Types of Life Insurance
Life insurance can be categorized into four classifications:
- Ordinary insurance
- Industrial insurance
- Group life
- Endowments
Ordinary insurance
Ordinary insurance is any life insurance product sold to an individual policy owner where premium payments are made no more frequently than monthly.
Ordinary life insurance can be subcategorized into:
- Term
- Permanent (whole)
- Variable
These types of policies will be discussed in greater detail later in the course.
Industrial insurance
Industrial insurance originated in the 1930s to cover final expenses. It is issued with a relatively small face amount (often $10,000 or less) and correspondingly small premiums. Premiums are typically collected weekly by the producer, who is also known as a debit agent.
Because 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
Group life is any life insurance offered through a group arrangement, such as an employer. In general, group insurance is less expensive than a comparable individual policy.
Group life is usually sold to employer groups on a payroll deduction plan and often does not require a physical exam. This lowers administrative costs compared with individual policies. Also, because people in the workforce are often younger and in better health than the general population, mortality costs are typically lower.
Endowments
An endowment policy pays a stated face amount if the policy owner dies before reaching a stated age. It also pays that same face amount to the policy owner if they reach the stated age. Often, the endowment age is 65 to coincide with retirement.
An endowment is comparable to a whole life policy that matures at some age prior to 100 (or 121 in many modern policies). 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 is 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.