Different Types of LIFE INSURANCE

 

Group Plans

 

Before buying an individual life-insurance policy, a man had better find out to what extent he is covered automati­cally or can obtain low-cost insurance through his being a member of a group.

 

In the United States the group life-insurance program covering by far the most people is the one included in the Federal Government's Social Security law and financed by tax on covered employees and their employers. At the death of a covered worker, the law settles who may receive insurance benefits, and how much. Benefits are not payable to children over eighteen years of age, or to a widow without children under eighteen, unless she has reached age sixty-two. For a man with quite young children, Social Security is the equivalent of a life-insurance policy with a pretty large value. Details are readily available at the nearest branch office of the Social Security Administration.

 

A military veteran whose service ended by 1956 is en­titled to $10,000   Government   life   insurance,   the   rules varying with the time when he served. Starting in 1957, military servicemen have been absorbed into the Social Security system, and separate military insurance has been dropped.

 

Many employers make a group contract with a life-insurance company, enabling the employer to offer in­surance to his employees. It is usually of the short-term type, with no cash value. All or part of the cost may be paid by the employer. Probably the main drawback to group insurance through an employer is that when an employee quits or is fired, he may simultaneously lose his insurance, his prospect of a pension, and his earned in­come.

 

A professional society, labor union, or other organization may also have group insurance for its members.

 

 

Policies for Individuals

 

Now we turn to the policies a person can buy direct from an insurance company or its agent. The length of time cov­ered by a policy may be anywhere from one year to a whole lifetime, provided the premiums are paid. As long as a contract remains in force, the annual premium rate per $1,000 death value remains unchanged, or "level." There are technical exceptions, but they don't disturb the principle. This practice of maintaining a level premium rate on an old policy misleads most people into the pleas­ant and expensive delusion that on an old policy, the cost of insurance does not rise with advancing age.

 

The cost of pure life insurance depends primarily upon how much chance there is that an insured person will die within the coming year. In estimating this chance, the in­surance companies put their main emphasis upon a per­son's age. Among a large number of people, such as all residents of the United States considered as one group, vital statistics show that after children reach about ten years of age, their mortality rate increases gradually each year as they grow older. Whatever age you start from, a man's risk of dying is estimated to be higher in the second than in the first year ahead, still higher in the third year, and so on.

 

Other things being equal, the lowest premium rate is of­fered on a policy lasting only a few years. When a contract covers more years, we have this inconsistency: the mor­tality rate rises with age, but the premium rate does not change. The trick is that the company charges a premium rate higher than is needed at first, the extra premium dol­lars being held as a reserve to take care of the rise in mortality rate in later years. The longer the period of time a policy is to cover, the larger the premium rate is.

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