Base Policy

The four basic types of life insurance are:

  • Term
  • Whole
  • Universal
  • Variable

A life insurance base policy is a uniliteral contract between an insurer and the insured parties.

Under the terms of the contract, the insurer is legally bound to pay the death benefit to the designated beneficiary in the event of death of the insured party, but the policyowner is not legally bound to pay the premium to the insurer. Under the conditions of the contract, the premium must be paid first by the policyowner before the death benefit is paid by the insurer.

If the contract expires, the insurer is not legally bound to pay the death benefit. As pertains to a term life insurance base policy, the policy is said to have matured. With a term policy, the insured must die during the duration of term or before the maturity of the contract. As pertains to a whole, universal, or variable life insurance base policy, the policy is said to have endowed. With a whole, universal, or variable policy, the insured can die at any time during the lifetime of the insured parties, but before the endowment of the contract. Furthermore, if the contract is cancelled due to non-payment of the premium by the policyowner, the policy is said to have lapsed and the insurer is no longer legally bound to pay the death benefit. Lastly, if the contract is terminated due to the face value of the policy adjusting below the minimum limit, the policy is said to have been fully surrendered by the policyowner and the insurer is no longer legally bound to pay the death benefit.

A life insurance base policy provides financial protection in the form of features and living benefits provided to the insured while living and a death benefit to the designated beneficiary, payable by the insurer in the event of death of the insured, in exchange for a premium, or payment, from the policyowner.

The living benefits include riders, non-forfeiture options, a cash value savings account, and participation.

The death benefit is also the face value or face amount of the base policy, which in some cases, is guaranteed, but can also be adjusted, or increased or decreased, over the duration of the term.

The insurer invests the premiums paid the policyowner over the duration of the policy to fund the features provided to the insured, living benefits provided to the policyowner, and the death benefit provided to the designated beneficiary.

The insured is protected from specific medical claims made against their health while living as well as their untimely death. In some cases, there will be more than one insured party named.

The designated beneficiary is normally financially dependent on the insured party. The designated beneficiary, whether a legal person or entity, must be living at the time of death of the insured. In typical cases, the policyowner can name both a primary beneficiary and a contingent, or secondary, beneficiary.

The policyowner does not have to be the insured party, but the insured party can also be the policyowner. The policyowner must have an insurable interest in the insured party. This simply means the policyowner must have a legal relationship to the insured party, ranging from a domestic partner to a key business executive.

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