Chapter 4. Life Insurance

Types of Term

In all these types of policies, the premium is usually level (constant) throughout the policy term. The element that varies in each of these types of term life insurance is the face amount. If the policy is renewed or converted, the premium is increased because the insured is older, requiring a higher premium.

Return of Premium (ROP) Term Policy; The longer the term the lower the premium.

A new kind of policy is called the return of premium (ROP) term policy. ROP term policy premiums are generally higher than a conventional term policy. The longer the term, the lower the premium Premiums are returned to the insured if no death benefit has been paid and are not taxable.

Level Premium Term

In order to provide a level premium, the policy must have a premium that is on average higher in early policy years in order to offset the lower premium in the policy's later years.

Increasing Term; Term insurance that provides an increasing face amount with level premiums.

Increasing term insurance provides an increasing face amount with level premiums. The increase occurs at certain intervals over the policy period. Increasing term insurance is not as common as other types of term insurance.

Indeterminate Premium Term; 'undetermined' premiums; fluctuating premiums based on mortality expense and investment experience

Indeterminate premium policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. The fluctuating premiums account for the insurer's actual mortality expense and investment experience. Premiums are typically lower in the early policy years.

Industrial Life encompasses ________ ________ insurance

Industrial Life encompasses home service insurance

Decreasing Term

Insurance that provides a face amount that decreases to zero over the policy period. Example: mortgage reduction insurance.

Interim Term; 'intern' convert to 'boss' AKA converting to permanent coverage

Interim term coverage provides instantaneous coverage and is intended for people who plan on purchasing permanent life insurance coverage within a year. Interim term is frequently offered to automatically convert to permanent coverage at a specified date in the future. The premium for interim term is based on the insured's age upon application. The premium for permanent coverage is based on the insured's attained age upon conversion to permanent protection.

Annual Renewable Term

Annual renewable term (ART) or yearly renewable term (YRT) provides a level face amount with an increasing premium. ART is guaranteed renewable annually without proof of insurability. ART usually has a maximum age at which the policy is no longer renewable.

Decreasing Term; Decreasing Term is used with a mortgage.

As the mortgage is paid off, the amount of the term coverage decreases to match the balance of the mortgage. Decreasing term insurance is not suitable for clients interested in purchasing life insurance to fund an investment.

Decreasing Term = Falling Death Benefit

Decreasing Term = Falling Death Benefit

Life Expectancy Contract; Term policy period resembles the life expectancy of the insured.

For a life expectancy term insurance contract, the number of years that the term policy will be in force is determined by the average life expectancy for insured's age and sex classification.

Advantages of Term Life For insurers:

For most people term insurance is temporary protection that cannot be renewed beyond a certain age, such as 75. The insurer is betting the insured will live beyond the policy period, so the death benefit will not be paid out.

Group life insurance

Group life insurance is written for members of a group, such as: An employer-employee group, Association, Union or Creditor-debtor group. Coverage is provided to the members of the group under one master contract. The group is underwritten as a whole, not on each individual member.

Home service life insurance

Home service life insurance issued in very small face amounts, such as $1,000 to $5,000. The premiums are paid weekly or monthly.

Level Term = Level _______

Level Term = Level Benefits

Level Term

Level term insurance provides a level face amount throughout the policy period. There are two types of level term: -Annual renewable term and -Level premium term.

Other Types of Term Insurance

Life Expectancy Contract, Return of Premium (ROP) Term Policy, Interim Term, Indeterminate Premium Term, and Reentry Term.

Decreasing Term

The face amount equals zero on the day the policy expires. The premiums are level. Some decreasing term insurance is convertible, but is usually not renewable upon policy expiration because the face amount is zero at the time of policy expiration.

Term Life Insurance

term life insurance is often called temporary protection because it provides a death benefit only if the insured dies within the policy period.If the insured outlives the policy period, fails to renew the policy, or the policy is canceled or expires, no death benefit is paid. By "pure death protection" it is meant that the policy does not have living benefits such as cash accrual and policy loans.

Drawbacks of Term Insurance: -No living benefits -If term insurance must be discarded due to expense or the insured has surpassed the maximum age limit, then the insured may be left without any life insurance protection when it is needed most.

-As a long-term life insurance tool, term insurance can be increasingly expensive. Each time a term policy is renewed, the premium increases. Term renewals use the attained age of the insured to assess mortality, not the original age at policy application. As a person ages, the likelihood of death is greater, and term insurance accounts for this by increasing premiums.

