We can credit our favorite kite-flying forefather, Benjamin Franklin, for playing a major role in founding the life insurance industry in the United States in the 1700s1 but it was not until the mid-19th century that the regulatory framework for the industry was created.2 Insurance regulations were developed to protect consumers in three main areas: the financial solvency of insurance companies, the products they sell, and market conduct and prevention of unfair trade practices.2
Almost all regulations that life insurance companies must follow are state laws rather than federal laws. Each state has a state insurance department, which means that a life insurance company that operates in each state must adhere to the governing laws of every state they operate in.3
The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia, and five U.S. territories. NAIC acts as a forum for the creation of model laws and regulations, but generally, each state decides whether to pass these model laws and regulations. States are allowed to make changes during the enactment process but the model laws and regulations are widely adopted.2
wherein you agree to pay the insurance company the policy premiums, and the insurance company agrees that, upon your death, it will pay the death benefit you have selected to your designated beneficiary if the benefit is payable according to the provisions of the policy. Like any other legal contract, life insurance policies have rules and provisions depending on the type of policy you buy.
Sometimes, people stop paying premiums on their life insurance. For some policies, the policy terminates after a grace period but if the policy has cash value, state law prevents insurance companies from terminating the policy and keeping the cash value.4
A non-forfeiture option
(or clause) is a provision included in certain life insurance policies stipulating that the policyholder will not forfeit the value of the policy if the policy lapses after a defined period due to missed premium payments. The nonforfeiture clause may also become available when the holder of some life insurance policies surrenders (actively cancels) the policy.5 Carefully weigh the consequences of canceling your original policy, which also cancels the death benefit of the policy.
Whole life insurance policies generally have three standard payout options in the non-forfeiture clause.
- If the policyholder chooses the cash surrender option, the insurance company pays the cash value to the policy owner as a lump sum. At that point, the policy is canceled and can’t be reinstated; the insurer’s responsibility under the contract ends. Most states allow insurance companies up to six months to pay the cash surrender value.6
- This option allows the policy owner to use the cash value from their policy to place the policy on extended term insurance. This option also helps the policy owner to quit paying premiums for the original policy.5 The length of time the new policy will be in force will depend on the cash values available from the policy.5 A policy converted to term insurance may be reinstated under the reinstatement provision of the contract provided the term has not expired.4
- Choosing this option means the policy’s cash value is used to buy a paid-up policy of the same type as the policy that lapsed. The policyholder pays no further premiums. The new policy will have a reduced death benefit but will retain a cash value that will grow throughout the life of the policy at a reduced rate.5
If the policyholder doesn’t select an option, the insurance company will have a default option contained in the policy’s language. The Extended Term Option is often the insurance company’s default option.
There are other non-forfeiture options, but not all insurance companies make these options available.
- Some insurance companies will also allow the policy owner to convert the policy to an annuity, which will pay the policy owner an amount for the rest of his/her life. That amount is based on the cash value of the lapsed or surrendered policy and the policy owner’s age.4
- An automatic premium loan is a provision in a life insurance policy with a cash value that allows the insurer to automatically deduct the premium amount overdue from the policy value. The insurance company makes a loan against the policy’s cash value for paying the overdue premiums provided the cash value is more than or equal to the premium amount due.7
If you find yourself in a situation where you cannot or no longer wish to pay the premiums on a life insurance policy with a cash value, using one of the non-forfeiture options may be a good choice for you. Keep in mind that non-forfeiture options may adversely impact some coverage; for example, reducing the face amount or canceling the policy completely. Your insurance agent can help you weigh the pros and cons so you can decide what is best for you.
Categories: insurance, life insurance
« Back
Which statement is correct regarding mutual insurance companies? Mutual insurance companies have stockholders. Nearly all mutual companies issue only nonparticipating policies. Premiums are lower than those offered by stock companies.
What are mutual companies in insurance?
A mutual insurance company is an insurance company that is owned by policyholders. The sole purpose of a mutual insurance company is to provide insurance coverage for its members and policyholders, and its members are given the right to select management.
Are mutual insurance companies non profit?
However, you may also be interested in a mutual car insurance company. Although these companies are not true nonprofits, they follow a similar model that allows policyholders to receive the companys profits through dividend distributions, rebates, reduced future premiums, and more.
How is a mutual insurance company different?
A mutual insurance company is owned by its policyholders, while a stock insurance company is owned by its shareholders and can be either privately held or publicly traded. Policyholders of a stock company have no control over the companys management unless they are investors as well.
