Chapter 3

Modified whole life

Low premiums in the early years and jumps to a higher premium in the later years and remains fixed thereafter. Premiums increase just once.

Especial features of term policies

Renewable, Convertible, or Renewable and Convertible

Graded whole life

Under a typical graded premium life insurance policy, the premium increases yearly for a stated number of years, then remains level. Premiums continue to stay level for the remainder of the policy. For example, a policy can start out low in a graded whole life and increase a small amount every year up until the fifth year, then levels off for the remainder of the policy.

Adjustable life policies

are distinguished by their flexibility that comes from combining term and whole life insurance into a single plan.

Increasing Term Policy

level premium, but the amount increases every year of the policy term. it increases with an specific amount of percentage

Equity Index Universal Life insurance (EIUL)

A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index, like the S&P 500. These insurance policies typically contain a minimum guaranteed fixed interest rate component along with the indexed account option. Potential extra interest based on the investments of the company's general account.

Joint Life Policy/ Joint life survivor

A policy that covers two or more people. The age of the insureds are "averaged" and a single premium is charged. It uses permanent insurance (as opposed to term) and pays a death benefit when one of the insureds dies. The survivors then have the option of purchasing an individual policy without evidence of insurability. The premium for a joint life policy is less than the premium for separate, multiple policies. ONE policy covers two. Think "joint accounts" with a bank. One account, two people.

Single premium whole life

Allows the insured to pay the entire premium in one lump-sum and have coverage for the insured's entire life. An immediate nonforfeiture value is created An immediate cash value is created A large part of the premium is used to set up the policy's reserve

Family Income Policies

Whole life and decreasing term insurance (begins date of purchase). Provides monthly income to a beneficiary if death occurs during a specified period after date of purchase. If the insured dies after the specified period, only the face value is paid to the beneficiary since the decreasing term insurance expired. Income this concern typically DECREASES over time because the household shrinks. They use decreasing term instead of level. With decreasing term, the benefit begins to decrease as soon as the policy begins.

Term life insurance

gives you the greatest amount of coverage for a limited period of time. It is often know as pure life insurance. Ex. If the insured dies during the policy term, the policy pays the benefits to the beneficiary. No cash value or any living benefits.

Group Life Insurance

insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits is usually there is no evidence of insurability required.

Credit life insurance

is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid. It is normally issued in an amount not to exceed the outstanding loan balance and is usually paid entirely by the borrower. A decreasing term policy is most often used.

Ordinary Life Insurance

life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Cash Value

the equity amount or "savings" accumulation in a whole life policy.

Family Plan Policies

these are designed to insure all family members under one policy. Usually the family head is covered by permanent (whole life) insurance and the spouse/children are included on the same policy as level term life riders (family term riders)

Renewable Policy

A term life insurance policy that allows the policyholder to renew the policy at the expiration date without evidence of insurability. It will only be based on the age of the insured.

3 term of policies coverages

Level Term policy, Increasing Term policy, & Decreasing Term policy

Whole life

Provides both living and death benefits. Provides permanent life insurance protection for the insured's entire life. It also provides living benefits such as cash value and policy loans. Pros: Covers the entire life of the insured, Living benefits - cash value and policy loans, Fixed premiums Cons: Protection is more expensive because of living benefits, Premium paying period may extend beyond the income-earning years

Family Maintenance Policy

Whole life and level term (begins date of death). Provides income to a beneficiary for a selected period of time if an insured die during that period. At the end of the income- paying period, the beneficiary also receives the entire face amount of the policy. If an insured die after the end of the selected period, the beneficiary receives only the face value of the policy. Maintenance "maintains" the family using level term. This means the family will receive a benefit for so many years after the insured's death.

Endowment Policy

a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period.

Convertible policy

allows a term life insurance policy to be converted into some kind of whole life policy without evidence of insurability. The premium will be based on the age of the insured.

Variable universal life (VUL)

is a type of life insurance that builds cash value. It combines all the characteristics of a universal life and variable life. In this policy, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The 'variable' component in the name refers to the ability to invest in separate accounts whose values vary-they vary because they are invested in stock and/or bond markets. The 'universal' component in the name refers to the flexibility the owner has in making premium payments. This provides the policyowner with flexible premiums, adjustable death benefits, a guaranteed minimum death benefit and gives the insured growth potential for higher returns, but also potential for loss. Evidence of insurability can be required for an individual covered by this policy when the death benefit is increased.

