Types of Annuity & Life Insurance contracts

In its simplest form, an insurance policy is a contract between two parties. The first party, the insured, agrees to make one or more payments (premiums) to the second party, the insurer. The insurer in return agrees to make a payment (the amount of insurance) to the insured, if and when the event insured against occurs.

In the case of life insurance, there may be two other parties involved. Since the event insured against is the death of the insured, it will not be possible to pay the amount of insurance to the insured. The third party to whom the insurance is payable is called the beneficiary. Also, it is not necessary that the insured pay the premiums. If they are paid by a fourth party, this party is called the policyholder or owner. In return for payment of premiums, the policyholder is a party to the contract and has certain rights, including the important right to name the beneficiary.

A life annuity contract differs fundamentally from life insurance in that the survival of the annuitant is the event that is being insured against. In the case of a life annuity, premiums are paid by the annuitant or some other individual (who becomes the contract holder or owner) to the annuity payor. The annuity payor begins annuity payments to the owner or some other beneficiary at a time specified in the contract. The contract may provide flexibility as to the date when annuity can begin, and the terms under which they will be made. Most annuity contracts have some payments that are only made as long as the annuitant survives. Many contracts have features that guarantee some minimum payout regardless of the survival of the annuitant. So it is important for the annuitant to clear all these conditions at the time of buying annuities.

Life insurance policies exist in many forms, many of them providing considerable flexibility as to the amount, duration, and frequency of premiums, and also more or less flexibility in the amount of the death benefit and the circumstances under which it will be paid. Many life insurance policies and annuity contracts also provide cash values and other nonforfeiture benefits, payable if the policyholder discontinues premium payments earler than originally agreed upon, or wishes to terminate the insurance earlier than the policy provides. In some cases, if the insurer finds that experience is favorable, it pays dividends to the policyholder as a partial return of the premiums or reduces charges. Many policies also include additional benefits of various kinds, for example, an agreement to waive premiums if the policyholder becomes disabled.

Insurers have always taken the responsibility for the pricing and selling of life insurance and annuities. Since the insurer always receives premiums before making any payments in return, the insurer has the opportunity to invest the funds and earn an investment return. An important part of insurance operations consists of determining the reserve each year, ie, that amount which will need to be held to provide future benefits. In addition to providing for future benefits, the insurer hopes to recover the expenses of selling, issuing and administering the policy or contract. The insurer has accepted risks, then, not only of having adequate funds to pay benefits as they come due, but also the risk of paying expenses, receiving adequate investment cash flows, paying surrender values if they are called for, etc. Balancing the risks, and determining appropriate benefits, reserves, dividends and nonforfeiture values to pay in return for a given series of premiums is an important function of the actuary in a life insurance company. This text describes the techniques actuaries use in fulfilling these functions. While many of the techniques do not vary by type of insurance or annuity, a different combination of them may be called into play for different products. Therefore, the text begins with a description of the common product types available. Some of the products described are available as riders, that is, they may be offered as an additional benefit with another product. It helps you to buying annuities with more annuities quotes for life insurance plans you like to hire against payment you wil pay.

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