Understanding Your Life Insurance Policy

An insurance policy is a contract that is legally binding on all
parties to its execution. When it comes to life insurance, it is
imperative to completely understand the terms of the contract.

Usually the person who owns the life insurance policy is the person
paying the premiums, but not always. The owner, whoever it may be, has
the right to exercise control over the policy and the right to direct
the life insurance company that sold the policy to take or refrain
from action with regard to the policy itself. The owner may reserve
the right to exercise their prerogatives with regard to the policy
without the consent of beneficiaries.

Beneficiaries of a life insurance policy are usually the people who
get the money when the insured person dies. The owner of the policy is
the person who names beneficiaries. The owner can legally change
beneficiaries as he or she sees fit.

In some cases owners are prevented by the law from changing
beneficiaries. For example, some divorcees compel that a former spouse
be named as beneficiaries of existing life insurance policies. In such
circumstances, the owner's right to change beneficiaries would be
prevented as long as the court remained in effect.

Sometimes the life insurance contract itself can prevent the owner
from changing beneficiaries. These are referred to as irrevocable
beneficiaries.

The owner of the policy has the ability to make decisions regarding
the cash value. Owner have the right to borrow against the cash
proceeds, cash in the policy, and decide how assets will be dealt with
once they are declared by the company.

The owner of the policy also has the right to choose to exercise policy options.

The payment of benefits upon the death of the insured is referred to
as the settlement of the policy. There are many ways that
beneficiaries can receive a settlement, the most common one being a
one lump sum settlement. The name states it clearly beneficiaries
receive a one-time-only payment of all money due under the policy.

Another type is an interest payments only settlement. This type of
settlement sets up an account for the beneficiaries out of the death
benefit and pays them the interest earned thereon. The principal then
acts like a form of savings account available to the beneficiaries.
Beneficiaries then reserve the right to withdraw principal as they
choose.

Installment payments are another common choice of settlement. The
owner of the policy can have the beneficiaries receive their benefits
in payments over time. Benefits that remain on the account at the
insurance company will earn interest as long as there are proceeds
left to be paid out.

Be sure to know all exclusions involved in your insurance policy. All
policies are different in the fine print. There are a few exclusions
you should look for, a common one being the suicide exclusion. Many
people assume suicide invalidates a life insurance policy. This isn't
necessarily true. The suicide exclusion usually states, "If the
insured commits suicide within two years from the Date of Issue. We
will limit our payment to a refund of premiums paid, less any
indebtedness."