Life Insurance Policies 8% 12 questions
How old to do have to be to get life insurance as a minor (on your own)?
141/2
Permanent Life Insurance
A general term used to refer to various forms of life insurance that builds cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid.
Target premium
A recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
Term insurance (Pure Life insurance)
A temporary protection because it only provides coverage for a specific period of time. Provides the greatest amount of coverage for the lowest premium. There is usually a max age that this coverage is offered or at which it cannot be renewed.
Fixed Life Insurance or Annuities
Contracts that offer guaranteed minimum or fixed benefits that are stated in the contract.
What are the three types of term coverage available?
Level Increasing Decreasing
What are the two options for universal life?
Level death benefit Increasing death benefit
Level premium (WL)
Premium based on the issue age...remains the same throughout the life of the policy
What does underwriting look at when evaluating group plans?
Purpose of group - needs to be something other than just getting insurance Size of group - more people in the group the more accurate the projections of future loss experience will be. Turnover of group - A group should have a steady turnover Financial strength of group - Does the group have enough resources to pay for the insurance?
What are the 4 types of WL?
Straight life Limited-pay Single premium Modified Life
Minimum premium
The amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product.
Straight Life (continuous premium WL)
The basic whole life policy. The policy owner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever comes first). Lowest annual premium of WL policies Refer to 41
Annually renewable term (ART)
The purest form of term insurance. The death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probably of death increases. NY only offers coverage til age 80
Variable life insurance or Variable WL
A level, fixed premium, investment-based product. Fixed premiums Guarantees a minimum death benefit The cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in variable contracts. Since the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract cannot be kept in the insurance company's general account. They are held in a separate account, which invests stocks, bonds, and other securities investment options.
Joint life (Joint Whole Life)
A single policy that is designed to insure two or more lives. Joint life policies can be in the form of term insurance or perm insurance. The premium for joint life would be less than for the same type and amount of coverage on the same individuals. Similar to an individual whole life policy with two major exceptions: The premium is based on a joint average age that is between the ages of the insureds. The death benefit is paid upon the first death only. refer to page 46
Credit Insurance
A special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. Usually written as decreasing term insurance, and it may be written as an individual policy or as a group plan. When written as a group policy, the creditor is the owner of the master policy and each debtor receives a certificate of insurance. Credit insurance cannot pay out more than the balance of the debt, sot hat there is no financial incentive for the death of the insured.
Renewable
Allows the policyowner the right to renew the coverage at the expiration date without E of I. The premium for the new term policy will be based on the insured's current age.
Return of premium (ROP) Life Insurance
An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term. Higher premium Offer a low-cost, simple-death benefit for a specified term but have no investment component or cash value. When the term is over the policy is over and the insured has no coverage. Refer to 40
Modified Life (WL)
Charges a lower premium (similar to term rates) in the first few policy years, usually the first 3 to 5 years, and then a higher level premium for the remainder of the insured's life. Usually higher than straight life at the same age and coverage amount. This coverage is for someone who is just starting out and has limited financial resources, but will be able to afford the higher premiums in the feature as their income grows.
Variable life insurance or annuities
Contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance. Keep pace with inflation, and are determined by the value of securities backing it.
Limited Payment (WL)SU
Designed so that premiums for coverage will be completely paid-up well before age 100. (Example: 20-pay life, paid off in 20 years) Shorter premium-paying period than straight life, meaning the annual premium is higher This policy is for someone who doesn't want to be paying premiums for a really long time. Refer to 42
Single premium WL (SPWL)
Designed to provide a level death benefit to the insured's age 100 for a 1-time, lump sum payment. The policy is completely paid-up after 1 premium and it generates immediate cash. Most companies require a minimum premium for a single premium policy. Refer to 42
What are the two features that distinguish group from individual insurance?
