from the proposed insured's physicians. Life insurance companies are never required by law to underwrite or to provide coverage on anyone. They alone determine insurability, and some people, for their own health or lifestyle reasons, are uninsurable. The policy can be declined (turned down) or rated. Rating means increasing the premiums to provide for additional risks relative to that particular insured discovered in the underwriting process.Many companies use four general health categories for those evaluated for a life insurance policy. A proposed insured can move down the scale easily, but moving up the scale is difficult if at all possible. These categories are Preferred Best, Preferred, Standard, and Tobacco. Preferred Best means that the proposed insured has no adverse medical history, are not under medication for any condition, and his family (immediate and extended) have no history of early cancer, diabetes, or other conditions. Preferred is like Preferred Best, but it allows that the proposed insured is currently under medication for the condition and may have some family history. Standard is where most people fall, allowing for everybody who doesn't fall under the previous tiers. Profession, travel, and lifestyle also factor into not only which category the proposed insured falls, but also whether or not the proposed insured will be denied a policy. For example, a person who would otherwise fall under the Preferred Best category will be denied a policy if he or she is employed in or makes regular travel to a high risk country.Upon the death of the insured, the insurer will require acceptable proof of death before paying the claim. The normal minimum proof is a death certificate and the insurer's claim form completed, signed, and often notarized. If the insured's death was suspicious and the policy amount warrants it, the insurer may investigate if there is evidence of its legal obligation to pay the claim. Proceeds from the policy may be paid in a lump sum or paid over time as regular recurring payments for either for the life of a specified person or a specified time period.
Insurance vs. assurance - The world of finance is extremely complicated, and there are many factors to consider when choosing any financial protection product. When looking for a policy you need to know what you are looking for and what is on offer in order that you get the right cover for your needs. One thing that many people find confusing is the specific use of the term "insurance" and the use of "assurance". What are the differences between them?In general, the term insurance refers to providing cover for an event that might happen while assurance is the provision of cover for an event that is certain to happen.For the purposes of financial provisions, a life insurance policy provides cover for a set period of time. If the worst were to happen during that time (and there are no complications), then the insurance company will be required to pay out the agreed sum to the beneficiary. The only time the policy has any real monetary value, is if there is a claim made for payment as a result of an event triggering that claim, such as the death of the person covered. If the person outlives the term of the policy, then the insurance policy will cease and no payment will be made.Life assurance is different from insurance, and will always result in a payment. This is achieved by combining an investment element along with an insured sum. This means that over time the value of the policy can increase as the investment bonuses are added. If the life covered were to die, then the insured sum would be paid out, along with the investment bonuses that have accrued over time. If it is necessary to cancel the policy prior to the end of any designated term period, or the death of the life being covered, then once an investment bonus has been added, the life assurance policy will have an encashment value. It is therefore possible to cash in a policy earlier than its usual termination date, in order to collect on the investment portion. It should be noted that many insurance companies place penalties for cashing in policies early.During recent years, the distinction between the two terms has become largely blurred. This is principally due to many companies offering both types of policy, and rather than refer to themselves using both insurance and assurance titles, they instead use just the one. "''Most life insurance companies offer a wide range of insurance and investment services – for example pension, investment funds, investment bonds, car insurance, home & contents insurance, life assurance, and even loans. Sometimes a life insurance company will call itself a life assurance company but they mean one and the same.''"(Reference: Richard Brown CEO of Moneynet, a UK financial information site.) Further information about moneynet.co.uk - life insurance in the UK
Types of life insurance - Life insurance may be divided into two basic classes – term and permanent.
Term - Term life insurance (Term Assurance in British English) provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else. See Theory of Decreasing responsibility and Buy term and invest the difference.The three key factors to be considered in term insurance are: face amount (protection), premium to be paid (cost to the insured), and length of coverage (term). Various (US) insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. A common type of term is called annual renewable term. It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance, which is usually a level premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner’s residence so the mortgage will be paid if the insured dies. Guaranteed renewability is an important policy feature for any prospective owner or insured to consider because it allows the insured to acquire life insurance even if they become uninsurable.
Permanent - Permanent life insurance is life insurance that remains in force until the policy matures, unless the owner fails to pay the premium when due. The policy cannot be cancelled by the insurer for any reason except fraud in the application, and that cancellation must occur within a period of time defined by law (usually two years). Permanent insurance builds cash value, providing a type of savings account that the policy owner can access if needed either by borrowing against the policy or surrendering the policy and receiving the surrender value. The three basic types of permanent insurance are whole life, universal life, and endowment.
