Types of Insurance Policies

Indeterminate premium whole life

Indeterminate premium whole life The discounts will vary with insurance company investment performance, but the actual premium charged will never be more than the maximum premium specified in the contract.

Flexible premium variable life is also known as variable universal life.

The policy is variable in that the benefits vary according to the investments backing the contract, and many companies allow the insured to choose the type of investments she favors.

accelerated benefits rider, sometimes known as a living benefits rider

This rider allows policyowners who are terminally ill or who require long-term care or permanent confinement to a nursing home to collect all or part of their death benefit while they are still alive. T

Current Assumption Whole Life

Unlike universal life, current assumption whole life is a bundled policy. The pure insurance and investment elements are not broken out separately.

Interim term

When a person wants immediate protection and is thinking of starting a permanent insurance policy in the near future, interim term may be used to cover the period before permanent protection is to begin.

step-rate premiums.

When a renewable term policy is being renewed, however, the rates will be based on the age the insured has reached at the time of renewal, often called step-rate premiums.

Load

a charge is deducted from each premium after the first year premium to cover sales and admin expenses.

Alberta is concerned that if she became totally and permanently disabled, she would not be able to pay her life insurance premiums and the policy will lapse. Which type of rider should she consider to protect against this possibility?

A) Payor rider B) Accidental death and disability rider C) Disability income rider D) Waiver of premium rider D

Credit Life Policy Provisions

Insureds must be given a certificate of coverage under the creditor's group policy, including their rights and obligations under the policy. The number of insureds under the policy must be maintained at a specified level (usually 100); if participation drops below that number, the insurer may not insure new debtors. The debtor's coverage will terminate when the debt is paid off, transferred to another creditor, or refinanced or becomes significantly overdue. Unlike standard group insurance policies, the policy does not have a conversion privilege.

Increasing term

The death benefit increases over the life of the policy, and the premium remains level.

waiver

a type of rider that is used to exclude benefits and for which no premium is charged.

There are two basic types of variable life insurance: scheduled premium variable life and flexible premium variable life.

requires a periodic level premium be paid to keep the policy in force. Because a specific premium will be paid, this type of variable life provides a guaranteed minimum death benefit equal to the initial face amount of the policy.

Back end load

usuallly taken the form of service charges for withdrawls at end of policy.

two adjustments to cash value acount of Universal Life

1. charge against acct. to pay cost of desired insurance coverage. 2. a credit to the cash value acct. of interests at current rate. Current rate consists of guaranteed interests plus excess interest.

Two options regarding the death benefit payable under a UL policy

1. level death benefit equal to policy's face amount. 2. increasing death benefit = to face amount + cash account. --- mortality risk remains at level amount = to policy face. Thus the policy owner will incure a higher expense fo the cost of teh death protection over life of policy and less of premium.

Garth has a $100,000 whole life insurance policy that has been in effect for 10 years. The policy includes a double indemnity rider. Garth jumps off a bridge and dies. How much will the policy pay?

A) $100,000 because the multiple indemnity rider excludes death resulting from suicide, but the base policy's suicide exclusion has expired B) $200,000 dollars because death was accidental C) $100,000 because the base policy excludes death resulting from suicide, but the multiple indemnity rider does not D) Nothing because all policies exclude death resulting from suicide A

Tammy has a total of $10,000 loan and interest outstanding against her $100,000 policy. The policy has a double indemnity rider. Tammy is killed in an automobile accident. How much will the policy pay?

A) $180,000 B) $200,000 C) $190,000 D) Nothing until the outstanding loan is repaid C

Laura collects insurance premiums every Friday at the home of several policyholders. Which type of policy do these policyholders probably have?

A) Credit life insurance B) Industrial life insurance C) Home service life insurance D) Term life insurance B

Tracy has a policy that provides permanent life insurance on him, along with term insurance on his wife and children. Which type of policy does Tracy have?

A) Family maintenance policy B) Family income policy C) Family security policy D) Family protection policy Family Protection Policy

Charlie has a policy to protect his family that will provide a monthly income for 10 years from the date of Charlie's death, provided that he dies within 10 years of establishing the policy. Which type of policy does Charlie have?

A) Family security policy B) Family maintenance policy C) Family plan policy D) Family income policy B

Sarah has a policy that will pay her family a monthly income until 2020 if she passes away before that time. Which type of policy does Sarah have?

