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Traditional

familyTraditional insurance usually calls for a level payment to be made by the policy owner that is higher than necessary in the early years and lower than needed in the later years. In its simplest form, a policy issued to age 100 may be very similar to a Term insurance policy issued to age 100 and may or may not illustrate cash values. Many traditional policies will illustrate [and guarantee] a cash value equal to the face amount of the policy at age 100.

Traditional policies take many different forms including:

  • policies issued for the whole of life [usually defined as age 100] which may not need premium payments past a certain age - e.g. Life paid up at age 65, 75 or 85.
  • policies issued to a certain age [e.g. 60 or 65] with a cash value at that age often equal to the insurance amount of the policy (these policies are said to endow when they reach that age of the insured - e.g. endowment [cash, equal to the insurance amount] at age 65.)

In days gone past, fathers would buy these types of policies for their daughters so they would have an income upon reaching a certain age [hence the expression, 'dowager']. In recent years we see these being sold as Retirement [Freedom?] at age 55, 60 or 65 - or, as contracts to provide 'Living Benefits' for people after they have left their businesses.

It is important to be aware that, whether illustrated or not, cash values do exist [at least notionally] in a level premium policy [term or traditional permanent].

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If cash values are illustrated, [and therefore presumably payable to the owner on request] the insurer will usually have charged a [slightly] higher premium than if not illustrated. e.g. the premium charged to obtain a cash value of 'b' will be higher than to obtain the lower value of 'a'.