Secondary guarantee in life insurance ensures full death benefit payment even if policy’s cash value is zero. Age of insured party and policy duration are of little importance. Universal life policy combines aspects of whole life and term life insurance, with lower premiums and waiting period for guarantee.
A secondary guarantee is a type of contractual commitment often found with life insurance coverage. Such a guarantee provides the insured with the assurance that the provider will pay a full death benefit, even if the policy’s cash value is zero at the time of death. With most policies including a collateral in the terms and provisions, this means that the policy does not build an excessive amount of cash value over time, even if the insured party lives to an unusually old age and continues to make payments. of premiums constantly.
One of the main benefits of this type of insurance guarantee is that the age of the insured party, or how long the policy has been in force, is of relatively little importance. For example, if an individual obtains coverage at age thirty and then dies at age thirty-five, the policy will pay the guaranteed benefit to the insured’s beneficiary. It does not matter how much the party has paid into the policy during those five years, as long as they have made premium payments in accordance with the terms of the coverage, and the death was due to an event or situation that is covered under those terms.
Even if the insured lives many years beyond the average age, the secondary guarantee remains in force. As long as payments are made in a timely manner, coverage cannot be suspended or cancelled. This can be especially helpful if the insured party intends that the death benefit be used to settle end-of-life expenses or to provide some type of financial assistance for a loved one. Since the benefit amount is guaranteed, it is much easier to allow for that amount in overall estate planning, a fact that provides a measure of comfort for the policyholder.
The use of a collateral is often included in life coverage known as a universal life policy. This type of coverage combines aspects of whole life and term life insurance, providing the insured with the best of both forms of insurance. Clients enjoy premiums that are generally lower than the premiums associated with whole life coverage, but may still be contingent on the disbursement of a specific death benefit to their beneficiaries. As with most forms of life insurance, universal life providers generally require some type of waiting period before the guarantee is honored, ranging from a few months to a couple of years. Additionally, certain causes of death, such as suicide, may invalidate the terms and conditions of the collateral policy, resulting in the benefit not being disbursed to the beneficiary or any other party.
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