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A life insurance contract is a one-way contract, or unilateral, meaning that only one party may cancel it.
The policy owner has the legal right to cancel the policy at any time, but the life insurance company is bound to the terms of the contract once it is issued. The only stipulation is that the owner of the policy pays the premiums in a timely way.
The life insurance company is bound to carry out the promises it made such as paying off a death claim should the insured die, keeping the protection factor in place, and offering any other rights and privileges available.
The insurance company cannot, however, change any of the contractual terms whatsoever in the policy.
Learn more about canceling your life insurance policy below and make sure to use our free quote tool above!
Incontestable and Suicide Clauses
The life insurance company is protected, however, from misleading facts, should they have been initiated and from suicide, both within two years of the policy’s inception.
If an applicant for the life insurance gives false information that would have materially changed the company’s decision on issuing the policy, the company has two years to discover that information and rescind the policy. This is called the incontestable clause.
The principle is that in most cases if a person is contemplating suicide, they will most likely not wait two years to commit the deed. This protects the life insurance company from adverse selection.
Life Insurance — The Miracle Product
When you stop and think about it, there is no other product that does what life insurance does. An individual can put down a relatively small amount of money and create a contract that establishes a comparatively huge estate almost immediately.
For example, a person can pay $100 to a life insurance company, which after the application for the insurance and the acceptance by the insurance company, a guaranteed estate of $100,000 or more is legally set up by contract.
If the insured person should die anytime during the time when the contract is in effect, the $100,000 will be paid to a named person who is called the beneficiary.
There is not another vehicle or a product like it anywhere, and the contract is iron-clad as far as the policy owner is concerned.
He or she can back out of the deal at any time, but the life insurance company has to stay with its original promise, that is to pay the amount of the policy if death should occur.
The Effect of Guaranteed Performance
Over the roughly 200 plus years that modern life insurance has been in effect, the resulting security that has occurred has been remarkable.
The fact that a life insurance contract is backed by law, and that the financial reserve necessary to make such a transaction happen has made such security a reality.
When a beneficiary receives a death claim benefit, that money replaces an economic value that a person could not fully earn because of an early demise.
Each has an economic value to others throughout a lifetime of earning a living, and the life insurance replaces all or a part of those earnings that the beneficiary would have received.
Not only does this tend to solidify a financial need for an individual family or business, but it also takes a burden off of society which formerly might have had to take care of widows and orphans.
Only a contract that binds the insurance company from rescinding a contract would be able to assure society of a trust and reliability that might not be there otherwise.
–A Financial Bulwark in the Investment Community
Over the years, life insurance companies have also provided immense investment capital for use in business, industry, and government. Since life insurance claims do not happen all at once but are spread out over a period of years, a lot of reserves are accumulated.
These reserves are not meant to sit idle but must be invested. There is no better investment than to make those reserves available for sensible business and capital needs.
The results of these investments have not only provided added security to life insurance policy holders, but the overall financial stability of communities and the United States has been enhanced.
The solid reputation of the life insurance industry as a whole is largely dependent upon the conservative and successful fiscally responsible manner in which invested funds are handled.
–Hard Times Means Strong Reserves Make a Difference
During the great depression, it was life insurance companies that saved the day for many.
While banks were failing right and left, the insurance companies remained strong during a storm of confusion and financial ruin. It was during this time that J.C. Penney borrowed from his life insurance cash values to keep his chain of 1,000 stores going.
During the fifties, both Ray Kroc of McDonalds and Walt Disney used the cash values from their life insurance to keep their fledgling little businesses intact.
These were during times that the banks would not loan them the money because the loan officers did not think their enterprises worthwhile enough for a loan.
Having a strong capital base in any society gives a broad-based structure from which real estate and business interests can find money to expand, build new plant facilities, and hire new employees.
Believe it or not, this all comes from a contractual base of strength and an excellent record of fiscal responsibility.
The basis of that trust rests largely on the unilateral, or one-way contract that life insurance companies offer to their policyholders. Without that element of certainty, policyholders would be more reluctant to purchase life insurance.
There is no doubt that the future of life insurance will be just as robust as before but in somewhat different ways. People are more digitally minded than ever before so they look more for online information and purchase more life insurance online.
An online presence that works would not be possible without the public’s trust in the product and the life insurance companies themselves. Without a track record backed by sound contractual fundamentals, no one would bother to take the initiative to do anything online.
When people have confidence in a product, they can also have confidence in the process. Thus the knowledge that the life insurance contract does not tie them down because they can cancel at any time gives people confidence that the product must be good.
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