What is Ordinary Life Insurance and How Does it Work

Ordinary life insurance is a type of permanent life insurance that provides a death benefit and a cash value component.

Ordinary life insurance policies are designed to last for the insured's entire lifetime, as long as premiums are paid.

The cash value component of an ordinary life insurance policy grows over time and can be borrowed against or used to pay premiums.

The death benefit is typically paid to the policy's beneficiary upon the insured's passing.

If you're looking for a straightforward and simple form of life insurance, term life is a great option. It provides a pure death benefit and can be purchased for a specified period of time, such as 10 or 20 years, or until a specified age.

Term life insurance generally does not build a "cash value", so it's not ideal for long-term savings. At the end of the term period, the policy typically terminates without any remaining benefits or monetary value.

There are three main types of term life insurance: Level, Increasing, and Decreasing. Level term life insurance has a death benefit that stays the same throughout the policy term and premiums typically remain constant.

Here are the three main types of term life insurance:

The Guaranteed Renewable Privilege is a feature of term insurance policies that allows the insured to renew the policy without having to prove insurability. This is a great option if you're concerned about your health or want to lock in a rate without worrying about future changes.

Ordinary life insurance policies can be tailored to fit individual needs. They often come with flexible payment options, allowing policyholders to choose from various premium payment frequencies.

One common feature is the ability to pay premiums at any time during the policy period. This flexibility can be beneficial for those who experience financial fluctuations.

Policyholders can also opt for a level premium, where the premium amount remains constant throughout the policy term.

The Pension at 65 feature is a great benefit for policyholders who want to ensure a financial safety net in their retirement years. Available on all programs except "K", this feature provides for the payment of the face amount (less any indebtedness) on the anniversary date nearest the policyholder's 65th birthday.

You can earn loan and cash values on your policy while it's in force, which can be a valuable asset in your later years. This feature can help you supplement your retirement income or pay off any outstanding debts.

Here's a breakdown of the Pension at 65 feature:

Guarantees are a key feature of whole life insurance policies. The company generally guarantees that the policy's cash values will increase every year, regardless of the company's performance or experience with death claims.

This means you can rely on your policy's cash value growing over time. The cash value will grow tax-deferred with compounding interest, which can add up to a substantial amount.

You can choose how to receive the dividends paid on your policy, and reinvesting them back into the policy can lead to significant growth. The death benefit will also increase, and this growth is non-taxable.

Keep in mind that any loans taken from the policy will be tax-free as long as the policy remains in force. This can be a valuable feature, especially if you're using your policy as a retirement funding vehicle.

The Five-Year Premium Term is a great option for those looking for affordable protection at a younger age. It's available on all programs except "J", "JR", and "JS".

This type of policy is renewable every five years, giving you the flexibility to adjust your coverage as your needs change. You can also convert it to a permanent plan if needed.

One important thing to keep in mind is that premiums increase substantially at older ages, so it's essential to factor that into your budget.

This policy provides protection only and has no cash or loan values.

Ordinary life insurance policies typically come with a range of premium options to suit different budgets and needs.

The premium amount is usually determined by the insurance company based on factors such as your age, health, and lifestyle.

You can expect to pay a fixed premium amount every month or year, which can be a convenient and predictable expense.

Some policies may offer the option to pay a lump sum upfront, while others may require a series of payments.

Level Premium is a crucial concept in understanding how insurance works. Premiums can vary based on several factors, including age, location, and health status.

A level premium is a type of premium that remains the same throughout the policy term, regardless of changes in the policyholder's age or health status. This can provide peace of mind and budget certainty for policyholders.

For example, a 30-year-old may pay the same premium for a life insurance policy for the entire 20-year term, without any increases due to aging or health changes.

Single Premium is a type of limited pay where a single large payment is made upfront.

This payment structure is typically associated with fees during the early policy years if the policyholder decides to cash in the policy.

These fees can add up, so it's essential to carefully consider the costs before making a large upfront payment.

A single large payment upfront is the defining characteristic of Single Premium, making it stand out from other payment options.

An indeterminate premium is a type of premium that may vary year to year, but will never exceed the maximum premium guaranteed in the policy.

This type of premium is similar to a non-participating premium, but with a key difference. The premium may fluctuate based on current economic conditions, allowing companies to set competitive rates.

As a result, you can expect your premium to change over time, but it will always stay within a certain limit. This can be a good option for those who want to ensure their premium doesn't skyrocket unexpectedly.

Companies use this approach to set rates based on current economic conditions, which means your premium may be affected by factors like inflation or market trends.

Insurance Plans can be tailored to fit your needs and budget. There are several types of plans to choose from, including 5 Year Level Premium Term, Modified Life at Age 65, and Ordinary Life.

Some plans offer level premiums for a set number of years, such as 5 Year Level Premium Term. This can help you budget your insurance costs.

