Temporary Term Insurance

Term insurance provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. Term is generally considered pure insurance, where the premium buys protection in the event of death and nothing else.

There are three key factors to be considered in term insurance:

1. Face amount (protection or death benefit),

2. Premium to be paid (cost to the insured), and

3. Length of coverage (term).

Various insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more yaers. The premium can remain level or increase. A common type of term is called annual renewable term. It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance which is usually a level premium, declining face value policy. The face amount is intented to equal the amount of the mortgage in the policy owner's residence so the mortgage will be paid if the insured dies.

A policy holder insures his life for a specified term. If he dies before that specified term is up, his estate or named beneficiary receives a payout. If he does not die before the term is up, he receives nothing. In the past these policies would almost always exclude suicide. However, after a number of court judgments againts the industry, payouts do occur on death by suicide. Generally, if an insured person commits suicide within the first two policy years, the insurer will return the premiums paid. However, a death benefit will usually be paid if the suicide occurs after the two year period.

Costs, Insurability, and Underwriting

The insurer have to calculates the policy prices with intent to fund claims to be paid and administrative costs, and to make a profit. The cost of insurance is determined using  mortality tables calculated by actuaries. Actuaries are professionals who employ actuarial science which is based in mathematics. Mortality tables are statistically-based tables showing expected annual mortality rates. It is possible to derive life expectancy estimates from these mortality assumptions.

The three main variables in a mortality table have been age, gender, and use of tobacco. More recently in U.S., preferred class specific tables were introduced. The mortality tables provide a baseline for the cost of insurance. In practice, these mortality tables are used in conjunction with the health and family history of the individual applying for a policy in order to determine premiums and insurability. Mortality tables currently in use by life insurance companies in the U.S. are individually modified by each company using pooled industry experience studies as a starting point.

Recent U.S. select mortality tables predict that roughly 0.35 in 1,000 non-smoking males aged 25 will die during the first year of coverage after underwriting. Mortality approximately doubles for every extra ten years of age so that the mortality rate in the first year for underwritten non-smoking men is about 2.5 in 1,000 people at age 65. Compare this with the U.S. population male mortality rates of 1.3 per 1,000 at age 25 and 19.3 at age 65.

The mortality of underwritten persons rises much more quicklythan the general population. At the end of 10 years the mortality of that 25 year-old, non-smoking male is 0.66/1000/year. Consequently, in a group of one thousand 25 year old males with a $100,000 policy, all of average health, a life insurance company would have to collect approximately $50 a year from each of a large group to cover the relatively few expected claims. (0.35 to 0.66 expected deaths in each year x $100,000 payout per death = $35 per policy). Administrative and sales commissions need to be accounted for in order for this to make business sense. A 10 year policy for a 25 year old non-smoking male person with preferred medical history may get offers as low as $90 per year for $100,000 policy in the competitive U.S. life insurance market.

The Difference Between The Insured and The Policy Owner

There is a difference between the insured and the policy owner although the owner and the insured are often the same person. For example, if you buys a policy on your own life, you are both the owner and the insured. But if you buys a policy on other person's life, you are the owner and it other person is the insured. The policy owner is the guarantee and he or she will be the person who will pay for the policy. The insured is a participant in the contract but not necessarily a party to it.

The beneficiary receives policy proceeds upon the insured's death. The owner designates the beneficiary but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an irrecovable beneficiary designation. With an irrecovable beneficiary, the beneficiary must agree to any beneficiary changes, policy assignments, or cash value borrowing.

In cases where the policy owner is not the insured, insurance companies have sought to limit policy purchases to those with an insurable interest. For life insurance policies, close family members and business partners will usually be found to have an insurable interest. The insurable interest requirement usually demonstrates that the purchaser will actually suffer some kind of loss if the CQV (celui qui vit) dies. Such a requirement prevents people from benefiting from the purchase of purely speculative policies on people they expect to die. With no insurable interest requirement, the risk that a purchaser would murder the CQV for insurance proceeds would be great. In at least one case, an insurance company which sold a policy to a purchaser with no insurable interest, was found liable in court for contributing to the wrongful death of the victim.

Life Insurance

Life insurance is a contract between the policy owner and th insurer where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individual's death or other thing, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In U.S., the predominant form simply specifies a lump sum to be paid on the insured's demise.

As with most insurance policies, life insurance is a contract between the insurer and the policy owner whereby a benefit is paid to the designated beneficiaries if an insured event occurs which is covered by the policy. The value for the policyholder is derived not from an actual claim event, rather it is the value derived fromthe peace of mind experienced by the policyholder, due to the negating of adverse financial consequences caused by the death of the Life Assured.

To be a life policy the insured event must be based upon the lives of the people named in the policy. Insured events that may be covered include Serious Illness.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer.

Life-based contracts tend to fall into two major categories:

1. Protection policies:

Designed to provide a benefit in the event of specified event, typically a lump sum payment. Common form of this design is term insurance.

2. Investment policies:

Where the main objectives is to facilitate the growth of capital by regular or single premiums. Common forms (in the U.S. anyway) are whole life, universal life, and variable life policies.

Qualified Assignment

An assignment is said to be qualified if it satisfies the criteria set forth in Internal revenue Code Section 130. Qualification of the assignment is important to assignment companies because without it the amount they receive tp induce them to accept periodic payment obligation would be considered income for federal income tax purposes. If an assignment qualifies under Section 130, however the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases. Without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.

Furthermore, once an agreement is reached, these payments generally cannot be accelerated, increased, decreased, etc. In fact, the total amount paid out must match the total judgment amount. Also, in some jurisdictions, one can actually sell their structured settlement for a buyout. However, several states have actually prohibited one's ability to sell a structured settlement. In any case, contacting a tax attorney would be a wise move before selling a structured settlement, as there would likely be tax consequences.

Long-Term Periodic Payment Obligation

In an assigned case, the defendant or property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the defendant or property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party called an assignment company will require the defendant or property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation , the defendant and/or its property/casualty campany has no further liability to make the periodic payments. This method of substituting the obligor is desirable for defendants or property/casualty companies that do not want retain the periodic payment obligation on their books. A qualified assignment is also advantageous for the claimant as it will not have to rely an the continued credit of the defendant or property/casualty company as a general creditor. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.

Legal Structure of Structured Settlement

The typical structured settlement arises and is structured as: An injured party settles a tort suit with the defendant or its insurance carrier pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant or more commonly its insurer agrees to make a series of periodic payments over time. The defendant ot the property or casualty insurance company, thus find itself with a long term payment obligation to the claimant. To fund this obligation, the property or casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and sold" case) or it assigns (more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity which arrangement is called an "assigned case".

In an unassigned case, the defendant or property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, there by offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The defendant or property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. if any of the periodic payments are life contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant or whoever is determined to be the measuring life is named as the annuitant or measuring life under the annuity.