29 Temmuz 2010 Perşembe 07:25
Etiketler: Karışık
Life insurance policies with a cash surrender value usually have loan provisions that allow the policyholder to borrow up to the cash value of the policy. Although the insurance company has the right to delay paying the loan for up to 6 months, it rarely does so.
The interest rate ranges from 5 to 8%. Unless the interest rate is stipulated to be variable in the contract, the interest rate never changes regardless of prevailing rates, but most policies issued today have variable interest rates, which have a maximum ceiling. However, in most cases, the cash value of the policy that is equal to the loan amount is also earning less interest, so the effective interest rate is higher. For instance, if a policyholder borrows $40,000 against a policy that has $100,000 of cash value, $40,000 of the cash value may be earning 3% while the remaining $60,000 of the cash value may be earning 5%. So not only is the policyholder paying 5 to 8% interest on the loan, but she is earning 2% less on the cash value backing the loan.
People often wonder why they have to pay interest on their own money. The reason is that when insurers calculate what premium to charge, they expect to earn a certain amount of interest on the money, which helps keep premium costs lower. If the insured takes money out, then that money isn't earning anything from being invested, so the insurer has to charge interest on the policy loan. Furthermore, to maintain liquidity to make policy loans, the insurer must invest part of the premiums in lower yielding, short-term debt. Consequently, the loan interest compensates the insurer for this opportunity cost.
The main advantages of a policy loan over other loans is that there is no credit check; the interest rate is usually much lower; the policyholder can pay back the loan according to virtually any repayment schedule; and, in fact, the policyholder is not even legally obligated to pay back the loan.
However, if death occurs while the loan is outstanding, then the insurance proceeds are reduced by the amount of the loan outstanding plus interest. If the loan and accumulated interest exceeds the cash value of the policy, then the policy lapses.
Some insurance policies have an automatic premium loan provision. If the insured fails to pay the premium by the end of the grace period, then the insurer will pay the premium with a policy loan, and will continue to do so until the cash value of the policy falls below the premium amount, in which case, the policy will lapse.
Settlement Options
Settlement refers to the method by which the policy proceeds are paid: a lump-sum cash payment, interest earned on the face amount and paid periodically, fixed period, fixed amount, and life income. The policyowner can choose the settlement method, or the beneficiary may be given the right. The policyowner can also choose to surrender the policy for its cash value before the death of the insured.
Generally, for a lump-sum cash payment there may be several weeks or months after the insured's death before the insurance company pays the claim to the beneficiaries, so interest earned on the face value during this interim is also paid to the beneficiaries.
The interest income option is usually selected if the insurance proceeds are not needed until sometime later—to pay for college, perhaps. The insurer retains the money and pays a minimum interest rate on it, and if the policy is participating, then the interest rate paid may be higher than the contractual minimum. Interest can be paid monthly, quarterly, semi-annually, or annually.
The contract may provide the beneficiary with withdrawal rights, where part or the entire amount can be withdrawn, or the beneficiary may have the right to choose another settlement option.
The fixed-period option (aka installment time option) pays the beneficiary principal and interest over a fixed period of time. If the beneficiary dies before receiving all of the payments, then the remaining payments are sent to the contingent beneficiary, or to the estate of the primary beneficiary, if there is no contingent beneficiary. The amount of the payments will be commensurate with the face amount of the policy, the interest earned, and inversely related to the length of the payment period—the greater the face amount of the policy and interest earned, and the shorter the payment period, the greater the amount of each payment.
Most policies do not allow the beneficiary to withdraw a partial amount, but will allow the beneficiary to withdraw all of the money, if desired.
The fixed-amount option (aka installment amount option) pays the beneficiary a fixed amount periodically until both principal and interest are fully paid.
The fixed-amount option provides greater flexibility in payments than the fixed-period option. The beneficiary may have the right to increase or decrease the amount of the payments, or to change to a different settlement option. The beneficiary may also have the right withdraw part or the entire amount at one time. This settlement option can also be structured so that the payments increase for a specific time period, such as when the beneficiary is in college.
Life Income Options
A life income option is basically a single-premium annuity, providing the beneficiary with lifetime income. The amount of the payments depends on the amount of the insurance and the expected lifetime of the beneficiary—the longer the expected lifetime, the smaller the payments. Thus, in most cases, this option only makes sense for older beneficiaries.
This option provides variations that are similar to those offered for annuities. All life income options pay the beneficiary for life. The differences in the following options arise when the beneficiary dies.
The life income option pays the beneficiary regularly as long as she lives, but ends when the beneficiary dies. Although this option provides for the largest periodic payment amount, a large amount of money may be forfeited if the beneficiary dies early, because there is no refund of the money and no guaranteed amount of payment.
The life income with period certain option provides the beneficiary with a lifetime of income, and a guaranteed number of payments. If the beneficiary dies before receiving the guaranteed payments, then the remaining payments will be paid either into her estate or to a contingent beneficiary.
The life income with refund option pays at least the face value of the policy. If the beneficiary dies before receiving all of the money, then the rest is paid either to her estate or to a contingent beneficiary.