Which of the following is a characteristic of a mutual insurance company quizlet?
A mutual company is owned by its policyholders. Which of the following is a characteristic of a Mutual Insurance Company? A mutual insurer is owned by its members (not stockholders) and dividends are a return of unused premium (not a return of profit).
Which of the following statements are correct regarding credit life insurance except?
All of the following statements are correct regarding Credit Life Insurance EXCEPT Benefits are paid to the borrowers beneficiary.(4) Credit life insurance is a policy designed to pay off a borrowers debt if the borrower They can then use some or all of the proceeds to pay off debt.(5)
Which of the following are correct regarding credit life insurance?
The correct answer is: Endowment contracts endow only upon the insureds death. Credit life insurance is issued on the life of the person who has the debt (debtor) and the creditor owns and is the beneficiary of the policy. You just studied 14 terms!
What are the most common settlement options in a life insurance program quizlet?
What are the four most common settlement options? lump-sum payment, proceeds left with the company, limited installment payment, and life income option.
What type of insurance company is mutual?
A mutual insurance company is an insurer that provides collective self-insurance to its Members. It has no shareholders and is owned and controlled by its Members.
What is the difference between a mutual and an insurance company?
The major difference between mutuals and stock insurance companies is their ownership structure. A mutual insurance company is owned by its policyholders, while a stock insurance company is owned by its shareholders and can be either privately held or publicly traded.
What life insurance companies are mutual?
Pages in category Mutual insurance companies of the United States
- Acacia Life Insurance Company.
- Acuity Insurance.
- American Family Insurance.
- Ameritas.
- Amica Mutual Insurance.
- Assurity Life Insurance Company.
- Auto-Owners Insurance.
How many insurance companies are mutual?
In 2018, there were 109 mutual life insurance companies in the United States.
Is a mutual company for profit?
A mutual company is owned by its customers, who share in the profits. They are most often insurance companies. Each policyholder is entitled to a share of the profits, paid as a dividend or a reduced premium price.
Are mutual insurance companies private?
A mutual insurance company is a privately-held insurance company that is 100% owned by its policyholders. Mutual insurers are established with the sole purpose of providing its members with insurance coverage.
Who owns a mutual insurance company?
policyholders
What type of insurance company is a mutual?
A mutual insurance company is an insurer that provides collective self-insurance to its Members. It has no shareholders and is owned and controlled by its Members.
What does being a mutual insurance company mean?
An insurance company owned by its policyholders is a mutual insurance company. A mutual insurance company provides insurance coverage to its members and policyholders at or near cost. Any profits from premiums and investments are distributed to its members via dividends or a reduction in premiums.
What is the main advantage of an insurance mutual company?
A major benefit of mutual insurance companies is that ownership is shared among policyholders. As a result, capital can be returned directly to them in the form of either policyholder dividends or premium credits.
Which of the following is a characteristic of a mutual insurance company?
An insurance company owned by its policyholders is a mutual insurance company. A mutual insurance company provides insurance coverage to its members and policyholders at or near cost. Any profits from premiums and investments are distributed to its members via dividends or a reduction in premiums.
Which of the following are the characteristics of insurance business?
Basic Characteristics of Insurance
- Pooling of losses.
- Payment of fortuitous losses.
- Risk transfer.
- Indemnification.
What is a mutual life insurance company?
A mutual insurance company is an insurance company owned entirely by its policyholders. Any profits earned by a mutual insurance company are either retained within the company or rebated to policyholders in the form of dividend distributions or reduced future premiums.
Who is a mutual insurance company owned by quizlet?
A mutual insurance company is owned by its policyholders. Surplus may be distributed to policyholders in the form of dividends or retained by the insurer in exchange for reductions in future premiums.
Which of the following types of insurance policies is most commonly used in credit?
The correct answer is: Endowment contracts endow only upon the insureds death. Credit life insurance is issued on the life of the person who has the debt (debtor) and the creditor owns and is the beneficiary of the policy. You just studied 14 terms!
What is the purpose of credit life insurance?
Which of the following types of insurance policies is most commonly used in credit life insurance? Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.
What is the purpose of credit life insurance quizlet?
Life insurance covers the policyholder and makes payouts to their survivors upon their death. Credit life insurance covers a large loan. It benefits its lender by paying off the remainder of the loan if the borrower dies or is permanently disabled before the loan is paid
Related posts: