International Styles

Special Types of Insurance Contracts

A very large variety of special contracts, deriving materially from those already mentioned, might be described; but special attention will be directed to the following three main classes:

1. Return-premium policies. Such policies differ from the usual forms of life insurance in that they promise upon death to pay not only the face of the policy, but in addition thereto a sum equal to all or to a portion of the premiums paid. The premiums returned may comprise the entire amount paid during the existence of the contract, but usually such return is limited to the premiums paid during a limited period, such as ten, fifteen, or twenty years. A promise of this kind should cause no surprise since the policy merely represents increasing life insurance under a level premium plan. In other words, the face value of the policy increases as the number of premium payments increases, but this increasing amount of insurance must be paid for by an extra charge, i.e. the premium on a policy allowing a return of all or a portion of the premiums, is higher than the premium for the same kind of policy when not containing a return premium privilege. It may be added that pure-endowment contracts sometimes provide for the return of premiums paid in the event of death before the expiration of the pure-endowment period.

2. Policies which involve more than one life. In addition to the various types of continuous-installment policies, which it will be remembered involve the lives of the insured and one or more beneficiaries, there are three other types of policies under this heading that deserve special mention. One type goes under the name of "ordinary joint-life insurance". Joint-life policies may be taken out on two or more lives, and sometimes prove advantageous to several business partners who may wish to utilize the same for the protection of their partnership against the withdrawal of capital or other financial embarrassment occasioned by the death of any one of them. The policy promises the payment of the principal in the event of the first death amongst the two or more persons covered by the contract. This joint-life principle may be applied to any of the ordinary forms of life insurance, such as whole-life policies, limited-payment policies, term insurance, endowment insurance, etc.

"Last-survivor" and "contingent" or "survivorship" insurance should also be referred to briefly, although policies of this kind are used to only a limited extent. The last-survivor policy differs from the ordinary joint-life policy in that the principal is payable in the event of the last death instead of the first death. Contingent or survivorship policies, on the other hand, "insure one life against another" and provide for the payment of the face value in the event of the death of a certain person, but only on the condition that some other person designated in the policy is still alive. In his discussion of these two forms of policies, Mr. Henry Moir indicates their purpose in the following words:

Last-survivor policies are seldom required, although sometimes when two persons have an income which will be continued to the survivor, and they desire to borrow money on their joint interest, a policy of this nature may enable them to effect their purpose on reasonable terms. . . . Contingent or survivorship policies will be understood more readily if the circumstances under which they are generally issued be explained. It is common in the will of a wealthy man to provide that the entire income from his property be paid to his widow, and that the property be divided on her death amongst certain heirs or legatees who may then be living. In such circumstances it is evident that the share of the property would be lost by any heir or legatee who might die during the lifetime of the widow. The cheapest form of protecting this share from absolute loss is the survivorship assurance, providing the sum assured at his death in event of its occurring in the lifetime of the widow. Assurance companies occasionally grant loans secured by contingent interests in estates to be divided at some future time, called reversions, and any such loans should be protected by a survivorship policy.

3. Policies containing total disability features. Since a separate chapter is devoted to a discussion of total disability benefits in life insurance, it will suffice to indicate here merely the nature of the special benefits offered. Without special provision a life-insurance policy may not fully protect where the holder becomes totally disabled and is not in a position to keep his insurance alive by further premium, payments. Moreover, even granting that the policy can be maintained, no part of the face value can be realized under the contract until death actually occurs, although such payments may be sadly needed at the time. Considerations like these have induced a very large number of American companies to assist the policyholder in various ways in the event of total disability. Such assistance has usually taken one or more of the following forms in the event of total disability: (1) the premiums will cease and the policy will be considered fully paid during the time of disability; (2) the policyholder may select either this option or may choose to have the value of his policy converted into an annuity, the first payment to begin at once; and (3) the policy either matures for a stated sum or becomes payable in ten or twenty annual installments, such payment stopping whenever the disability ceases.

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