The Mechanics Of The Policy
Ordinary life insurance is simply an alternate term used for whole life insurance or straight life insurance.
The American people seem to lean more to the term whole life today. Let us take a look at what ordinary whole life insurance is all about.
The death benefit of an ordinary whole life policy remains level from the date of purchase, usually, right up until age 100.
To put it another way, if you have a policy for $1,000,000 and you should die your beneficiaries will be paid $1,000,000.
It doesn’t matter how or when you die. The only exclusion is suicide. If you die by your own hand within a specified period of time set by the company the amount paid is limited to the premiums paid to date.
The elimination period varies but with most companies is 2 years.
Provisions Of Ordinary Life Insurance
Cost Of The Policy
There are two types of whole life policies. These are participating policies and non participating policies. Participating policies pay dividends, non participating do not.
As a result of this the costs of non participating policies are lower than those of the participating policies. The premiums for these life insurance policies are higher than those of term life insurance policies but as you will see there are certain reasons for that which some owners consider an advantage.
Cash Values
Ordinary life insurance policies have what is known as cash values. From the outset life insurance companies load the premiums of these types of policies in order to protect themselves against loss.
Later when they find that they did not need these funds in the first place they return them in the form of a cash value.
If the owner of a policy should opt to terminate it at any time in the future the cash value is returned to him or her. Cash values earn interest and can be considerable if left alone over a long period of time.
Dividends
Participating ordinary life policies earn dividends if the life insurance is efficiently operated. The more efficient the the company the higher the dividend.
Some life insurance companies are extremely effective at getting a very high return on their investments while, at the same time, keeping their operating costs very low. They pass on a portion of the resulting profit to their policy owners.
Dividends can be used in many ways.
- The most popular choice is using them to purchase paid up additions. These are little single premium ordinary life insurance policies which would be added to your base policy each year.
This means that upon your death your beneficiary would receive the usual death benefit of the policy plus the paid up additions up to that time. These paid up additions also have cash values and accumulate dividends as well. - Another popular choice is to use your dividends to reduce premiums. If this option is selected you will be required to pay a smaller amount than the original contract premium at the due date.
- Dividends earned by ordinary life insurance policies can also be left to accumulate interest.
If this choice is taken it will result in a considerable return on surrender of the policy for it’s cash value. The dividend, in other words, would be added to the cash value of the policy. - Another choice is to take your dividend in cash. At the end of each year the life insurance company will send you a check.
It is important to keep in mind that cash values are guaranteed but dividends are not.
Riders
You have the option of adding varying types of riders to your ordinary life insurance policy. The most popular are the waiver of premium rider and the accidental death benefit rider.
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