Whole - Whole life insurance provides for a set face amount, a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. The primary disadvantages of whole life are premium inflexibility, death benefit inflexibility, cash value accessibility is limited, and the internal rate of return in the policy may not be competitive in with other savings alternatives.
Universal - Universal life insurance is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. Interest is paid within the policy (credited) on the account at a rate specified by the company. This rate has a guaranteed minimum but usually is higher than that minimum. Mortality charges and administrative costs are charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account less applicable surrender charges, if any. The universal life policy addresses the perceived disadvantages of whole life. Premiums are flexible. The internal rate of return is usually higher because it moves with the financial markets. Mortality costs and administrative charges are known. And cash value may be considered more easily attainable because the owner can discontinue premiums if the cash value allows it. And universal life has a more flexible death benefit because the owner can select one of two death benefit options. Option A pays the face amount at death and Option B pays the face amount plus the cash value. But universal life has its own disadvantages which stem primarily from this flexibility. The policy lacks the fundamental guarantee that the policy will be in force unless sufficient premiums have been paid and cash values are not guaranteed. A type of universal life is called ''Variable universal life Insurance'' in which the rate of return on the cash account is related to stock or bond market fluctuations.
Limited-pay - Another type of permanent insurance is Limited-pay life insurance, in which all the premiums are paid over a specified period after which no additional premiums are due to keep the policy in force. The most common kind of limited pay is twenty-year limited pay. Another kind is paid-up when the insured is sixty-five.
Endowments - Endowments are policies which mature (endow) before the normal endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier. Annuities are a financial product issued by life insurance companies but are not life insurance policies. They are discussed in annuities.
Accidental death - Accidental death is a limited life insurance that is designed to cover the insured if they pass away due to an accident. Accidents include anything from an injury, but do not typically cover any deaths resulting from health problems or suicide. These policies are much less expensive than other life insurances because they only cover accidents. Often, it does not cover an insured who puts themselves at risk in activities such as: parachuting, flying an airplane, professional sports or involvement in a war (military or not). To be aware of what coverage they have, an insured should always review their policy for what it covers and what it excludes. It is also very commonly offered as a accidental death and dismemberment policy, known as an AD&D policy. In an AD&D policy benefits are available not only for accidental death, but also for loss of limbs or bodily functions such as sight and hearing, etc. Accidental death and AD&D policies very rarely ever pay a benefit because either the cause of death is not covered, or the coverage is not maintained until death occurs.
Taxation of life insurance in the United States - Premiums paid by the policy owner are normally not deductible for federal and state income tax purposes.Proceeds paid by the insurer upon death of the insured are not includable in taxable income for federal and state income tax purposes but may be includable in the estate of the deceased and, therefore, subject to federal and state estate and inheritance taxinheritance (death) tax. Cash value increases within the policy are not subject to income taxes unless certain events occur. For this reason, insurance policies can be a legal and legitimate tax shelter wherein savings can increase without taxation until the owner withdraws the money from the policy.The tax ramifications of life insurance are complex. The policy owner would be well advised to carefully consider them. As always, Congress or the state legislatures can change the tax laws at any time.
Taxation of life assurance in the United Kingdom - Premiums are not usually allowable against income tax or corporation tax, however qualifying policies issued prior to 14th March 1984 do still attract LAPR (Life Assurance Premium Relief) at 15% (with the net premium being collected from the policyholder).Non-investment life policies do not normally attract either income tax or capital gains tax on claim. If the policy has as investment element such as an endowment policy, whole of life policy or an investment bond then the tax treatment is determined by the qualifying status of the policy. Qualifying status is determined at the outset of the policy if the contract meets certain criteria. Essentially, long term contracts (10 years plus) tend to be qualifying policies and the proceeds are free from income tax and capital gains tax. Single premium contracts and those run for a short term are subject to income tax depending upon your marginal rate in the year you make a gain. All (UK) insurers pay a special rate of corporation tax on the profits form their life book; this is deemed as meeting the basic rate (22% in 2005-06) laibility for policyholders. Therefore if you are a higher rate taxpayer (40% in 2005-06 ),or become one through the transaction, you must pay tax on the gain at the difference between the higher and the basic rate. This gain may be reduced by applying a complicated calculation called top-slicing based on the number of years you have held the policy. Although this may seem complicated the taxation of life assurance based investment contracts is broadly deemed beneficial compared to alternative equity based collective investment schemes (unit trusts, investment trusts and OEICs). One feature which especially favours investment bonds is the ability to draw 5% of the original investment amount each policy year without being subject to any taxation on the amount withdrawn. The withdrawal is deemed by HMRC (Her Majesties Revenue and Customs) to be a payment of capital and therefore the tax calculation is defered until further encashment above the 5% limit. This is an especially useful tax planning tool for higher rate taxpayers who expect to become basic rate taxpayers at some predictable point in the future (e.g. retirement). The proceeds of a life policy will be included in the estate for inheritance tax (IHT) purposes. Policies written in trust may fall outside the estate for IHT purposes but it's not always that simple. If in doubt you should seek profession advice from an IFA (Independent Financial Adviser) who is regisetered with the goverment regulator: the Financial Services Authority.
