3.6 Special Use Policies
Through combining certain aspects of the basic types of life insurance policies, contracts can be custom designed to some extent. Combination contract is a term used to describe life insurance programs which combine different forms of life insurance into a single package to produce a desired pattern of benefits.
- Family Income Policies (Whole Life + Decreasing Term) - Combination of Whole Life and Decreasing Term covering a select period of years. Family income plans involve adding decreasing term insurance to a basic whole life contract. Upon the death of the insured, the policy pays the beneficiary a monthly income for the balance of the family income coverage period. However, the insured must die prior to the time the selected family income coverage period ends. The specified income term period starts when the policy is issued.
- Family Maintenance Policies (Whole Life + Level Term) - Combination of Whole Life and Level Term insurance covering a select period of years. Family maintenance plans use level term insurance which is added to a basic whole life contract. At the death of the insured, the policy will pay the beneficiary a monthly income for a preselected number of years. The insured must die prior to a selected date in order for the family maintenance coverage to be paid. The specified income period begins on the date of death.
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Family Plan Policies - All family members are covered under one plan. A family policy will usually have both term life and whole life coverage included. Newborns are covered automatically at no extra premium. Children's coverage is usually convertible without evidence of insurability.
Generally the family plan policies will provide whole life insurance on either the father or the mother, who is the designated insured, with the plan premium based on his or her age. Term insurance is then provided on the spouse and the children. The spouse's coverage can be a stated amount or it may decrease with age. It can be term insurance that ceases when the insured reaches age 65, or whole life insurance may be used.
Coverage for the children is normally term insurance in a fixed amount. Natural children as well as adopted children are covered. Even children born after the policy is purchased are automatically covered. The coverage terminates at a stated age, such as 18 or 21, and is generally convertible to any whole life plan without evidence of insurability.
- Multiple Protection Policies - Pays a benefit of double or triple the face amount if death occurs during a specified period. Insureds are "averaged" and a single premium is charged for each life.
- Joint Life Policies - Covers two or more people. Using some type of permanent insurance, it pays the death benefit when one of the insureds dies. The survivor then has the option of purchasing a single individual policy without evidence of insurability. Premiums are less than multiple protection policy premiums.
- Last Survivor Policy (Second-to-Die) - Covers two lives; benefit is paid upon the death of the last surviving insured.
- Juvenile Insurance - Permanent insurance written on underage children (usually from one day to age 14 or 15 years). If the policyowner predeceases the child, premiums are waived until the child reaches a specified age.
- Jumping Juvenile Policy (Junior Estate Builder) - Juvenile insurance provides that when the child reaches age 21, coverage increases to five times the face amount, premiums remain the same and no evidence of insurability is required.
- Credit Life Insurance (Decreasing Term) - Decreasing Term that covers the life of a debtor and pays the amount due on a loan if the debtor dies before the loan is repaid. Face amount decreases as balance decreases. (Credit life insurance is covered in detail in Lesson 6.)