Universal life

is a variation of whole life insurance, characterized by considerable flexibility. Changes may be made with relative ease by the policyowner with these flexible-premium policies Investment Gains go towards cash value Unlike whole life (with its fixed premiums, fixed face amounts, and fixed cash value accumulations) this policy allows its policyowners to determine the amount and frequency of premium payments which will adjust the policy face amount Basic characteristics of this policy are flexible premiums, flexible benefits, no minimum death benefit, and cash value withdrawals Cash value accumulations are subject to a minimum interest guarantee Any surrender charges of a universal policy must be disclosed

Industrial Life Insurance

issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Decreasing Term Policy

level premium and a death benefit that decreases each year of the policy. Primarily Use when the amount of protection needs to decrease over the period of time. Most commonly use for a mortgage, the policy amount decreases as the loan balance of the morgage decreases each year

Multiple protection policies

pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after the period has expired, only the policy face amount is paid. The period may be for a specified number of years - 10, 15, or 20 years or to a specified age such as 65. These policies are combinations of permanent insurance and level term insurance.

Variable Insurance

require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling this policy, whether it be life insurance or an annuity, as they include regulated securities. These policies are also known as interest-sensitive policies. The policies usually have a fixed-level premium, but the cash value and death benefits of this policy can fluctuate according to the performance of its underlying investment portfolio. This policy's typical investment account grows through mutual funds, stocks, and bonds. If a policyowner or applicant was looking for a policy to offset inflation, they would want to look into this policy.

Renewable Term

term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.

Universal Life

this policy incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policyowner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a this policy. This policy use gains to fund the cash value and give the policyowner options for flexible premiums and adjustable death benefits.

Adjustable Life

usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make adjustments to the premium and/or face amount. These policies are able to provide these features by combining whole life and term life into a single plan. If a policyowner was looking for a policy in which they could control the amount and frequency of payments with a death benefit that can be adjusted as their life needs change, they would want this type of policy There typically are no dividends involved with adjustable life policies. Increasing the face amount may require a policyowner to provide proof of insurability. Usually, a customer with a policy has a special need for flexible premiums.

Variable whole life insurance

was created to help offset the effects of inflation on death benefits. It's permanent life insurance with many of the same characteristics of traditional whole life insurance. The main difference is the manner in which the policy's values are invested. With traditional whole life, these values are kept in the insurer's general accounts and invested in conservative investments selected by the insurer to match its contractual guarantees and liabilities. With variable life insurance policies, the policy values are invested in the insurer's separate accounts which house common stock, bond, money market, and other securities investment options. Values held in these separate accounts are invested in riskier, but potentially higher yielding, assets than those held in the general account. The basic characteristics of a variable life policy are: fixed premiums, a guaranteed minimum death benefit which fluctuates over the minimum, and cash values which fluctuate and are not guaranteed.

Juvenile Insurance

written on the lives of children who are within specified age limits and generally under parental control.

Interest-Sensitive Whole Life:

a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant. This is also called current assumption whole life insurance. It also gives the insured the opportunity to either increase the face amount or use the extra cash value to lower future premiums. Premiums can vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors. CAWL (current assumption whole life) policies are almost always a MEC due to accelerated premiums.

straight life insurance

This is basic whole life insurance with a level face amount and fixed premiums payable over the insured's entire life. Premium payments made until death of insured or age 100 (maturity of policy).

Limited Pay Whole Life

This is whole life insurance where the insured is covered for his entire life, but premiums are paid for a limited time. As the premium payment period shortens, cash values increase faster and the fixed premiums are higher. For example, under a life paid-up at 65 policy, premiums are only paid until the insured is 65 years old. With a 20-pay life policy, the insured only pays for 20 years. These policies are in effect until the insured's death or they reach age 100.

Level Term Policy

The most common type of temporary protection. It does not change throughout the life of the policy

Modified Endowment Contracts (MEC)

A policy that is overfunded, according to IRS tables, is classified. Policies that do not meet the 7-pay test are considered this and will lose favorable tax treatment. The 7-pay test is a limitation on the total amount you can pay into your policy in the first seven years of its existence. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period. For example, if yearly premium is $500, in a seven year period a total amount paid would equal $3,500. If you paid $3,501, it has now exceeded the 7-pay test and is no longer a life insurance contract. It will now be taxed as an investment.