A) Family security policy B) Family plan policy C) Family income policy D) Family maintenance policy C

Which type of insurance policy is most common today?

A) Home service life insurance B) Credit life insurance C) Industrial life insurance B

George has several policyowners at the factory set up on a plan that deducts the premium automatically from their bank accounts every month. Which type of policy do these policyowners probably have?

A) Industrial life insurance B) Term life insurance C) Credit life insurance D) Home service life insurance D

Which type of policy would not provide a tax-free death benefit under current law?

A) Mortgage redemption policy B) Minimum deposit policy C) Endowment policy D) Joint life policy written on a survivorship basis C

Paul has a life insurance policy on his son for which he pays all the premiums. A rider to this policy states that if Paul becomes permanently and totally disabled, the premiums will be paid until his son reaches age 21, at which point his son will take over the premium payments. Which type of rider does he have?

A) Payor rider B) Disability income rider C) Accidental death and disability rider D) Waiver of premium rider A

Kumar has a life insurance policy with a rider that will pay him $1,000 per month if he is totally and permanently disabled. Which type of rider does he have? A) Payor rider

A) Payor rider B) Waiver of premium rider C) Accidental death and disability rider D) Disability income rider D

accidental death and dismemberment (AD&D) rider.

An accidental death benefit rider to a policy also may include additional benefits for dismemberment.

The 12% rule

At the time of solicitation, variable life illustrations may not be based on projected interest rates greater than 12%.

Waiver of Premium for Universal Life Policies

Because premiums on a universal life policy may fluctuate considerably, most companies provide that a waiver of premium rider on a universal life policy will guarantee only the monthly cost of insurance, not the total premium the insured was paying.

Family Income Policies *****

Combining whole life insurance with decreasing term coverage, Income payments to the beneficiary begin when the insured dies and continue for the period specified in the policy, from the date of policy issue, and not from the date of the insured's death. That's why decreasing term insurance is used for a family income policy.

Indeterminate Premium Policies

Indeterminate premium policies offer a low current premium at the beginning of the policy period, usually for two years. After that period, the premium can be adjusted to reflect the insurance company's experience with regard to investment return, mortality, and expenses. This adjustment could result in a lower premium. It also could result in a higher premium, although it may not be exceed a stated maximum.

Long-term care (LTC)

LTC rider benefits are similar to those found in a LTC policy. The benefit structure includes elimination periods Benefit periods Prior hospitalization for at least three days may be required. Benefits may be triggered by impaired activities of daily living. Levels of care include skilled, intermediate, custodial, and home health care.

Minimum deposit or financed insurance

One of the advantages of minimum deposit insurance is that under certain circumstances, interest paid on policy loans used to finance premium payments still may be deductible. Disadvantages include the fact that its administration is complex. Certain very specific criteria must be met to qualify for the deductions. Finally, interest payments in the later years of the policy can be high.

Disadvantages of Specialized Policies

Policies set up to meet a specific need may become obsolete if the need changes over time. Certain policies, if not set up carefully, may incur negative tax consequences.

Indexed universal life

Policies that have current rates linked to an outside index.

At the time conversion to permanent insurance is made, the insured generally has a choice of two ages:

Present age, called attained age Age at the time the original term policy was purchased, called original age

The Family Policy (Family Protection Policy)

Some companies offer contracts that provide coverage on each of the family members at the time the policy is issued. These combination policies or family plans customarily provide coverage on the principal breadwinner equal to four times the spouse's and five times the children's coverage amounts. Spouse term rider and family rider are common names for these coverages.

Advantages and Uses of Specialized Policies

Specific combinations of term and permanent insurance can be used to match the need exactly. The cost of the policy may be lower than ordinary whole life insurance.

risk corridor

Th minimum separation between the the cash value and the death benefit is called the risk corridor and is determined by the Internal Revenue Code.

modified premium plan

The advantage of the modified premium plan is that it allows the purchase of permanent insurance at a time when a person's income might otherwise not permit it and transfers much of the cost to a later period when the policyowner's income can be expected to be higher.Premiums are lower during the first three to five years of the policy, usually only a little more than would be paid for a level term policy for the same period.