E of I is usually not required (unless an applicant is enrolling for coverage outside the normal enrollment periods) Participants (insureds) under the plan do not receive a policy because they do not own or control the policy
Decreasing term
Feature a level premium and a death benefit that decreases each year over the duration of the policy term. It is primarily used when the amount of needed protection is time sensitive, or decreases over time. Decreasing term coverage is commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely. The amount of coverage thereby decreases as the outstanding loan balance decreases each year. It is convertible; however, it usually is not renewable since the death benefit is $0 at the end of the policy term. Refer to 39
Increasing term
Features level premium and a death benefit that increases each year over the duration of the policy term. The amount of the increase in the death benefit is usually expressed as a specific amount or a percentage of the original amount. Increasing term is often used by insurance companies to fund certain riders that provide a refund of premiums or a gradual increase in total coverage, such as the cost of living or return of premium riders. Refer to page 39
Pure Death Protection (Term)
If the insured dies during this term, the policy pays the death benefit to the beneficiary If the policy is canceled or expires to the insured's death, nothing is payable at the end of the term There is no cash value or other living benefits
How much can a life insurance policy be for a child under 4 1/2?
No more than $50,000 or 25% of the amount of life of the owner of the policy.
How much can a life insurance policy be for a child under 141/2?
No more than $50,000 or 50% of the amount of life insurance in force upon the life of the person effectuating the insurance at the date of issue, whichever limit is greater. Exceptions: If the policy is purchased by and the premiums are paid by a person having an insurable interest in the life of the minor If the minor is not dependent upon the owner of the policy for support and maintenance.
Level premium term
Provides a level death benefit and a level premium during the policy term. After that period of time the premium will be based on the insured's new age. refer to page 38
Whole life insurance
Provides life time protection, and includes a savings element (or cash value). Ends at age 100, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age 100. Premiums are usually higher than term life.
Convertible
Provides the policy owner with the right to convert the policy to a permanent insurance policy without E of I. The premium will be based on the insured's attained age at the time of conversion.
Indexed whole life
The cash value is dependent upon the performance of the equity index, such as S&P 500, although there is a guaranteed minimum interest rate. refer to page 43
Cash value (WL)
The cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 and is paid out to the policy owner.
Increasing Death Benefit Option (Option B)
The death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of the cash value. Since the pure insurance with the insurer remains level for life, the expenses of this option are much greater than those for option A, therefore causing the cash value to be lower in the older years (all else being equal).
Death benefit (WL)
The death benefit is guaranteed and remains level for life
Level death benefit (Option A)
The death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years. The pure insurance is decreasing as time goes on, lowing the expenses, and allowing for greater cash value in the older years. There must be a "corridor" or gap between the cash value and the death benefit in the policy. The percentages that apply are determines by the IRS and vary as the age of the insured and the amount of the coverage. (if this doesn't happen it risks losing tax advantages because it is no longer considered life insurance) Refer to 44
Level term insurance
The most common type of temp. protection purchased. The word level refers to the death benefit that does not change throughout the life of the policy. Refer to page 38
Living benefits (WL)
The policy owner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. The cash value, also called nonforfeiture value, does not usually accumulate until the 3rd policy year and it grows tax deferred.
Universal life (flexible premium adjustable life)
The policyowner has the flexibility to increase the amount of premium going paid into the policy and to later decrease it again. Interest sensitive policy The policyowner can skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance. Option of two types of premiums: Minimum premium Target premium The policy has two components: Insurance component: Annually renewable term insurance Cash account
Adjustable Life
Developed in an effort to provide the policyowner with the best of both worlds (term and perm). An adjustable life policy can assumed the form of either term insurance or perm. The insured typically determines how much coverage is needed and the affordable amount of premium. The insurer will determine the appropriate type of insurance to meet the insured's needs. As the insured's needs chance, the policyowner can make adjustments in his or her policy. Options: Increase or decrease the premium or the premium-paying period Increase or decrease the face amount Change the period of protection Has the option to convert from term to whole life or whole life to term. This will usually require E of I. The Cash value only develops when the premiums paid are more than the cost of the policy.
Suvivorship Life (Second-to-die)
Insures two or more lives for a premium that is based on joint age. The death benefit pays on the last death. Results in lower premium Usually used to offset the liability of the estate tax upon the death of the last insured.