Related life insurance products - Riders are modifications to the insurance policy added at the same the policy is issued. These riders change the basic policy to provide some feature desired by the policy owner. A common rider is double indemnity, which pays twice the amount of the policy face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect on the insured. Another common rider is premium waiver, which waives future premiums if the insured becomes disabled.Joint life insurance is either a term or permanent policy insuring two or more lives with the proceeds payable on the first death.Survivorship life is a whole life policy insuring two lives with the proceeds payable on the second (later) death.Single premium whole life is a policy with only one premium which is payable at the time the policy is issued.Modified whole life is a whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the remainder of the policy. Group life insurance is term insurance covering a group of people, usually employees of a company or members of a union or association. Individual proof of insurability is not normally a consideration in the underwriting. Rather, the underwriter considers the size and turnover of the group, and the financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often has a provision that a member exiting the group has the right to buy individual insurance coverage.Insurance companies have in recent years developed products to offer to niche markets, most notably targeting the senior market to address needs of an aging population. Many companies offer policies tailored to the needs of senior applicants. These are often low to moderate face value whole life insurance policies, to allow a senior citizen purchasing insurance at an older issue age an opportunity to buy affordable insurance. This may also be marketed as final expense insurance, and an agent or company may suggest (but not require) that the policy proceeds could be used for end-of-life expenses. Preneed (or prepaid) insurance policies are whole life policies that, although available at any age, are usually offered to older applicants as well. This type of insurance is designed specifically to cover funeral expenses when the insured person dies. In many cases, the applicant signs a prefunded funeral arrangement with a funeral home at the time the policy is applied for. The death proceeds are then guaranteed to be directed first to the funeral services provider for payment of services rendered. Most contracts dictate that any excess proceeds will go either to the insured's estate or a designated beneficiary.
History - Insurance began as a way of reducing the risk of traders, as early as 5000 BC in China and 4500 BC in Babylon. Life insurance dates only to ancient Rome; "burial clubs" covered the cost of members' funeral expenses and helped survivors monetarily. Modern life insurance started in late 17th century England, originally as insurance for traders: merchants, ship owners and underwriters met to discuss deals at Lloyd's Coffee House, predecessor to the famous Lloyd's of London.The first insurance company in the United States was formed in Charleston, South Carolina in 1732, but it provided only fire insurance. The sale of life insurance in the U.S. began the late 1760s. The Presbyterian Synods in Philadelphia and New York created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian ministers organized a similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. Prior to the American Civil War, many insurance companies in the United States insured the lives of slaves for their owners. In response to bills passed by in California in 2001 and in Illinois in 2003, the companies have been required to search their records for such policies. New York Life Insurance CompanyNew York Life for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation.
See also - Life Assurance Term life insurance Permanent life insurance Whole life insurance Universal life insurance Variable universal life insurance Dead peasants insurance Corporate owned life insurance Segregated funds Annuity Independent Financial Advisers Estate planning Retirement planning False insurance claims
External links - eh.net - A History of Life Insurance in the United States through World War I usatoday.com - USA Today story on Insuring Slavesins.state.il.us - Illinois Department of Financial & Professional Regulation, Division of Insurance, Slavery Era Policies Report August !2004Category:Insurancede:Leben sversicherungfr:Assurance-viej a:生命保& 522;nl:Levensverzekeringzh: 0154;壽保險< /text>
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