Joint-and-survivor income pays a couple as long as either of them is alive. When the 1st beneficiary dies, then the remaining beneficiary either gets the same amount or a reduced amount, depending on the policy.
The interest rate ranges from 5 to 8%. Unless the interest rate is stipulated to be variable in the contract, the interest rate never changes regardless of prevailing rates, but most policies issued today have variable interest rates, which have a maximum ceiling. However, in most cases, the cash value of the policy that is equal to the loan amount is also earning less interest, so the effective interest rate is higher. For instance, if a policyholder borrows $40,000 against a policy that has $100,000 of cash value, $40,000 of the cash value may be earning 3% while the remaining $60,000 of the cash value may be earning 5%. So not only is the policyholder paying 5 to 8% interest on the loan, but she is earning 2% less on the cash value backing the loan.
People often wonder why they have to pay interest on their own money. The reason is that when insurers calculate what premium to charge, they expect to earn a certain amount of interest on the money, which helps keep premium costs lower. If the insured takes money out, then that money isn't earning anything from being invested, so the insurer has to charge interest on the policy loan. Furthermore, to maintain liquidity to make policy loans, the insurer must invest part of the premiums in lower yielding, short-term debt. Consequently, the loan interest compensates the insurer for this opportunity cost.
The main advantages of a policy loan over other loans is that there is no credit check; the interest rate is usually much lower; the policyholder can pay back the loan according to virtually any repayment schedule; and, in fact, the policyholder is not even legally obligated to pay back the loan.
However, if death occurs while the loan is outstanding, then the insurance proceeds are reduced by the amount of the loan outstanding plus interest. If the loan and accumulated interest exceeds the cash value of the policy, then the policy lapses.
Some insurance policies have an automatic premium loan provision. If the insured fails to pay the premium by the end of the grace period, then the insurer will pay the premium with a policy loan, and will continue to do so until the cash value of the policy falls below the premium amount, in which case, the policy will lapse.
Settlement Options
Settlement refers to the method by which the policy proceeds are paid: a lump-sum cash payment, interest earned on the face amount and paid periodically, fixed period, fixed amount, and life income. The policyowner can choose the settlement method, or the beneficiary may be given the right. The policyowner can also choose to surrender the policy for its cash value before the death of the insured.
Generally, for a lump-sum cash payment there may be several weeks or months after the insured's death before the insurance company pays the claim to the beneficiaries, so interest earned on the face value during this interim is also paid to the beneficiaries.
The interest income option is usually selected if the insurance proceeds are not needed until sometime later—to pay for college, perhaps. The insurer retains the money and pays a minimum interest rate on it, and if the policy is participating, then the interest rate paid may be higher than the contractual minimum. Interest can be paid monthly, quarterly, semi-annually, or annually.
The contract may provide the beneficiary with withdrawal rights, where part or the entire amount can be withdrawn, or the beneficiary may have the right to choose another settlement option.
The fixed-period option (aka installment time option) pays the beneficiary principal and interest over a fixed period of time. If the beneficiary dies before receiving all of the payments, then the remaining payments are sent to the contingent beneficiary, or to the estate of the primary beneficiary, if there is no contingent beneficiary. The amount of the payments will be commensurate with the face amount of the policy, the interest earned, and inversely related to the length of the payment period—the greater the face amount of the policy and interest earned, and the shorter the payment period, the greater the amount of each payment.
Most policies do not allow the beneficiary to withdraw a partial amount, but will allow the beneficiary to withdraw all of the money, if desired.
The fixed-amount option (aka installment amount option) pays the beneficiary a fixed amount periodically until both principal and interest are fully paid.
The fixed-amount option provides greater flexibility in payments than the fixed-period option. The beneficiary may have the right to increase or decrease the amount of the payments, or to change to a different settlement option. The beneficiary may also have the right withdraw part or the entire amount at one time. This settlement option can also be structured so that the payments increase for a specific time period, such as when the beneficiary is in college.
Life Income Options
A life income option is basically a single-premium annuity, providing the beneficiary with lifetime income. The amount of the payments depends on the amount of the insurance and the expected lifetime of the beneficiary—the longer the expected lifetime, the smaller the payments. Thus, in most cases, this option only makes sense for older beneficiaries.
This option provides variations that are similar to those offered for annuities. All life income options pay the beneficiary for life. The differences in the following options arise when the beneficiary dies.
The life income option pays the beneficiary regularly as long as she lives, but ends when the beneficiary dies. Although this option provides for the largest periodic payment amount, a large amount of money may be forfeited if the beneficiary dies early, because there is no refund of the money and no guaranteed amount of payment.
The life income with period certain option provides the beneficiary with a lifetime of income, and a guaranteed number of payments. If the beneficiary dies before receiving the guaranteed payments, then the remaining payments will be paid either into her estate or to a contingent beneficiary.
The life income with refund option pays at least the face value of the policy. If the beneficiary dies before receiving all of the money, then the rest is paid either to her estate or to a contingent beneficiary.
Joint-and-survivor income pays a couple as long as either of them is alive. When the 1st beneficiary dies, then the remaining beneficiary either gets the same amount or a reduced amount, depending on the policy.
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