What are the types of term insurance policies?

Term insurance comes in two basic varieties—level term and decreasing term. These days, almost everyone buys level term insurance. The terms “level” and “decreasing” refer to the death benefit amount during the term of the policy. A level term policy pays the same benefit amount if death occurs at any point during the term.

Common types of level term are:
yearly- (or annually-) renewable term
5-year renewable term
10-year term
15-year term
20-year term
25-year term
30-year term
term to a specified age (usually 65)
Yearly renewable term, once popular, is no longer a top seller. The most popular type is now 20-year term. Most companies will not sell term insurance to an applicant for a term that ends past his or her 80th birthday.

If a policy is “renewable,” that means it continues in force for an additional term or terms, up to a specified age, even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy.

Generally, the premium for the policy is based on the insured person’s age and health at the policy’s start, and the premium remains the same (level) for the length of the term. So, premiums for 5-year renewable term can be level for 5 years, then to a new rate reflecting the new age of the insured, and so on every five years. Some longer term policies will guarantee that the premium will not increase during the term; others don’t make that guarantee, enabling the insurance company to raise the rate during the policy’s term.

Some term policies are convertible. This means that the policy’s owner has the right to change it into a permanent type of life insurance without additional evidence of insurability.

“Return of Premium”
In most types of term insurance, including homeowners and auto insurance, if you haven’t had a claim under the policy by the time it expires, you get no refund of the premium. Your premium bought the protection that you had but didn’t need, and you’ve received fair value. Some term life insurance consumers have been unhappy at this outcome, so some insurers have created term life with a “return of premium” feature. The premiums for the insurance with this feature are often significantly higher than for policies without it, and they generally require that you keep the policy in force to its term or else you forfeit the return of premium benefit. Some policies will return the base premium but not the extra premium (for the return benefit), and others will return both.

Functions of Endowment Insurance

Functions of Endowment Insurance. In the past endowment insurance was frequently advertised as " investment insurance " without making proper reference to the cost of the insurance protection. But as Mr. Dawson states in considering endowment and limited-payment policies as an investment, "a life-insurance policy, at the best, can be compared as an investment with other investments, not accompanied with life insurance, only when a proper allowance is made for the cost of the life insurance. ... It behooves the company as a matter of fairness both to make it plain that at the best the investment is good, only in case the form of the protection is considered, and then to render the handicap as little as possible by loading endowment and limited-payment life premiums justly." The real function of endowment insurance is not to yield a large investment return but rather to furnish a means of inculcating the saving instinct and to afford a sure method of providing against old age or some other specific contingency by accumulating a definite sum of money within a definite time. Briefly stated, endowment insurance may be defended under proper conditions because of its usefulness in four main ways, namely:

1. As an incentive to save. The argument most generally advanced in favor of endowment insurance is that it constitutes a sure method for systematic saving in that it provides for the laying away of a moderate sum each year with a view to having all the accumulations returned in one sum at the end of a fused period. This era is recognized as a particularly extravagant one, and vast numbers of young
men, because of extravagant habits, never save a dollar although receiving good incomes. For such persons an endowment policy generally turns out to be a means of forcing thrift, since it compels them to do that which, if left entirely to their own option, would remain undone. By requiring the payment of specific sums at regular intervals during a period of years, endowment insurance enables many to save a sum worth while, without being conscious of the sacrifice, whereas haphazard methods of saving seldom achieve this result. " Such a policy/' as has been said, " gives a person a definite aim he must save just so much every year, and experience soon teaches that he can do it easily." It should also be emphasized that in ever so many instances the difference between the premium on an endowment policy and some other kind of contract requiring a smaller payment would not be saved were it not for the voluntarily assumed sacrifice of paying the higher rate. Endowment insurance, therefore, as it concerns those who find it difficult to save, represents a means of utilizing the by-product of their earnings the small sums otherwise wasted in needless expenditures for the accumulation of a competence. And even assuming that these small sums are not wasted, it would still be true that in probably the majority of instances, they would be invested injudiciously and would be subject to the hazard of business, or even if carefully invested would be withdrawn under the temptation of speculation or luxury.

