The concept is a unique one in that it establishes at the very conception of a contract what will be paid out at any given time during the duration of the contract. At least two parties agree to the amount proposed, with one agreeing to pay a premium for the coverage and the other agreeing to accept the payment for the agreed upon amount. It agrees by contract to hold in reserve sufficient funds to honor the contractual provisions.

At the beginning of this agreement, the insurer requires the insured to meet requirements of risk, health issues, insurable interest, and ability to pay premium.

  • Meeting risk requirements may include concerns for hazardous or dangerous occupations or avocations, i.e. underground mining, logging, underwater demolition, hauling gas or explosives, aviation exposure, rodeo, skydiving, scuba diving, travel to war prone areas, to name a few. Some of these risks can be accommodated by increased  rates or exclusion of coverage while participating in such events.
  • You may have had an insurance agent at just about the time he or she is going to ask you to make a buying decision say, “You look good on the outside but how do you look on the inside?” This of course would lead to a discussion regarding your health. Some health issues have no significant impact on your ability to obtain life insurance while others pose a major hurdle. Health issues like diabetes, heart disease, cancer, stroke, obesity, drinking, and smoking are a few of the issues underwriters closely scrutinize.
  • When an insurance contract is initially applied for, there has to be an insurable interest on the part of the owner and also beneficiaries. In other words, would the owner or beneficiary stand to have a financial loss due to the insured’s death? If not, there is no compelling reason to issue a policy. It is interesting to note, once a policy has been issued and the contestable clause provisions have been met, the owner can change the beneficiary to whomever he chooses.
  • Ability to pay the premium is really up to the insured to decide. If they want the benefits of the insurance badly enough and are willing to sacrifice other financial interests, then what would be too much for one to pay may fit in nicely with another. This really is where a professional insurance agent can be a real advocate for common sense. On the worst day of the month, can the insured still make the payment they committed to? Not many things are more discouraging or upsetting to an agent and client than to see a policy lapse due to inability to pay the premium. One of the worst experiences an agent can have is upon the death of a client to have the deceased spouse find a life insurance policy in a drawer and upon inquiry find it had been cancelled due to non-payment.

One last comment, once underwriting has been completed, policy issued and contestable periods met, this contract becomes a unilateral contract. As long as the insured meets premium payments, the insurance company cannot cancel the policy for any reason. It absolutely is one of the most benevolent concepts created for the benefit of mankind in this economically driven world.