Wikipedia of Finance - Wiki-Financepedia - e-learning course on Insurance Wikipedia Chapter - Key Consideration Clause of a Life Insurance Policy and Health Insurance Policy

4 Key Consideration Clause of a Life Insurance Policy


Are you aware of Consideration Clause of a Life Insurance Policy?

Before you take any life insurance policies it become mandatory for an individual or an organisation to check the consideration clauses of a life insurance. It is always advisable to know advantages and disadvantages based on consideration clause of a life insurance rather than having trouble in the later stage. Let us evaluate other aspects which need to be considered before buying life insurance.

You should know Consideration Clause of a Life Insurance Policies before buying it:

Here you will get to know what are the important consideration clauses you should consider when buying life insurance or health insurance or any other insurance policies.

1. Tax Treatment of Life Insurance:

Life insurance policies provide death benefit as a cash value which are mostly non-taxable to the beneficiaries. Insured amount of whole life policies may be considered for tax evaluation or may be considered as tax free based on cash value exceeding premium paid or depend on the state or country policies. One should get this clarified with the insurance company or specialist insurance agents before deciding the insured value or making any insurance premium payments. This is highly recommended consideration clause of a life insurance before purchasing it.

2. Standard Terms and Conditions:

Mostly individual decide to purchase insurance based on the clauses and commitments said by insurance agents. Usually Individual doesn’t read the contract agreement clauses neither they try to understand the clauses which is incorrect. Life cover constitutes a binding contract between the insurance holder (applicant) and the insurance company (insurer). Whether its a life insurance or health insurance, by default it is assumed that the data or information given by the candidate is genuine and justifiable and there are no distortions made by applicant to get insurance policy by misrepresenting any documents. The incontestable clause (indisputable clause) safeguards insurance company at a later date when applicant benefits are due for payment. If in case applicant lied about health or risk is exposed. When insurance contract agreement is started for no less than two years, authenticity under incontestable clause cannot be questioned other than fraud case. In the event of suicide of applicant within 1-2 years of the insurance policy, then only premium amount is refunded except that no other death benefits will be address.

3. Life Insurance Beneficiary:

Beneficiaries of life insurance are divided into two classes: primary and contingent (conditional) beneficiaries. On the death of the insured person, Primary beneficiaries will be the initially qualified receiver of insurance claim. Contingent (conditional) beneficiary can be receiver of insurance claim only when primary beneficiaries are dead or unable to get qualified for insurance claim.  Another approach to manage multiple beneficiaries is either by “per capita” or “per stirpes” sign. For example: A “per capita” sign is suitable whereby you would share claims between surviving kids. Whereas “per stirpes” sign is suitable whereby children of a deceased beneficiary will share claim equally anticipated for that family line.  Policy holder can choose revocable or irrevocable option for the insurance contract agreement. Under revocable, policy holder can change the beneficiaries whenever required without the concerns from beneficiaries. Whereas under irrevocable, policy holder cannot change the beneficiaries without written concerns from the beneficiaries. For example: Key person or business owners.

4. Distribution Options:

There are multiple options to claim life insurance. The most popular claim is lump sum or entire claim to be transferred to the beneficiaries. Second is an instalment option whereby claimants can choose to receive benefits for fixed instalment periods. Sometimes this second option is selected by policy holder to ensure that beneficiaries does not get lump sum amount at once.  Life insurance has few more alternatives payout options:

  • Life Insurance with Periodic Claim Policy: Under this option, beneficiaries are paid for entire lifespan with minimum numbers of periodic claims.
  • Life Insurance with Refund Policy: Under this alternative, beneficiaries are paid instalments for entire life time and after death of primary beneficiaries instalments are paid to Contingent (conditional) beneficiaries.
  • Joint and Survivor Insurance Policy: Insurance claim is paid to joint survivor after certain duration mentioned in insurance policy and upon death of one of the insured another survivor will be continued to receive instalment.

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