Palo Pinto County insurance lawyers need to understand life insurance.
Life insurance pays a stated amount of benefits to the beneficiary upon the insured’s death. Typically, the policy has a “face amount” that is, a stated value that is payable. Some policies may offer increased benefits if the insured dies from certain causes. For example, some policies pay “double indemnity” benefits if the insured dies in an accident.
“Term” policies pay a fixed amount stated in the policy. Whole life policies accumulate cash value. On the other hand, if the policy allows the insured to borrow against the policy, the death benefit may be reduced by the amount of any outstanding loans.
Issues affecting coverage may arise at the time the policy is issued, if the insured does not accurately disclose his health or other material information, of if the insured dies or his health materially worsens before the policy is issued. Disputes may also arise if the insurer refuses coverage.
Upon the insured’s death, questions may arise regarding: whether the insurance was still in effect; whether the insured died from a covered cause; and who receives the proceeds. The answers to some of this can be found in the Texas Insurance Code and the Texas Probate Code.
Common life insurance types are term, whole life, and universal life.
“Term” policies simply provide a death benefit in return for a premium payment. At the end of the policy year, or “term” the insurance ends, and the policy has no value. Term policies do not accrue cash value. Because the insured is only paying for the death benefit, term policies are cheaper in the early years. As the insured gets older, the risk of death increases and so does the premium. As the insured gets older, the risk of death increases and so does the premium for a set number of years.
“Whole life” policies typically charge more in premiums than term policies, so that the premium pays for the death benefit and provides an excess that allows the policy to accrue a “cash value.” This cash value is an investment, in addition to the benefits if the insured dies. The policies derive their name from the fact that the insurer offers to insure the insured for her “whole life” based on a certain stream of premiums. An insurer may offer illustrations at the time the policy is sold showing how much cash value will accrue based on the premium payments, if the certain interest rates apply. The illustrations usually project the expected value of the policy over time, and often contain disclaimers and numerous assumptions, making comprehension difficult. This complexity causes insureds often to rely heavily on oral explanations by the agent, which may be inaccurate or misunderstood. This can be a source of trouble if the policy’s actual performance does not match the insured’s expectations.
“Universal life” works like whole life, except the rate of return on the investment portion may be tied to stocks and mutual funds, instead of a certain interest rate. This product was developed so life insurers could compete with other investments by offering more competitive rates of return.
Dividends are another potential feature. If the policy pays dividends, the insured may elect to receive them as a refund, or the dividend may be applied to buy additional coverage or to reduce the next premium.
These are only the most common forms of life insurance. There are many others. Credit life polices are seen frequently, as are many others. Issues with the various types of life insurance coverages are litigated in the courts frequently. The Texas Supreme Court and state appeals courts as well as the different Federal Courts are sources to investigate as to how the Court system views these types of cases and the issues arising from them.
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