There are three main types of term life insurance:

-Level -Decreasing -Increasing

Level Premium Term; (sometimes referred to as Level Premium Level Term )

-Provides a level face amount with level premiums during the policy term. -If the policy is renewed after the term expires, the policy premiums will be based on the insured's attained age, or the insured's present age at the time the policy is renewed.

Features of Term Policies

-Renewable Term and -Convertible Term

Term Insurance Advantages for Consumers: -Term insurance provides the largest amount of coverage for the least amount of premium.

-Term insurance is appropriate for a person wanting to insure a short-term or long-term debt, such as a car loan or mortgage, respectively. -Term insurance is also appropriate for young families or young professionals who require a large amount of coverage, but cannot afford the larger premiums of permanent insurance until later on when their financials are more established.

Term Insurance

-Term life insurance is issued based on the face amount, sometimes referred to as the face value (which is the amount of coverage the policy provides) -In most cases, the death benefit (policy proceeds) is equivalent to the face amount.

Convertible Term; Convertible term allows term life policyowners to convert their term insurance into permanent policies without showing proof of insurability.

-The conversion option must be specifically noted in the contract, including the terms and conditions upon which it can be exercised. -When an insured converts their term policy, the permanent policy's premiums will be based on the insured's attained age or original age. -The attained age is the insured's age upon conversion. -The original, or issue age, is the age of the insured upon purchase of the term policy. -Depending on the terms of the conversion option, the policyowner may choose which age to use. -Most policies use the attained age upon conversion. -If the original age is used, the premiums will be lower than if the attained age is used.

Reentry Term; Renew term by providing E.O.I. to obtain lower premium. Applying as if their a new applicant.

Reentry term insurance, sometimes referred to as reissue, permits the policyowner to renew a term life policy at the end of the policy period by providing evidence of insurability, so the insured can obtain a lower premium than the renewal premium that is offered without evidence of insurability. In essence, the insured is applying for renewal coverage as if he or she was a new applicant. (renew a term life policy at the end of the policy period by providing evidence of insurability so the insured can obtain a lower premium than the renewal premium that is offered without evidence of insurability.)

converted term

Regardless, premiums under the converted policy will be higher than under the term coverage because the insured is older, and permanent life insurance policies are more expensive than term policies.

Renewable Term

Renewable term insurance allows the policyowner to renew the term policy after the designated term expires, without having to prove insurability. The renewal premium will be based on the insured's attained age, so the premium will be higher. Because of this, renewable term insurance is sometimes said to have step-rate premiums. Typically, renewable term policies have an age limit to which the term policy can be renewed, such as 75 or 85. This is stated in the policy.

Ordinary Life encompasses several types of individual life insurance, such as:

Temporary (term), Permanent (whole), Universal, Variable and Other interest-sensitive plans. Premiums are paid: Monthly, Quarterly, Semiannually, or Annually.

________ _______ insurance provides only a death benefit within a specified period of time. Whole life insurance provides death and living benefits.

Term life insurance provides only a death benefit within a specified period of time. Whole life insurance provides death and living benefits.

Types of Term

Term policies that increase premiums upon renewal are called step-rate because the initial premium literally steps up to a higher amount each time the policy is renewed. Term policies that are renewable or convertible also require a higher premium upon these events.

step-rate

Term policies that increase premiums upon renewal are called step-rate because the initial premium literally steps up to a higher amount each time the policy is renewed. Term policies that are renewable or convertible also require a higher premium upon these events.

Term-to-65 Contracts

Term to age 65 policies cover the insured to age 65. The premiums are level throughout the term of the policy. At the start of the policy, the policyholder pays a higher premium than he or she would for a shorter-term policy in order to build up extra cash reserves that keeps the premiums level until policy expiration. The insured has the option of converting the policy to a cash-value policy before the insured reaches a specified age in the policy.

Term-to-65 = Option to Convert to ______-_____ ______

Term-to-65 = Option to Convert to Cash-Value Policy

Decreasing Term

The convertibility feature in a decreasing term policy allows the policyowner to convert the term coverage to permanent coverage at any point during the policy period at the amount of the coverage at that point in time. A common use for decreasing term insurance is mortgage protection to pay off the mortgage in the event that the debt is outstanding when the insured dies.

Categories of Life Insurance

There are three main types of life insurance: Ordinary Life, Industrial Life and, Group Life.