Dana's Insurance Agency

A rider is something added to the basic policy to confer additional benefits – sometimes requiring an additional payment. Examples include a term rider that adds extra coverage to a whole life policy or a cost of living rider that increases the benefits to compensate for inflation

Policies issued by mutual life insurers generally pay dividends. The theory behind this is that mutual companies are owned by their policyholders and are entitled to the “profits” that result from the company’s business. The amount of dividend applied to each type of policy is determined each year by the company based on the financial results of the preceding year. The dividends can also be considered as a return of part the premium paid for the life insurance. The policyholder can elect to receive the dividends in cash or have them applied to reduce the policy premium, or added to the policy as paid up additional life insurance.

Suicide is not covered during an initial period, which is often two years. After that initial period, which specified in the policy’s suicide clause, suicide is treated the same as any other death.

When you stop paying premiums and allow a cash value policy to lapse, one of the nonforfeiture options comes into play. Three of the most common options are:

1. extended term insurance. Often this is the automatic option. The cash value (minus any outstanding loans) is used to pay for insurance equal to the face amount of the policy for. The coverage will continue for whatever length of time the available cash can buy. Once the cash value is depleted, the policy has no further value.

2. reduced paid up insurance. The cash value can be used to pay for a reduced amount of insurance. The cash value purchases a single premium, fully paid up policy of the same type as the original plan.

3. cash surrender value. The policy is surrendered to the insurance company which then pays the policyholder the current cash value.

Face value is the amount printed on the face of your policy. It is the basic amount that the policy is worth, though it may be increased by term riders or dividend accumulations or reduced by a policy loan.

Cash value plans charge more in the early years than would be required to buy a term policy for a comparable amount of life insurance. The extra money is invested and used to establish a cash value that helps to keep the premiums level in the later years of the policy when the cost of term would increase dramatically because of the policyholder’s increasing age.

Term life insurance is insurance that lasts for a specific time, such as 5 years or 10 years. The policy pays a death benefit in the event the insured dies during the specified period. Since term insurance is for a limited period and accumulates no cash value, the rates tend to be low for a given amount of insurance.