NATURE OF TERM INSURANCE

Renewability

Convertibility

Re-entry Term (Select and Ultimate Term Insurance)

Guarding Against Contestability

Long-Term Contracts

Nonlevel Term Insurance

CRITIQUE OF TERM INSURANCE

Areas of Usefulness

Danger of Relying Solely on Group Term Insurance

Fallacious Arguments in Favor of Term Insurance

Investment Program Objectives

There are five basic types of life insurance contracts: term, whole life, universal life, endowment, and annuity. The function of the first four is to create a principal sum or estate, either through the death of the insured or through the accumulation of funds set aside for investment purposes. The function of the annuity, on the other hand, is to liquidate a principal sum in a scientific manner, regardless of how that sum was created. This dissimilarity in the basic functions of life insurance and annuities has caused some to question the propriety of classifying annuities as a type of life insurance contract, but there appear to be enough similarities to justify the practice. This chapter discusses term insurance contracts.

Note: Endowment life insurance policies are still viable and popular in other countries, but United States tax law changes have nearly eliminated endowment sales in this country.