Other plans, like Modified Life at Age 65, pay out a benefit at a certain age, regardless of when you pass away. This can be a good option if you're concerned about outliving your insurance coverage.

Here are some common insurance plans that you may want to consider:

Insurance Plans offer a range of options to suit different needs and preferences. We have several plans to choose from, each with its own unique features.

The 20 Year Endowment plan is available on all programs and provides a guaranteed payout after 20 years, regardless of the policyholder's health. This plan is a great option for those who want a fixed payout at a specific age.

The Endowment at Age 65 plan is also available on most programs, except for "K", and pays out the face amount of the policy on the policyholder's 65th birthday. This plan is ideal for those who want to ensure a payout at a specific age.

Limited pay policies, such as the 20 Payment Life and 30 Payment Life plans, require premiums to be paid for a set number of years, typically 20 or 30. These plans can be more expensive upfront, but may offer lower premiums in the long run.

Some plans, like the Special Ordinary Life plan, offer fixed premiums that never increase. This plan is available on most programs and is a great option for those who want predictable premiums.

Here are some of the plans we offer:

The pension at 60 option is available on all programs except "K". This means that if you're considering this option, you'll need to choose from the other programs available.

The pension at 60 provides for the payment of the face amount (less any indebtedness) on the anniversary date nearest the policyholder's 60th birthday. This is a significant milestone, and it's essential to understand how it works.

Policyholders can earn loan and cash values, which can be a valuable benefit. It's like having a savings account tied to your insurance policy, and you can access the funds when you need them.

To summarize, here are the key details about the pension at 60 option:

Ordinary life insurance is often provided by insurance carriers who specialize in this type of coverage.

Insurance carriers typically offer a range of ordinary life insurance policies with varying coverage amounts and premiums.

Some insurance carriers may offer additional riders or add-ons to customize your policy.

Insurance carriers often have their own underwriting process to determine the risk level of each applicant.

Insurance carriers may also have different requirements for medical exams or other documentation.

Insurance carriers usually have a network of agents and brokers who can help you purchase a policy.

The good news is that the entire death benefit of a whole life policy is free of income tax, except in unusual cases.

Any internal gains in cash values are also tax-free, which is a big advantage of life insurance.

However, if you cash out your policy before death, the treatment varies.

With cash surrenders, any gain over total premiums paid will be taxable as ordinary income, which is why it's often better to take cash values out as a "loan" against the death benefit.

Any money taken as a loan is free from income tax as long as the policy remains in force, which is a great benefit for those who need cash but don't want to pay taxes.

Taxation can be a complex topic, but with life insurance, there's good news: the entire death benefit is free of income tax, except in unusual cases.

This includes any internal gains in cash values, which is a significant advantage. The same tax-free status applies to group life, term life, and accidental death policies.

However, if you cash out a policy before death, the treatment varies. With cash surrenders, any gain over total premiums paid will be taxable as ordinary income.

It's worth noting that taking cash values out as a loan against the death benefit is a popular choice, and it's free from income tax as long as the policy remains in force. This can be a smart move, especially if you're using the loan to pay off the loan with dividends.

For participating whole life policies, the interest charged by the insurance company for the loans is often less than the dividend each year, especially after 10-15 years. This means you can pay off the loan using dividends.

However, if the policy is surrendered or canceled before death, any loans received above the cumulative value of premiums paid will be subject to tax as growth on investment.

Reserves are a crucial aspect of Life Insurance companies, representing the enormous assets they hold to stand behind future liabilities.

These reserves are primarily invested in bonds and other debt instruments, making them a major source of financing for government and private industry.

A large portion of expensive old-age costs are prepaid during a person's younger years through the level premium system, resulting in over-payments that need to be accounted for.

The Death Benefit promised by the contract is a fixed obligation calculated to be payable at the end of life expectancy, which may be 50 years or more in the future.

U.S. Life insurance companies are required by state regulation to set up reserve funds to account for said over-payments, which represent promised future benefits.

These reserves are classified as a liability, since they represent obligations to policyholders.

Participating insurance is a type of life insurance where the insurance company shares excess profits with policyholders in the form of annual dividends.

These dividends are typically not taxable because they're considered an overcharge of premium or a reduction of basis.

Participating policies are often issued by mutual life insurance companies, but stock companies can also offer them.

Premiums for participating policies are usually higher than for comparable non-par policies, with the difference being considered "paid-in surplus" to provide a margin for error.

In mutual companies, unneeded surplus is distributed retrospectively to policyholders in the form of dividends, sourced from conservative pricing, favorable mortality experience, excess interest, and operational savings.

Actual dividends can be a much greater factor than the "overcharge" terminology implies, and it's not uncommon for annual dividends to exceed total premiums at the 20th policy year and beyond.