Industrial Life Insurance

The basic characteristics of industrial life insurance are as follows. Premium payments are made frequently. Benefits are usually less than $2,000. Premiums are collected, by the agent, at the insured's home or workplace. Sales are made in premium units rather than in insurance units. The rate book lists the amount of insurance that can be bought with a specified weekly or monthly premium. (This has been changing for larger amounts of insurance.) All family members are covered from birth to age 65 or 70. Usually a medical examination is not required.

Juvenile Policies

The criterion for juvenile insurance is that it be written on the life of a person who is not yet considered an adult for life insurance purposes. In most places, this includes anyone who is under age 15 (16 in Canada). At the time the child turns age 21, however, the face amount automatically jumps by an amount usually five times greater than the original face amount, with no increase in premium and no evidence of insurability required.

Index-Linked Policies

The death benefit is usually linked to an equity index, for example the S&P 500. Naturally, an additional premium must be charged for the increased amount of protection,

Family maintenance policies *****

The difference is that with a family maintenance policy, coverage is provided by combining level term insurance with a permanent policy.

Endowments

The endowment policy is another category of permanent insurance. As with other types of policies, the endowment pays a death benefit upon the death of the insured. Like the limited pay policy, the premiums are paid only for a specified period. If the insured is alive at the end of the premium-paying period, the policyowner would receive the face amount maturity benefit and the insurance coverage would terminate. Thus, the policy endows at the end of the premium-paying period. an endowment might be defined as a forced savings plan with a death benefit.

Deposit term insurance

The excess front-end premium (the deposit) is then set aside to earn interest, and these dollars (deposit plus interest) will be applied to reduce the premium payments required in the following years.

Decreasing term

The face amount decreases throughout the life of the policy to zero at the date of policy expiration. common use for decreasing home mortgage. Usually convertible, but not renewable.

single premium whole life policy.

The most extreme version of a limited-pay policy is one that can be paid for with only one premium.

Payor Rider

The payor rider states that if the person who's paying the premiums-in most cases, the parent-dies or becomes disabled before the child has reached a specified age, the company will waive all further premiums until the child reaches that age.

pure endowment.

The pure endowment provided for the payment of the policy's face amount only if the insured lived to the maturity date. If the insured died before the endowment date, all benefits were forfeited.

Return of Cash Value

The return of cash value rider is similar to the return of premium rider in that it is merely an additional amount of term insurance that is equal to the cash value at any point while effective. Buying it, the policyowner is simply getting additional term insurance.

Riders

They take their name from the fact that they have no independent existence. They have force and effect only when they are attached to a policy. Riders may be attached to a life insurance policy or an annuity contract.

Home Service Life Insurance

Today we find a variation in the industrial life concept known as home service life insurance. 10 to 15K, monthly payment plan, all family covered typically used to pay for last illness and burial.

Viatical Settlements

Under a viatical settlement contract, the insured, or viator, sells his insurance policy to a viatical settlement provider for a reduced percentage of the policy's face value.

Universal Life

Universal life is a flexible premium, adjustable benefit life insurance contract that accumulates cash value. most sold for accumulation values and tax deferred retirement income.

Graded Premium Plan

Unlike modified life, which has one increase to a higher, level premium for the life of the contract, graded premium policies provide for an increase in premium each year for the first 5 to 10 years of the policy.

Life insurance can be structured to provide:

a guaranteed death benefit only, using term insurance; a guaranteed death benefit plus cash accumulation, using one of many types of permanent insurance; a guaranteed death benefit plus premium flexibility, using universal life; a guaranteed death benefit plus premium and investment flexibility, using variable or variable universal life; and liquidity for estates, using survivorship life.

Adjustable life

a policy that offers the policyowner the options to adjust the policy's face amount, premium, and length of protection without having to complete a new application or having another policy issued. If the insured makes an adjustment in the policy that results in a higher death benefit, proof of insurability may be required for the additional coverage.

retirement income policy

accumulates a sum of money for retirement while providing a death benefit. Upon retirement, the policy pays an income such as $10 per $1,000 of life insurance for the insured's lifetime or a specified period. Expensive and cash value accumulation is high. Once the cash value in the policy approaches the face amount, the face amount must be increased to maintain the policy's status as life insurance.

substitute insured rider

actually does permit a change of insureds. This rider is also known as an exchange privilege rider.

