Final answer:
The 'entire contract' clause in a life insurance policy means all statements in the application are part of the policy. Cash-value life insurance provides a death benefit and accumulates cash value which can be borrowed against. Insurance inherently involves imperfect information due to unpredictable future events and individual risk variability.
Step-by-step explanation:
In the context of a life insurance policy, the 'entire contract' clause ensures that all statements made by the insured in the application are indeed considered to be a part of the policy. This means that the statements are not void, invalid, or non-binding; rather, they are an integral part of the contract between the insurer and insured, and they can affect the enforceability and interpretation of the policy.
It's important for policies to include this clause as it safeguards both parties involved, by making sure that the terms agreed upon are clear and prevent any future disputes regarding what's covered in the policy and what was disclosed by the insured.
Cash-value (whole) life insurance not only provides a death benefit to the beneficiaries but also accumulates a cash value over time, which can act as a savings account. This cash value that builds up can be borrowed against by the policy owner and must be paid back with interest. Understanding this functionality is crucial for insured individuals to know what options they have available for their financial planning.
Insurance is based on estimations and carries an inherent level of imperfect information, as it's impossible to foresee every individual event or to perfectly assess the risk of future events. The insurance company analyzes the risk based on statistical data but accepts that individual behaviors and luck also play roles in the potential realization of risks, thus constructing the insurance policy terms accordingly to manage this uncertainty.