How life insurance has changed over the years
Life insurance got its start in America back in the colonial times. According to EH.net, in 1759, the Presbyterian Synods in Philadelphia and New York set up the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers; the Episcopalian ministers followed suit with a similar fund 10 years later.
Today, life insurance remains as important as it did back in the colonial times, when it allowed families to receive financial benefits if a family minister and breadwinner passed away. However, life insurance has definitely changed and evolved from those early times. Here’s how:
Regulations now help protect consumers from fraud
While you might understandably assume that life insurance can only be purchased for oneself, or for an immediate family member, this was not always the case. For some time, stranger-originated life insurance policies, or STOLI, were typically sold to investors, who may have claimed that they have an insurable interest in the life of the person in question. While strangers had been able to initiate life insurance policies on people they are not related to, it is now considered a sign of fraud. For example, as National Law Review notes, the New Jersey Supreme Court recently held STOLI policies as void and being against public policy.
In one specific instance, a $5 million policy was taken out on the life of a woman from New Jersey that listed a trust as the owner and beneficiary. The court concluded that the policy violated the state’s requirement that the policyholder have an insurable interest in the life of the insured. In addition to cracking down on STOLI, most states now have a two-year waiting period to pay out on a new life insurance policy; if the insured passes away during this time, the beneficiaries will receive the amount paid in premiums into the policy.
Term vs. whole life insurance
We have come a long way from the colonial times, when there were just a couple of life insurance options for specific occupations. Nowadays, many companies offer life insurance, and people must select from either a term or whole life insurance policy. Term life insurance provides death benefits only and is the easiest and typically most budget-friendly type of policy to purchase. The reason it is called “term” life insurance is because you buy it for a specific time period, like five, 15 or 30 years at a time. This type of policy will get costlier as you get older. On the other hand, as its name implies, whole life insurance covers the person for life, and will provide death benefits as well as a cash value amount that will build during the policy. People usually have to have a health exam to qualify, and you can also withdraw or borrow a certain portion of the cash during the life of the policy.
Life insurance offers peace of mind
Just as the first life insurance policies helped widows and children of Presbyterian ministers, this type of insurance continues to provide financial help to grieving families. Even if the person who passed away was not the sole breadwinner, other people in the immediate family who also work may need to take time off of work to plan a funeral, handle the estate and take time to grieve. Life insurance can give your family invaluable peace of mind; it can help to replace lost income as well as cover burial expenses, pay off debt and provide loved ones with a sense of financial security. To help make sure everyone is taken care of, USAA allows its life insurance holders to make updates to their policy as needed to be sure coverage needs are met.
Life insurance: Important then, important now
Life insurance has come a long way over the centuries; in addition to being more “fraud-proof,” people must know the differences between term versus whole life and choose which option is best for their families. By researching companies and going with a reputable firm that offers flexible policies, people can rest assured that their families will be well taken care of in the future.
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