Types of Life Insurance

Life insurance can be categorized into four classifications:

1. Ordinary Insurance
2. Industrial Insurance
3. Group Life
4. Endowments

Ordinary Insurance

Any life insurance product sold to an individual policy owner requiring that premium payments be made no more frequently than on a monthly basis.

Industrial Insurance

Originating in the 1930s to cover final expenses, this type of insurance is issued with a relatively small face amount (often $10,000 or less) with correspondingly small premiums that are collected weekly by the producer, who is also known as a debit agent. Since the premium is due weekly and there are four weeks in a month, the grace period on industrial life policies is 28 days.

Group Life

This is any life insurance offered through a group arrangement, such as an employer. Generally, group insurance is less expensive than a comparable individual policy. It is usually sold to employer groups on a payroll deduction plan with no physical exam, which lowers the cost of administration relative to individual policies. Whereas people in the workforce are usually younger and in better health than the population in general, the cost of mortality is generally lower as well.

Endowments

An endowment policy pays a stated face amount in the event a policy owner dies before reaching a stated age, but it also pays that face amount to the policy owner in the event he/she reaches that stated age. Often, the age of endowment is 65, to coincide with retirement. An endowment is comparable to a whole life policy that matures at some age prior to 100. Prior to the Tax Reform Act of 1984, endowment policies were a very popular product. However, this tax law placed limitations on the rate at which a policy cash value can accumulate, and virtually all endowment policies violated this requirement.

Lesson Summary

Life insurance can be categorized into four classifications:

• Ordinary Insurance
• Industrial Insurance
• Group Life
• Endowments

Ordinary Insurance: Any life insurance product sold to an individual policy owner requiring that premium payments be made no more frequently than on a monthly basis.

Industrial Insurance: Originating in the 1930s to cover final expenses, this type of insurance is issued with a relatively small face amount (often $10,000 or less) with correspondingly small premiums that are collected weekly by the producer, who is also known as a debit agent. The grace period on industrial life policies is 28 days.

Group Life: This is any life insurance offered through a group arrangement, such as an employer. It is less expensive than individual policies and usually sold to employer groups with no physical exam. Group insurance is commonly used for younger, healthier individuals due to lower mortality costs.

Endowments: An endowment policy pays a stated face amount if the policy owner dies before reaching a certain age, but it also pays the face amount to the policy owner if he/she reaches the specified age, often 65. Endowments are similar to whole life policies maturing at a set age.

Chapter Vocabulary