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How do companies purchase life insurance policies?

Companies Purchase Life Insurance PoliciesThere are three ways that companies purchase life insurance policies. Each is described in detail below.

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First, an insurance company can sometimes buy back a life insurance policy. This is sometimes allowed if the insurance company and the insured can mutually agree on a decision to forfeit the contract. The buyer then receives a portion of his premiums in return for the end of coverage.

This is not always a given; usually contracts are binding. Whether this option exists or not depends on the stipulations of the insurance company. However, there are two other matters worthy of discussion and they are addressed below.

Viatical Settlements and the Related Costs

The next discussion is that of investment companies purchasing life insurance policies from individuals. Again, the issue is in the convertibility of the contract. Certain contracts may have cash value, and thus may be sold by the owner to a third party company. These are usually referred to as viatical settlements.

These refer to contracts in which a life insurance policy is sold by an insured that has recently become terminally ill. The policyholder has certain cash value rights to the policy, and thus can legally sell it—along with the right to name a beneficiary. The actual price will most likely be discounted from the value of the contract.

The seller benefits from this situation, since he or she now has cash in hand. The investing company makes a profit from the deal whenever the seller dies. This way, the benefits are paid to the purchaser. However, the purchaser will now start making regular payments for the contract premiums. It benefits everyone, correct? Not necessarily. Insurance companies are discovering that viatical settlements are not profitable.

Whereas the insurance company takes an educated risk with a traditional contract, and stands an equal chance of paying the cash value or the policyholder forfeiting the policy, viatical settlements are all but guaranteed to require a payout.

In fact, it’s getting to the point now where some investment companies are conspiring with terminally ill or elderly patients just to benefit from a short-term deal. In other words, these are “guaranteed losses” in the eyes of the insurance company. Therefore, more insurance providers are putting in clauses protecting against viatical settlements.

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Group Insurance

The third issue to consider is that of group insurance. Commercial companies can purchase group life insurance for their employees. This coverage reduces the threat of adverse selection by creating a group of workers that are united together for reasons other than acquiring an insurance policy. Because there is a mix of all people, ages, races, lifestyles and work styles, there is no commonly shared high-risk factor involved. Therefore, insurance companies are more inclined to work with groups of employees.

In this scenario, the company pays the premium for each employee and each employee pays the same rate. This is an effective way to qualify for insurance if you have been self-employed and uninsurable because of a preexisting condition. Members of the group all have the right to renew insurance rates as long as they are a part of the group, or the company. (A church or non-profit organization would also apply.)

Do not conclude that group insurance is the only solution to your insurance woes. Remember that some states actually have laws stating that the insurance company cannot arbitrarily choose to discontinue a policy, if the insured has already been covered through individual coverage for a certain amount of time.

Life Insurance Options

When the subject is group life insurance, then the contract typically involves a lump sum payment to the beneficiary upon the insured’s demise. Events that are typically covered by a group life insurance policy include serious illness and unexpected work-related death. Instances of suicide, war and civil commotion are usually not included in the contract’s list of insured items. There are also two types of life insurance policies available in group life insurance: protection policies, in which a benefit is given for a specific event, and investment policies, which help increase capital with each payment of premiums.

Whether you are looking for group life insurance or individual life insurance, you can find an affordable policy online.

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