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In addition to the basic types of life insurance policies, insurers offer a number of "special use" policies. Many of these are combinations of different types of policies designed to serve a variety of needs.
The family plan policy is designed to cover all family members under one policy. Coverage is sold in units. Whole life coverage is purchased on the life of the primary insured (i.e., breadwinner). The coverage for spouses and children is level term insurance in the form of a rider. Sometimes, the spouse's amount is 50% of the primary insured, and then 20% for all of the children. The spouse and children's coverage is typically convertible (to whole life insurance) without evidence of insurability, and new (or future) children are automatically included at no extra cost. Therefore, this policy combines whole life and level term insurance. This type of contract is also known as a family protection policy or family plan.
For example, a typical plan could insure the head of the family (main earner) with $20,000 whole life insurance and $10,000 of level term life insurance on the spouse and children.
A family income policy consists of whole life and decreasing term insurance. This policy will provide monthly income to a beneficiary if death occurs during a specified period beginning after the date of purchase. A decreasing term policy supplies the family income portion of this type of coverage. Income payments to the beneficiary begin when the insured dies and continue for the period specified in the policy, which is usually 10, 15, or 20 years from the date of policy issue, and not from the date of the insured's death. If the insured dies after the specified period, only the face value (whole life) is paid to the beneficiary, as the decreasing term insurance has expired.
A family maintenance policy consists of whole life and level term insurance, which provides income for a specific period beginning on the date of the insured's death. If the insured dies before a predetermined time, this policy provides income to a beneficiary for a stated number of years from the date of the insured's death. Additionally, the beneficiary will receive the entire face amount of the whole life insurance component of the policy upon completion of the income-paying period. However, if the insured dies after the selected coverage period, the beneficiary receives only the face amount of the whole life insurance component of the policy.
| Feature | Family Income Policy | Family Maintenance Policy |
|---|---|---|
| Type of Coverage | Whole life + decreasing term insurance | Whole life + level term insurance |
| Income Payment Start | When insured dies, if within the specified period | When insured dies, if before predetermined time |
| Income Payment Duration | Until end of specified period (e.g., 10, 15, or 20 years from policy issue date) | For a stated number of years after insured's death |
| Benefit after income period ends | Only face value (whole life) paid if insured dies after specified period | Face amount of whole life insurance paid after income period |
| If insured dies after the income period | Decreasing term insurance has expired; only whole life paid | Only whole life insurance face amount paid |
A joint life policy covers two or more people. Using some type of permanent insurance (as opposed to term), it pays the death benefit at the death of the first insured. The survivors then have the option of purchasing a new policy. The premium for a joint life policy is lower than the combined premiums for separate, multiple policies. The ages of the insureds are averaged, and a single premium is charged for each life. Joint life policies may also be referred to as "first-to-die policies" because the death benefit is paid upon the first death.
A variation of the joint life policy is the last survivor policy, also referred to as a "second-to-die policy." This plan also covers two (or more) lives, but the benefit is paid upon the death of the last surviving insured. This type of coverage can also be considered a "survivorship life insurance policy" and will typically cover two lives. As with a joint life policy, the premium for a survivorship life policy is lower than the combined premium for separate life insurance policies on two married individuals. Survivorship life insurance policies are useful in estate planning because they can provide money to pay taxes on assets.
A juvenile life insurance policy is any type of ordinary life insurance policy that insures the life of a minor. Applications for insurance and ownership of the policy rest with an adult (e.g., a parent or guardian) and don't require the minor's consent. As such, juvenile insurance utilizes the concept of third-party ownership. Additionally, the adult applicant is typically the premium payor, at least until the child comes of age and can take over the payments.
For life insurance purposes, an applicant is generally considered a juvenile if they are under the age of 15. However, some states use 16 as the age of maturity.
In addition to purchasing insurance for a child's burial expenses, insurance may also be purchased to protect the child's insurability. Some parents purchase these plans to begin a savings plan for their child. The face amount of this policy can start as low as $1,000. The coverage amount "jumps up" (typically five times the initial amount) when the child reaches the age of majority or a specified age (i.e., age 21). This benefit increase comes without any evidence of insurability and no premium increase. Some insurers may also refer to a jumping juvenile insurance policy as a junior estate builder plan.
The owner and payor of the policy will not change automatically. In this case, the current owner (i.e., the parent or guardian) must request the change (typically in writing) with the insurance company. Since insurable interest is only required at the time of the application, the parent or guardian will never be required to relinquish ownership of a child's policy.
For example, Tina and Michael decide to purchase a jumping juvenile insurance policy for their 5-year-old daughter, Emma, with an initial face amount of $20,000, a fixed monthly premium of $25, and a jump multiplier of 5x at age 21. When Emma turns 21, her face amount automatically increases from $20,000 to $100,000 ($20,000 × 5), the monthly premium remains at $25, and no medical exam or proof of insurability is required — guaranteeing Emma substantial coverage in adulthood regardless of her health at that time.