Unit 4: Types of Life Insurance Policies
Term Convertibility feature
Allows a policy owner to convert a term insurance policy to a permanent type of policy without evidence of insurability and without having to submit an application. Conversion must be made before the term insurance policy expires.
Whole life insurance - Fixed, and level death benefit
As long as the policy is in force, the face amount remains the same.
Term insurance renewability feature
Contract renews at the end of the term (5 year term policy renews for another 5 years) - same amount of benefit will carry over, however, premium will increase because person is getting older.
Term Insurance - Increasing Term
Death Benefit increases Premium increases
Term Insurance - Decreasing Term
Death benefit increases Premium remains level
Term Insurance - Level Term
Death benefit is level Premium is level for the term
Types of flexible policies - Universal Life Option B
Increasing death benefit (insurance amount plus cash account).
Types of flexible policies - Universal Life Option A
Level death benefit (insurance amount only)
Variable Policies
Permanent insurance policies designed to provide lifetime coverage for the insured and have cash value and a death benefit
Term Insurance - Return of premium term
Premium higher than regular term policy -premium paid by insured is paid back if insured is alive at the end of the term.
Types of whole life policies - Intermediate Premium
Premiums adjusted by the company -has a guaranteed maximum premium
Advantages of Term Insurance
Premiums are lower than other types of life insurance policies.
Whole life insurance - Policy Surrender
The cash surrender value of the whole life policy arises from the policyholder's rights to quit the contract and reclaim a share of the reserve fund attributable to the policy. By cashing in on the policy, the policy owner gives up the death benefit.
Whole life insurance - Cash Value
The policy value increases steadily over the life of the contract because it is regularly credited with a guaranteed (level) rate of interest.
Whole life insurance - fixed premium schedule
payments of premiums are on a fixed schedule (monthly for ex). Policy goes invalid if a payment is missed.
Whole life insurance -level premium
premium stays constant throughout insured's entire life.
Disadvantages of Flexible Policies
-More complex than standard policies
Types of Variable Policies - Variable Universal Life
-No guaranteed death benefit
Types of whole life policies - Single Premium
-One premium at the beginning -immediate cash flow
Advantages of Whole Life Insurance
-Permanent coverage -Guaranteed level premiums -Lifetime coverage
Disadvantages of Whole Life Insurance
-Premium not flexible -Higher initial premium
Types of Flexible Policies - Adjustable Life Insurance
-can adjust the death benefit and premium dependent on the needs
Types of whole life policies - Interest Sensitive
-has a current interest rate -FIXED death benefit -guaranteed interest rate
Types of whole life policies - Modified Premium
-lower premium first 3 to 5 years -premium jumps once then levels off
Types of whole life policies - Graded Premium
-lowest initial premium of all policies -Premium increases for 5-10 years then levels off
Disadvantages of Term Insurance
-only lasts for a certain term -term premiums increase as insured gets older.
Whole life insurance - Death benefit components
1) the cash value, sometimes referred to as the savings element 2) An insurance protection element that must be paid in addition to the cash value so that the death benefit equals the policy's face amount.
Variable Policies - Separate Account
A fund held by the life insurance company and maintained separately from the insurer's general assets (general account is where the fixed insurance product premiums are held). -No guaranteed rate of return and there is a risk of loss in the separate account.
Types of whole life policies - Continuous Premium Whole Life
- Continuous premium -limited payment
Disadvantages of Variable Policies
- No guaranteed rate of return -complicated -highly regulated
Advantages of Variable Policies
- Potential for higher returns - Keep pace with inflation - Tax Advantage
Specialized Policies - Survivorship Life
- Second to die policy
Specialized Policies - Juvenile
- Written coverage on the life of a child or minor. -Death benefit usually jumps up at age 18 or 21.
Types of flexible policies - Equity Indexed Universal Life
-Current interest on cash account -Up or down based upon a stock market index -Account still guaranteed by the company
Types of Variable Policies - Variable Life
-Death benefit can increase -Has guaranteed death benefit
Specialized Policies - Joint Life Policies
-First to die policy
Types of flexible policies - Universal Life
-Flexible premium -cash account -cost of insurance withdrawn monthly -fees withdrawn monthly -current or guaranteed interest
Advantages of Flexible Policies
-Flexible premiums, death benefit options, and cash value