Multiple protection policies

combinations of whole life and term in which the amount of protection is higher in the early years of the policy and less in the later years.Index-Linked Policies

Survivor life insurance, or second-to-die insurance,

covers two lives and guarantees payment only when the second insured dies. Premiums are usually payable until the second death. Second-to-die policies are very useful in estate planning.

Not every type of accidental death common exclusions

death as a result of self-inflicted injury; death while committing a crime; and death as a result of war.

Juvenile endowment policies

designed to mature at a specific age, such as age 18, so that the maturity value was available to help fund a college education.

Waiver of Premium

exempts a disabled policyowner from needing to pay premiums during the term of disability while keeping the policy in force.the disability must be permanent and total from engaging in his usual occupation and any work for gain or profit.

Cost of Living

he policyowner has the option to increase the death benefit of his policy to match an increase in the cost-of-living index

reentry option (also known as reissue)

his option gives the insured the opportunity to provide evidence of insurability at the end of the term to qualify to renew the policy at a lower premium

Flexible Policies

include adjustable life, universal life, and variable life insurance. generally offer the policyowner flexibility in terms of premiums, face amounts, and investment objectives.

disability income rider.

insured policyowner can guarantee a regular monthly income from the insurance company if he becomes totally and permanently disabled.

Accidental Death (Double Indemnity)

may be added to an insurance policy to provide for an additional amount to be paid to the beneficiary if the insured dies as the result of an accident. This amount, usually referred to as the principal sum, is usually the same as the face value of the policy and is therefore often referred to as double indemnity.

joint life policy

may pay the face amount upon the first death among the persons covered by the policy or upon the last death among the persons covered by the policy. Under a first-to-die joint life policy, the contract ends at the first death and there is no further insurance protection for the other person or persons covered by the policy.

Return of Premium

n reality, the rider does not return premium but pays an additional amount at death that equals the premiums paid up to that time-as long as death falls within the time specified in the rider.

Current assumption whole life policies (also known as interest-sensitive whole life)

offer flexible premium payments that are tied into current interest rate fluctuations. Usually, premium adjustments are made on an annual basis.

Limited-Payment Whole Life

policies allow the policyowner to pay for the entire policy in a shorter period. Common forms of limited payment whole life are 20-payment life (meaning payments are spread over 20 years), 30-payment, and life paid up at age 65.

convertible term

policy allows the policyowner to convert or exchange the temporary protection for permanent protection without evidence of insurability.

economatic

policy is a whole life-type policy with a term rider that uses dividends to purchase additional paid-up insurance. As policy dividends are declared, they are used to purchase additional paid-up insurance. As the paid-up insurance is added, an equal amount of term insurance is removed from the policy, thus maintaining the full face amount

variable life insurance

policy provides cash values. In fact, cash values in a VLI policy are determined on a daily basis according to the investment experience of the separate account, with no minimum amount guaranteed. So, although there is a guaranteed death benefit, there is no guaranteed cash value. The cash value at the end of any policy year is equal to the reserve for that policy.

renewable term

policy that may be renewed at the end of the specified period for another term period without evidence of insurability.

Level term

provides a level death benefit and level premium during the policy term. Premium is known as a guaranteed premium.

Endowment life insurance

pure endowment plus term insurance for a specified period.

mortgage redemption policy or rider

simply decreasing term insurance. The benefit amount of the term element is intended to be sufficient to pay off the unpaid remainder of the mortgage loan if the insured dies before paying it off himself.

Indeterminate Premium Term

term insurance for which the premium may fluctuate between the current premium charge and a maximum premium charge that is stipulated in the insurer's premium tables and is based on the insurer's mortality experience, expenses, and investment returns.

Guaranteed Insurability the guaranteed insurability rider (GIR), sometimes referred to as the insurance protection rider (PIR) or future increase option.

the insured may purchase additional insurance without evidence of insurability. he rider generally expires when the insured attains age 40.

The distinction between an accelerated benefits provision or rider and a long-term care rider is an important one under California law.

under a long-term care rider, benefits may be paid only when the insured actually incurs expenses for long-term care services. That is because long-term care riders are a form of long-term care insurance. payment of benefits under an accelerated benefits provision can be used in any manner the policyowner wishes, whether or not the insured actually incurs any long-term care expenses.

retirement endowment

was one of the most commonly sold endowment contracts. Typically, this type of policy was issued to mature at age 65 when the insured planned to retire.