7
                    Life insurance
            People buy life insurance to protect their dependents     basis. Insurance on loans of 10 years’ or less duration is 
            against financial hardship when the insured person,       classified as credit insurance in National Association 
            the policyholder, dies. Many life insurance products      of Insurance Commissioners accounts; insurance on 
            also allow policyholders to accumulate savings  longer loans is included in individual or group policy 
            that can be used in a time of financial need. Most        data in this chapter. Life insurance policies offered by 
            American families depend on life insurance to provide     fraternal benefit societies are considered individual 
            this economic protection: 90 million American  insurance.
            families rely on life insurers’ products for financial and 
            retirement security.                                      inDiViDuaL Life insurance
            Americans purchased $3.1 trillion of new life  Individual life is the most widely used form of life 
            insurance coverage in 2019, a 2.3 percent increase        insurance protection, accounting for 62 percent 
            from 2018. By the end of 2019, total life insurance       of all life insurance in force in the United States 
            coverage in the United States was $19.8 trillion, an      at year-end 2019 (Table 7.1). Typically purchased 
            increase of 1.3 percent from 2018 (Table 7.1).            through life insurance agents, this insurance is issued 
            Three types of life insurance policies predominate        under individual policies with face amounts as low 
            the market. Individual insurance is underwritten          as $10,000, although larger minimum amounts are 
            separately for each individual who seeks insurance        more typical in today’s market. While individual life is 
            protection.  Group insurance is underwritten on a         principally used for family protection, it also is widely 
            group as a whole, such as the employees of a company      used for business purposes. A business may purchase 
            or the members of an organization. Credit insurance       life insurance to protect against the economic loss 
            guarantees payment of some debt, such as a mortgage       that would result from the death of the owner or a key 
            or other loan, in the event the insured person dies,      employee.
            and can be bought on either an individual or a group      Individual life insurance protection in the United 
            88   American Council of Life Insurers
             States totaled $12.4 trillion at the end of 2019 and has     There are four types of permanent life insurance 
             grown at an average annual rate of 1.8 percent since         policies: traditional whole life, universal life (UL), 
             2009, when $10.3 trillion was in force (Table 7.1).          variable life (VL), and variable-universal life (VUL). 
                                                                          The annual premium for traditional whole life policies 
             The average size of new individual life policies             remains constant throughout the life of the policy. In 
             purchased has increased from 2009 ($172,040)  earlier years, the premium is higher than the actual 
             to $178,150 in 2019 (Figure 7.2). The number of              cost of the insurance, but in later years it becomes 
             individual policies purchased totaled 10.1 million in        substantially lower than the actual cost of protection. 
             2019 (Table 7.1).                                            The excess amount of each premium in the early years 
             Individual life policies offer two basic types of            is held in reserve as the policy’s cash value. This cash 
             protection: covering a specified term, or permanently        value grows over time from investment earnings and 
             covering one’s whole life.                                   future premium payments, providing funds for the cost 
                                                                          of coverage as the insured grows older. If a policyholder 
             Types of Policies                                            decides to give up the insurance protection, he or she 
             Term Insurance                                               receives the cash value upon surrendering the policy, 
             Term insurance policies provide life insurance  less any outstanding policy loans. Universal life 
             coverage for a specified period, usually greater than        allows varying premium payment amounts subject to 
             one year. Term policies provide no further benefits          a certain minimum and maximum. For variable life, 
             when the term expires, and no buildup of cash value          the death benefit and cash value vary subject to the 
             occurs. If this insurance is not renewed at the end of       performance of a portfolio of investments chosen by 
             its term, coverage lapses and no payment would be            the policyholder. VUL combines the flexible premium 
             made to the beneficiary in the event of death.               payment options of UL with the varied investment 
                                                                          options of VL. 
             Of new individual life policies purchased in 2019, 41 
             percent, or 4.1 million, were term insurance, totaling       In 2019, direct purchases of permanent life constituted 
             $1.3 trillion, or 72 percent, of the individual life face    59 percent of U.S. individual life insurance policies 
             amount issued (Table 7.2). The most popular form             issued and 28 percent of the total face amount issued 
             of term insurance is level term, which offers a fixed        (Table 7.2).
             premium.                                                     Participating and Nonparticipating 
             Permanent Insurance                                          Insurance
             Unlike term insurance, permanent life (or whole              Traditional whole life and term insurance policies can 
             life) insurance provides protection for as long as           be purchased on a participating or nonparticipating 
             the insured lives. Permanent life policies also have a       basis. A participating policy allows the policyholder 
             savings component, building cash value that can help         to share in the insurance company’s surplus. With this 
             families meet financial emergencies, pay for special         type of life insurance, a policyholder receives annual 
             goals, or provide income for retirement years.               dividends representing that portion of the premium 
                                                                          not needed by the company for death payments to 
                                                                                                               89    Life Insurance
             beneficiaries, additions to reserves, or administrative    Some policies that lapse still have a cash value, 
             expenses. More than two-thirds of individual life          entitling the policyholder to some form of payment 
             policies’ face amount purchased were nonparticipating      under a cash surrender value non-forfeiture option. All 
             at $1.3 trillion (70%) in 2019 (Table 7.3).                coverage under the policy terminates at the time of the 
             characteristics of individual Policies                     surrender.
