Most common life insurance contract terms and calculations
If you decide to get a life insurance, you will need to be precisely informed about all the clauses of the life insurance contract. Certain events can lead to the nullification of the contract and insurance policy can be proclaimed null and void if the insured person commits suicide within the certain time period – one or two years after the policy is purchased. This period is actually called a maximum contestability period and it refers to the interval during which the validity of a specific agreement can be questioned.
Should anything happen to the insured within this period, the insurer will be legally allowed to dispute the claim and ask for additional information. Upon investigation, the insurer can reject the claim and after that the case may proceed to the court. Also, if there is any other reason to believe that the insured misrepresented the facts on the application, the contract can be nullified.
If there is no reason to question the validity of the contract, the payments starts with the face amount, which is the initial sum to be paid after the policy matures (upon the death of insured person or after the same person reaches a certain age).
The payments issued for these purposes are calculated with special, mortality tables used by actuaries. These tables present expected mortality rates and they are used to derive life expectancy estimates. Variables used to reach these conclusions are gender, age, life style, habits etc. According to this together with medical and genetic family history, the cost of insurance premiums is determined. One important thing to mention is that these calculation schemes are renewed annually and up to date tables have different sections for smoker and non smokers.
The insurance rate which a person is expected to pay increases with that person’s age. Additional thing to be taken into consideration is the medical background of the applicant which will need to be investigated by the insurance company. A lot of insurance companies have different categories for their applicants and these can include preferred best, just preferred, standard and tobacco group. As the name implies, the first category applies to the healthiest part of population and it means that the insured does not belong to any risk group and that his or her medical history is immaculate. Preferred category means that the applicant is under medication at the moment of designing a contract and has a family history of certain illnesses.
Greater part of population falls under a standard category and where a person will be placed will also be determined by his or her profession and travel history and not just physical condition. For instance, a potential applicant can be denied policy if there are chances of travelling into a country which is considered dangerous.
Of course, all the rules and practices can be different depending on the insurance company, and although some general rules remain the same, there are variations and exceptions.