Term (Period of Time) Insurance
Every policy has a TERM (PERIOD) OF INSURANCE. The period begins on the issue date and ends on the expiry date. The term of insurance could be one day, one year, multiple years, to a set age of the insured, or even for the life of the insured.
TERM OF INSURANCE PATTERNS
Property /Casualty, Auto, Marine and Inland Marine policies are typically issued for a term of 6 or 12 months. The policy ends. If continuing coverage is desired, the consumer must apply for a new policy to become effective on the expiry date of the existing policy.
Life Insurance can be issued for a day, one month, a fixed number of years, to a predetermined age of the insured, or for the whole of life.
Disability Insurance, which started as casualty coverage, is available from one day up to a predetermined date or age of insured. As life insurers entered the disability field, the coverage was offered as a rider to a life policy, waiver of premium came aboard and these coverages carried the same term of insurance as the policy to which they were attached. As Insurers found it necessary to make adjustments so that life insurance could continue beyond the date of retirement, but the disability plan would end at retirement, disability benefits are now issued as a separate policy.
Non-Cancellable, Guaranteed Renewable with Guaranteed Premium rates to age 65 became a common term of insurance. It followed the “permanent” characteristics of life insurance.
ENTER HIGH LIMIT DISABILITY INSURANCE
When Petersen International Underwriters first dealt with Lloyd’s (1952) the term of insurance never exceeded one year. After all, Lloyd’s had been in the Marine, Property / Casualty business for nearly 320 years at that point in history. An annual term or shorter term was a concept carved in the stone!
Parliament in its wisdom, late in the 20th Century had been swayed by the life insurance company’s lobbyists to do something about the potential crushing powers of Lloyd’s. They feared Lloyd’s could crush them with it’s financial power. Parliament responded by declaring two fields of insurance, “temporary” and “permanent”. It reserved the permanent arena for life companies and restricted Lloyd’s to the arena of temporary coverages.
By 1973 it was obvious to Petersen International that the problem of adequate amounts of disability insurance, especially for well-compensated earners in America was not going to be solved by conventional companies and conventional underwriting. Our mission was to solve this problem with a practical solution.
We advised Lloyd’s insurers that most individual disability insurance in the U. S. is written on a basis more “permanent” than on a year-by-year basis. Some Insurers were sympathetic to our cause. They pointed out that they could not offer terms of “renewable to 65” because their law limited them to “temporary” coverage which required a limitation of a renewability timeframe of less than “to age 65”. Then they had to be concerned about American law that required the Lloyd’s Insurers to hold all premium reserves in U. S. Banks until the end of the policy.
Like many British institutions, Lloyd’s starting with the advent of World War II, sent it’s money to the U.S. to be held in the U. S. Banks for fear Hitler would prevail and confiscate their funds. The U. S. Bankers loved this, they sent forth their lobbyist to promote new laws that would enable them to hold the money even if Hitler did not prevail. New laws appeared demanding that all premiums of foreign insurers must be retained in U. S. dollars in U. S. Banks until the end of the policy. Would any insurer agree to such an arduous reserve that no profit could be taken until after the 65th birthday of the Insured?
Persistently we pressed for some concession to elongate the year-to-year term on disability insurance. Finally we were provided the privilege of writing disability insurance on a three year or five year term increment. This was a grand concession to accommodate U. S. consumers and brokers. A lot of financial planning can be done in three years and five years. It gave consumers a peace of mind and a renewal convenience far beyond the year-to-year renewals of the past.
This is the why and how of the provision labeled, “Term of Insurance”. It is a feature in our High Limit Disability Insurance to appreciate, not to desecrate.