Combination Insurance And Annuity Contracts
Many of the more popular contracts today are a combination of two or more forms of insurance or annuity contracts. Some of the more important combination contracts include the family policy, the family income policy, the retirement income policy, the modified life policy, and the return of premium contracts.
The Family Policy
The family policy (sometimes called the family plan, family protection, etc.) provides protection for the entire family in predetermined amounts in a single contract. A typical policy, for example, might provide $5,000 of whole life on the husband, $2,000 of term on the wife, and $1,000 of term to age 21 on each child, including those legally adopted and those yet unborn. The term coverage is often convertible into any permanent plan of insurance without evidence of insurability when the child becomes
21 years old. The features of the family policy vary for different companies. Some companies, in fact, achieve the same benefits by merely attaching a rider or riders to a permanent form of life insurance. The family policy is widely accepted because it covers, under one contract, an undetermined number of individuals whose ages may not be known to the insurance company.
The premium for such a contract is usually based on the husband’s age with the assumption that the wife is approximately the same age as the husband and that the numbers and ages of the children conform to the average. The premium may or may not change in the event of the wife’s death and usually does not change because of the inclusion of additional children.
The Family Income Policy
The family income policy is usually a combination of whole-life and term insurance. The term portion is written for a given period of years, usually ten, fifteen, or twenty. If death occurs during the stated period, the family is provided with a monthly income for the duration of the period. The amount of monthly income is usually related to the face value of the policy and is commonly 1, 2, 3, or even 5 percent. The face amount of the whole-life policy is payable either at the end of the monthly income period or sometimes in a lump sum at the beginning. Some contracts also permit the entire amount of the decreasing term portion to be collected at the death of the insured rather than requiring payment in monthly installments. At the end of the specified period the extra coverage provided by the decreasing term rider ceases.
The family income plan is designed basically to provide a higher level of income during the child-rearing years. However, once the children are grown, the widow usually will be able to live at a lower income level.
The policy is used in some cases to provide mortgage insurance. When used in this way, the term portion decreases as the mortgage is paid off. However used, this policy permits broad coverage at a minimum premium. It can be misused, however, if the individual’s objectives are for retirement income rather than for protection.