It is also contended by many that endowment policies maturing in, say, twenty years afford to many young men, especially if they labor under the difficulty of not being able to save or keep their savings, the advantage of yielding a cash capital " at the prime of life when, ripened by years of experience, they can use it to the best advantage." Strange as it may seem many of the nation's most prominent business
men, who we would think could currently use all spare funds to the best advantage in their business, have publicly emphasized this feature of endowment insurance. Only a few years ago one of the leading merchants of this country in addressing a meeting of life-insurance agents related how he had been induced to take one endowment policy after another until he carried a huge amount of this type of insurance.
He explained its advantages to him as a means of compulsory thrift, of accumulating sums little by little until a large fund existed, and expressed his belief that if it had not been for the sum realized upon the maturity of his endowments he
might never have erected his splendid store.

2. As a means of providing for old age. Endowment insurance, if the term is so selected as to make the policy mature at an age like 60, 65, or 70, may serve as an excellent method of accumulating a fund for support in old age. Many who oppose endowments maturing at earlier periods because of their greater cost are ardent supporters of long- term endowments maturing at an age when a man's earning
capacity usually ceases and when he naturally expects to retire from actual work. Statistics show that less than one man in ten succeeds in laying up a competence by the time this age is reached. Most men are therefore confronted with
two contingencies: (1) an untimely death may leave their families unprotected, and (2) in case of survival until old age they may lack the means of proper support. Both of these contingencies may conveniently be provided against by a long-term endowment. If death should occur at any time during the term, the insurance proceeds revert to the family; but should the insured survive to old age, when the need of
insurance for family protection has largely or altogether passed away, he will himself receive the proceeds of the fund which his prudence and foresight enabled him to accumulate, to be used for his own support and comfort.

In this connection it should be remembered that a wholelife policy, based on the American table of mortality, is an endowment at age 96, since this age according to that table is considered the extreme limit of life. At age 25 a whole-life policy is, therefore, an endowment policy for a term of seventy-one years. Xow those upholding long-term endowments take the position that it is most illogical to choose age 96 as the age when the insured shall have completed his savings fund under the policy, and that it accords much more with the real needs of the average man to move the maturity of the contract from the ridiculous age of 96 to the more reasonable
age of 60 or 65, when the need for insurance protection is usually small while the need of a fund for comfortable maintenance in old age is usually pressing. Especially, it is argued, should this change to an earlier date of maturity be
provided when the difference between the premium on an ordinary life policy and that on an endowment maturing at, say, 65 is so small that its payment does not involve any appreciable sacrifice and would in all probability not have been saved except for the voluntary determination to pay the slightly higher premium. Thus at age 25, using the aforementioned rates, the premium on a forty-year endowment
is $21.80 as compared with the premium of $19.00 for an ordinary life policy, or a difference of $2.80. As regards a forty-five-year endowment maturing at age 70 the difference between the two premiums charged by this company is only $1.20. In
other words, the payment of this slight extra sum each year during the forty- or forty-five-year period insures the payment of the full amount of the policy in case of survival at age 60 or 70.

3. As a means of hedging against the possibility of the saving period being cut short by death. Reference has been made several times to the fact that the saving of a competence involves the time necessary to save and that life insurance affords the only known method of protecting person against the possibility, owing to an untimely death, of not being able to accumulate the desired amount. Were it not for the uncertainty of life and the inability of most people to carry out their resolution to adhere to a definite plan of saving the accumulation of an estate could readily be accomplished by the deposit of certain sums at regular intervals. But, as we have seen, the effort to save a fixed amount is confronted by two dangers : ( 1 ) death before there has been time to save the desired amount, and (2) failure of the individual to continue his plan of saving or to keep intact what may already have been accumulated.

