Life And Dividend Income Options Of Life Insurance Contracts

The life income option is basically a straight life annuity. The proceeds are payable in equal installments until the death of the beneficiary. The size of each payment depends on the age of the beneficiary. This is the only option which guarantees an income to the beneficiary until his death.

The straight life income option has one major limitation. If the beneficiary dies after he has received only a few payments, his heirs receive nothing. For this reason the life insurance periodcertain option is more popular. Although the monthly income is lower, the option guarantees a minimum number of payments. If the beneficiary dies before the end of the certain period (e.g., ten or twenty years), the present value of the remaining payments may be paid to his estate, or the guaranteed payments may be continued to a contingent beneficiary.

Dividend Options

As explained in Chapter II, participating life insurance policies return excess premiums to policyholders in the form of dividends. The policyholder is given several choices as to how he wishes to treat dividends. The following are the most common dividend options:

(1) received in cash,
(2) used to reduce premiums,
(3) accumulated at interest,
(4) used to purchase paid-up additional insurance, and
(5) used to purchase one-year term insurance.

Usually either the cash payment or paid-up additional insurance option is automatically invoked if the policyholder does not make a choice.