             Lapses and Surrenders                                      Disability Provisions
             A policy lapses if its premium is not paid by the          Besides the benefit payable upon death of the insured, 
             end of a specified time, often called the grace period.    many life insurance policies or policy riders provide 
             Policyholders have different reasons for terminating       disability benefits to cover financial losses that 
             their policies, sometimes using cash values to address     result from a sickness or injury. The most common 
             financial emergencies or achieve long-term goals.          supplementary benefit is waiver of premium. Of 
             Rates of voluntary policy termination by policyholders     individual life policies in force in 2019, 92 percent, or 
             vary considerably among life insurers. Each company’s      37 million, allowed the premium to be waived during 
             rate depends on many factors, including the types of       disability, representing $4.6 trillion, or 99 percent, of 
             policies written and the ratio of new policies to older    the individual life face amount in force with disability 
             ones in force with the company.                            provisions (Table 7.6).
             The voluntary termination rate of individual life          GrOuP Life insurance
             insurance policies reached 5.5 percent by 2019 (Table 
             7.4). Of the individual life policies that have been       Group life insurance is a contract between an insurance 
             voluntarily terminated, 19% were surrendered based         company and some group to insure all of the group’s 
             on face amount.                                            members, usually under term coverage. Common 
                                                                        examples are employer-provided life insurance and 
             The life insurance business vigorously seeks to  insurance offered through unions and professional 
             minimize the lapsing of policies. For example, agent       associations. Employees or other group members 
             training focuses on realistic identification of clients’   receive certificates denoting their participation in the 
             life insurance needs, and careful analysis of the use      group coverage. In 2019, group insurance represented 
             of family income for protection. Since the voluntary       42 percent of all life insurance policies in force (Table 
             termination rate is higher for policies on which loans     7.1).
             are outstanding, companies urge that loans be used 
             only in genuine financial emergencies, and that they       Group purchases decreased .4 percent in 2019 to 
             be repaid promptly.                                        $1.2 trillion. At the end of 2019, group life insurance 
                                                                        provided $7.4 trillion of protection .1 percent less 
             Most insurers offer policyholders time after their         than a year earlier (Table 7.1).
             policy is delivered to consider whether to keep the 
             policy. These companies will refund the premium in         Group insurance contracts can provide benefits 
             full if, within the prescribed time, the policyholder      beyond term insurance. Employees often can retain 
             decides not to keep his or her policy.                     coverage after retirement by paying premiums directly 
             90   American Council of Life Insurers
             to the insurer. Many policies also offer survivor              family, as well as the lender, against unpaid debt 
             benefits, usually continuing monthly payments to the           that may be left at death. Life insurers issue credit 
             spouse of an employee who dies before retirement;              insurance through lenders such as banks, finance 
             payments may extend for life or to the age at which            companies, credit unions, and retailers, who in turn 
             Social Security retirement payments become available,          make arrangements with borrowers.
             but cease on remarriage. Contingent benefits to 
             dependent children in the event of a spouse’s death            As with other life policies, credit policies can be 
             are available as well. The initial value of these survivor     purchased on either a participating or nonparticipating 
             benefits can range from three to 10 times an employee’s        basis. Of credit life policies purchased in 2019, 98 
             annual salary.                                                 percent, or $47 billion, were nonparticipating (Table 
                                                                            7.3).
             As with individual life policies, group policies  POLicY cLaiMs resisTeD Or 
             can be purchased on either a participating or  cOMPrOMiseD
             nonparticipating basis. Most group life policies are           From time to time, life insurers find it necessary 
             nonparticipating—96 percent of those purchased in              to delay or deny payment of claims due to material 
             2019, at $1.2 trillion (Table 7.3).                            misrepresentation, suicide within the contestable 
             The voluntary termination rate of group life insurance         period, or no proof of death, among other reasons. 
             policies increased to 5.9 percent from 5.1 percent a           In 2019, $599 million in new claims along with 
             year earlier.  The voluntary lapses in 2019 increased to       $599 million in other claims were in dispute. Of this 
             5.8 percent from 5.0 percent in 2018 (Table 7.4).              amount, $303 million was paid in 2019 and $328 
                                                                            million still resisted at the end of the year (Table 7.7).
             Group policies also provide disability benefits. Of 
             group life policies in force in 2019, 93 percent, or 83 
             million, provided for waiver of premium, representing 
             $5.3 trillion, or 86 percent, of the group life face 
             amount in force with disability provisions (Table 7.6).
             creDiT Life insurance
             Credit life insurance pays the balance on loans of 
             10 years’ or less duration if the borrower dies before 
             repaying the amount due. At year-end 2019, $87 
             billion of credit life insurance was in force, up 4.6 
             percent from the previous year (Table 7.1).
             Credit life, commonly part of consumer credit 
             contracts, is term insurance, generally decreasing in 
             amount as a loan is repaid. It protects the borrower’s 
                                                                                                                   91   Life Insurance