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ENDOWMENT INSURANCE. Premiums Charged for Endowment Policies

ENDOWMENT INSURANCE. Premiums Charged for Endowment Policies

Premiums Charged for Endowment Policies. Since the
company^s liability under an endowment policy involves not
only the payment of the insurance upon death but also the
full amount of the policy upon survival of the term, it follows
that the annual premium on such policies is necessarily much
higher, except for very long endowment periods where the
rate is only slightly higher, than that charged on an ordinary
life policy. An examination of the following table of rates
(charged by the same company whose rates were used for
purposes of illustration in the preceding chapters) shows
this to be especially true when the endowment period is a
short one. The large difference here indicated, although ac-
counted for in part by the heavier loading on endowment
premiums, is due chiefly to the necessity of accumulating
more rapidly the investment portion of the endowment policy
in order to have it equal the full face value at the end of the
term. Referring to previous chapters, we saw that the reserve
value of the $10,000 ordinary life policy at age 35, used for
illustrative purposes, was $3,275.80 after the policy has 'been
in force twenty years, while for the same policy on the twenty-
payment plan the corresponding reserve value was $6,099.20.
The $10,000 twenty-year endowment policy, however, must,
according to its definition, have a value of $10,000 at the end
of the twenty-year period, and the difference between this
value and the values noted for the other two policies must
be obtained by the company through a higher premium.

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ENDOWMENT INSURANCE. Definition and Types of Policies.

ENDOWMENT INSURANCE. Definition and Types of Policies.

Definition and Types of Policies. All the policies dis-
cussed in the three preceding chapters provide for the payment
of the full amount of the policy only in the event of death.
Endowment policies, on the contrary, provide not only for the
payment of the face of the policy upon the death of the insured
during a fixed term of years, but also for the payment of the
full amount at the end of said term if the insured be living.
Whereas policies payable only in the event of death are es-
sentially taken out for the benefit of others, endowment poli-
cies, although affording protection to others against the death
of the insured during the fixed term, usually revert to the
insured if he survive the endowment period. Such poli-
cies, therefore, have become popular in recent years as
a convenient means of accumulating a fund which
will afterwards become available for the use of the policy-
holder.

An examination of the contracts issued by different com-
panies shows many variations in the use of the endowment-
insurance principle. Such policies may be made payable in
ten, fifteen, twenty, twenty-five, thirty or more years, or the
length of the term may be so arranged as to cause the policy
to mature at certain ages, such as 60, 65, 70, etc. When
written for such terms the purpose of the policy usually is to
combine immediate protection with saving: while if written
for long terms or to mature at an advanced age the object
is usually to combine protection with old-age provision. Usu-
ally the contracts are paid for by premiums (payable an-
nually, semi-annually or quarterly) continuing throughout
the term, but if desired the premiums may be paid on the
limited-payment plan, as, for example, a thirty-year endow-
ment paid-up in twenty years.

Other applications of the endowment principle have already
heen referred to in the chapter on " Classification of Policies,"
but may again briefly be recapitulated. Thus there may be
" double endowments " or " semi-endowments," the first
meaning that the amount payable upon survival is twice that
paid in the event of death, and the last meaning that the sum
payable upon survival is only half as large as the amount
promised upon death. Various kinds of "child endowment
policies" are also issued by certain companies. Sometimes
these policies, besides guaranteeing the payment of a fixed
amount upon the attainment by the child of a specified age,
also provide for the return in full of the premiums paid in
the event of the child's death before reaching the endowment
age. Or, the policy may be issued without the return of
premium privilege in the event of the child's death, the only
benefit, under the policy in this instance being the amount
payable on survival. Sometimes it is provided that upon the
death of the purchaser of the policy, usually the father,
premium payments shall cease, the policy becoming full-
paid and the principal becoming due when the child reaches the
endowment age. In still other instances the policy may be
issued on a child's life at an early age, say at age five, the un-
derstanding being that the policy will not come into full force
until the insured reaches a specified age (say age 21) and will
then mature as an endowment at, say, age 50. These policies,
furthermore, may again be issued with or without the return-
premium privilege.

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Paid-up and Extension Benefits Under the Limited- Payment Plan