Permanent Life Insurance

Adjustable Life continued

- PO has the option of converting from term to whole life or vice versa -when increasing death benefit or changing to a lower premium policy, requires proof of insurability -whole life to term:insurer can adjust death benefit; PO can pay additional premiums above or beyond the required to accumulate greater cash value or shorten premium paying period -CV of the policy only develops when premiums paid are more than cost of policy

Universal Life (PO can pay premiums with either two types of premium

- minimum: amount needed to keep policy intact for current year; paying premium will help policy perform as annually renewable term product -target premium: should be paid on policy to cover cost of insurance protection and keep policy intact in its lifetime

Term Insurance

- pure life insurance -temporary protection -coverage for specific period - provides greatest amount of coverage for lowest premium

Option B

-Increasing death benefit option -DB includes annual increase in cash value, as a result, DB will increase by amount that cash increases -total death benefit will always equal face amount plus current amount of cash value -expenses are much greater; causing CV to be lower in older years

Adjustable Life (FPP)

-PO adjust premium and premium paying period, face amount, & period of protection -converted from term to whole vice versa -cash value develops only if premiums paid more than cost of policy

Straight Life(continuous premium) **Whole Life

-basic policy -level DB -insured pays premium for life or until age 100

Buy-sell agreement

-business continuation agreement that determines what will be done with business in the event that the owner dies or becomes disabled

Equity Indexed Life

-cash value is dependent on performance of equity index -policy face amount increases annually to keep pace w/ inflation w/o requiring evidence of insurability. -classified on whether PO or insurer assumes inflation risk -if PO assumes risk, premium increases w/increase of face amount

Variable Universal Life

-combination of universal and variable life -provides PO w/ flexible premiums and adjustable death benefit -PO decides where cash value will be invested -CV are not guaranteed and DB are not fixed -DB cannot decrease below initial face amount -producer must be licensed for both securities and life insurance in order to sell variable universal life

Interest-sensitive Based Whole Life

-current assumption life -provides guaranteed death benefits to age 100 -insurer sets initial premium based on current assumptions: risk, interest, expense -if value changes, company will lower or raise premium -ISBWL credit CV with current interest rate -provides min. guaranteed rate of interest -provides same benefits from WL policies w/ added benefit and current interest rates: allows for great. CV accumulation or shorter pren. paying period

Variable whole life

-fixed premium with underlying investment account -it does not contain same guarantee of principal and interest found in traditional whole life -PO allocate premium after certain deductions for expense into sub-account held by insurance company (separate account) -insurance companies are restricted as to the types of investments they can hold in general account

Universal Life Insurance

-flexible premium, adjustable life; PO has flexibility to increase amount of premium paid into policy; to later decrease again -PO can skip paying a premium and the policy will not lapse -CV too small, policy will expire

Joint Life is also used to insure lives of business partners

-funding buy-sell agreement and other business life needs

Universal Life (FPP)

-insurance component in annually renewable term -2 DB: Option A-level death benefit Option B: increasing death benefit -allows partial surrender or cash withdrawal -flexibility through unbuilding (separating)

Survivorship (second to die)

-insurers 2 or more lives -premium based on joint age of insured (average) -benefit is paid upon last death -lower premium -offset liability of estate tax upon death of last insured

Variable Life (other types of policies)

-interest-sensitive policy -fixed premium, min. DB -cash value and actual amount of DB are not guaranteed -assets in separate accounts -agents must be dually licensed insurance and securities

Traditional Whole Life Insurance

-lifetime protection; includes savings element (cash value) -cash value created by accumulation of premium is equal to the face amount of policy at age 100 -premium is calculated by assuming PO will pay premium until that age -premiums are higher than term

Indeterminate Premium

-lower initial premium, raised by insurer

Straight life

-ordinary life or continuous whole life -PO pays premium from when policy is issued until insured's death or age 100 -lowest annual premium

General Characteristics (whole life)

-permanent protection -guaranteed elements (face amount, premium, and cash value) until death or age 100 -level premium -cash value and other living benefits

2 Exceptions of Joint Life

-premium based on joint average age between ages of insured -DB paid upon first death ONLY

Indeterminate Premium

-premium is guaranteed for initial period -insurer charges up to max. premium charge -provide insureds with insurance coverage at lower initial premium -applicants must sign separate from summarizing policy contractual provisions: ***premium must be charged in policy ***frequency of possible charges ***nonguaranteed premium, full max. could be charged *** dividends for participating are only payable if declared by insurer

