Policies Classified According to the Method by Which
the Proceeds Are Paid. Reference is had under this heading to the
various types of so-called installment policies.
Instead of paying the face of the policy in one lump sum in
the event of death or maturity, the proceeds are paid in regular
installments, either annually, semi-annually, or monthly,
over a prescribed period of time, such as ten, fifteen, or twenty
years. This installment feature may be applied to the payment of
the proceeds of any of the usual types of policies.
Thus it may be arranged that under a $10,000 whole-life
policy the principal of $10,000 shall not be paid in full upon
death, but the company's liability shall be limited to the pay-
ment of $1,000 upon the happening of death and $1,000 each
year thereafter until the tenth or last installment has been
paid. In case the company's liability should be limited to
the payment of the $10,000 in the form of fifteen or twenty
installments, each installment would be, respectively, $666.66
and $500. Should the beneficiary die before all the install-
ments have been paid, provision is usually made that the
unpaid installments may be continued for the original amount
to the deceased beneficiary's estate or to a newly designated
beneficiary, or may be commuted and paid in one lump sum.
If the total installments aggregate the face value of the
policy, the cost of the contract will naturally be smaller than
if the face value of the policy be payable in full upon maturity of
the contract. It is apparent that by paying the
$10,000 in ten installments the company retains the use of
a large part of the policy's proceeds for a considerable period,
viz, $9,000 for one year, $8,000 for one year, $7,000 for one
year, etc. Mathematically, the company can arrange to give
the interest earnings (at an assumed rate) on these balances
to the insured during his lifetime in the form of a reduced
premium. Many companies, however, follow the plan of
charging the same premium that would be required on the
same kind of policy when providing for the payment of the
proceeds in one lump sum, and then make allowance for interest
earnings on the proceeds retained under the installment
plan by increasing the size of the installments.
While the ordinary installment policy, as just described,
affords the advantage of giving the beneficiary a definite income
for a prescribed number of years and thus prevents the
possible loss or dissipation of the proceeds of the policy as
might be the case if the entire sum were paid at once, it
should be remembered that these installments are limited in
number, and that upon the payment of the last installment
the beneficiary may still be in need of an income. This
shortcoming of the ordinary installment policy may be avoided
by arranging for the continuance of such payments throughout
the lifetime of the beneficiary. Such an arrangement
may be effected under the so-called " continuous-installment
policy." Here the company agrees to pay a definite number
of installments, irrespective of the death or survival of the
beneficiary, and to this extent the continuous-installment policy
includes the ordinary installment feature. But after the
entire face of the policy has been paid in installments the
qompany gives the further very important guarantee that it
will keep on paying these installments if the beneficiary be
still living and will continue to do so during the lifetime of
said beneficiary.
The continuous-installment feature lends itself to a large
variety of applications, and almost any set of circumstances
requiring a guaranteed income can be met by the contracts
of certain companies. The continuous income may be so
arranged as to be paid annually, semi-annually, or monthly,
as desired. Instead of guaranteeing an income throughout
the lifetime of merely one beneficiary, several beneficiaries
may be protected. Thus one beneficiary may be assured an income
throughout life, and following his or her death, another
designated beneficiary may become the recipient of the stipulated
income either during the whole of life or for a specified
number of years. Similarly, the continuous-installment plan
may be combined with the endowment principle. Thus if the
holder of an endowment policy should outlive the endowment
period an annual income may be promised to him throughout
life. Further arrangement may be made whereby, following
his death, an annual income may be paid to his wife or other
beneficiary or beneficiaries as long as they may live. Or, the
policy may be made to contain a guarantee to the holder of,
say, twenty definite annual payments with a further promise
that such installments will continue, following the payment
of the twentieth installment, during either the lifetime of the
insured or of the insured and another beneficiary.
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Classification of policies. Part2