Limited Payment

-premiums for coverage completely paid up before age 100 -shorter premium paying period than straight life -annual premium will be higher -CV will build up faster for limited-pay

Single Premium (Whole Life)

-premiums paid in one lump sum -coverage in effect to age 100

Limited Payment (Whole Life)

-premiums paid until age or time -coverage in effect to age 100

Combination Plans and Variations

-primarily result of combining or packaging two or more coverages -combination of permanent and term to fill insurance and individual's needs

Adjustable Life

-provide the PO w/ term and permanent coverage -insured determines the amount of coverage and the affordable amount of premium PO has the following options: - increase or decrease premium-paying period; face amount and change the period of protection

Joint Life

-single policy to insure two or more lives -term or permanent -premium is less than for same amount and amount of coverage on same individuals

Three basic forms of whole life

-straight whole life -limited pay whole life -single premium whole life

Flexible Premium Policies (gen. characterisitics)

-type of whole life insurance -flexible premium

Permanent Life Insurance

-various forms of life insurance policies -build cash value and remain in effect for the entire life of the insured or until age 100; as long as premium is paid -common type: whole life

Endowments

-whole life, same features as regular whole life policies but w/ variations in maturity date -provide permanent, level death protection -if insured dies prematurely, they accumulate cash values -premiums: can be paid up tiil endowment date(limited time) or lump sum payment -endowment matures at early age (before 100)

Characteristics of Whole Life

1. level premium: based on issue age; remains same throughout life of policy 2. Death benefit: guaranteed and remains level for life 3. Cash value (nonforfeiture value": equal the face amount of policy when insured reaches 100(policy maturity date) and paid out to PO; cash values are credited to policy on reg. basis and have guaran. interest rate 4. Living benefits: PO can borrow against CV while policy is effect or can receive CV when policy surrendered; does not accumulate until third policy and grows tax deferred

Joint life= first to die; survivorship life

=second to die (last survivor)

Joint Life (first-to-die) Other Types of Policies

Insurers 2 or more lives -premium based on joint age of insured (average) -benefit paid upon first death

Flexible Premium Policies

Life insurance policies with flexible features including: premiums, face amounts, coverage period and premium-paying period; allow the PO to pay more or less than planned premium

Death Benefit Options (Universal Life)

Option A: level death benefit option Option B: increasing death benefit option

Option A

death benefit remains level while the cash value gradually increases; lowering pure insurance with insurer -there must be a specified "corridor" or gap maintained between cash value and death benefit; established by IRS

Premium rates on a joint life policy

determined by averaging ages of both insureds

Universal life policy has two components

insurance component and cash account

Joint Life: premium based on joint age is less than 2 premiums based on individ. age

it is common to find joint life policies among husbands and wives -does not extend beyond the first death -issued when there is a need for two or more persons to be protected -need for insurance is no longer present after first insured dies

Variable life (policies compared)

key: permanent insurance premium: fixed (if whole); flexible (universal) face amount: increase or decrease to stated min. policy loans: can borrow cash value

Universal Life (policies compared)

key: permanent insurance w/ renewable term protection premium: flexible; minimum or target face amount: flexible; set by PO w/ proof of insurability cash value: guaranteed at min. level; general account policy loans: can borrow cash value

Adjustable Life (Policies compared)

key: term or whole life; can convert from one to other premium; increased or decreased by PO face amount: flexible; set by PO w/ proof of insurability cash value" fixed rate of return; general account policy loans: borrow cash value

Single Premium

provide level death benefit to the insureds age 100 for one time lump sum payment; policy is paid up completely after one premium and generates immediate cash

Whole life insurance

provides lifetime (permanent) protection and accumulates cash value

Limited-pay policies

suited for insureds who DO NOT want to pay premiums beyond certain point. Example: Individual would want protection after retirement but does not want to pay premiums at the time. Limited-pay (paid up at 65) purchased during person's working years will accomplish objective

What does term insurance provide?

the greatest amount of coverage for the lowest premium

If an insured skips a premium payment on universal life policy

the missing premium may be deducted from the policy's cash value. Policy will not lapse

In Option A, if the corridor is NOT maintained

the policy is no longer defined as life insurance for tax purposes and loses most tax advantages that was associated with life

Term Insurance provides

what is known as pure death protection: -if insured dies during term, policy pays death benefit for beneficiary -if policy canceled or expires prior to insured's death, NOTHING is payable at the end of the term - NO cash value or other living benefits