Unit 4: Types of Life Insurance Policies

Types of whole life policies

- Continuous Premium: premiums are the same each year for the duration of the contract (also known as straight life or ordinary life); if policyowner discontinues making premium payments, they will receive cash value of the policy - Limited Payment: allow for a lifetime of premiums to be paid in a shorter period of time - Single Premium: immediate cash values - Modified Premium: lower premium first 3-5 years; premium jumps once, then levels off - Graded Premium: initial premium lower than whole life; premium increases for 5-10 years then levels off - Indeterminate Premium: premiums adjusted by the company; has a guaranteed maximum premium - Interest Sensitive: has a current interest rate; guaranteed interest rate

Return of premium term

- premium higher than regular term policy. - premium paid by insured is paid back if insured alive at the end of the term.

advantages of term insurance

-b/c term insurance provides only a death benefit, premiums are lower than other types of life insurance policies -term policy is INITIALLY the least expensive form of life insurance

convertible (term life)

-can be changed to permanent insurance -no new application/evidence of insurability required -conversion must be made before the term insurance policy expires -premium for converted policy will be based on 1 of 2 options: attained age (insured's age at the time of conversion) OR original age: age at the time original term policy was written

Juvenile Policy

-coverage written on the life of a child or minor -most often permanent life insurance -provides benefit of locking in low premium for child's entire life -guarantees the child has life insurance in case their health changes in the future

Decreasing Term

-death benefit decreases -premium remains level

Increasing Term

-death benefit increases -premium increases

Jumping Juvenile Policy

-face amount of some juvenile policies automatically increases when the child reaches age 18 or 21, with no corresponding increase in premium -in some policies, face amount of premiums jumps to 5 times its original amount

Adjustable Life Policy

-gives the policyowner the options to adjust the face value/death benefit, the premium and the length of coverage without having to change policies -an increase requires proof of insurability -offers ability to have term and whole life coverage in one policy -amount of premium the policyowner can afford is used to determine what type of insurance will best meet their needs

Survivorship Policy

-insures 2 individuals and will pay the death benefit when the last insured dies (aka second-to-die or last-to-die policies) -policy can provide money to pay estate settlement costs and related expenses upon the death of a second spouse -costs less than purchasing 2 individual policies

renewable (term life)

-no new application or medical qualification required -guarantees same amount of death benefit BUT new premium based upon attained age (in an attained age policy, if you purchased the plan at age 65, you will pay the age 65 rate for that year. However, the following year, you will pay the age 66 rate. Therefore, with each passing year, the rate will increase based on your age) -guarantee that the policy will automatically renew at the end of its term -new renewal period will be for the same term as originally purchased -payment of higher premium at each renewal results in step-rate premium -renewable term policies expire at an age specified in the policy

Term Insurance

-only offer a death benefit and remain in force for a specified period of time/term. -no death benefit is payable if the insured dies after the term expires

Variable Policies

-permanent insurance policies designed to provide lifetime coverage for the insured and have cash value and a death benefit -major advantage: policyowner can participate in various types of options while not being taxed on the earnings until the policy is surrendered -life insurance plus investments -must have life insurance license & securities license -investments are in the separate account (securities); owner can lose money

Equity Indexed Universal Life

-permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index -current interest on cash account: up or down based upon stock market index; account still guaranteed by the company -stocks have no stated rate of return and may even lose value

fixed premium schedule

-policyowner selects the mode of payment for the policy's level premium on a fixed schedule (i.e., monthly or something else) -if premium is not paid when it is due, policy will go out of force/lapse

return of premium term

-rate of premium term policies will return all or part of the premium paid for the policy if the insured is still alive at the end of the term -premium for this policy will be higher than regular term insurance policy and the premium will also be dependent on % of premium that will be returned -return of premium policy is more expensive than level term policy

disadvantages of term insurance

-term coverage lasts only for term of policy (like renting, not owning the policy) -term premiums increase as the insured gets older -renewability features expire before the age of average life expectancy. as a result, individuals may not be able to obtain or afford coverage at older ages when their risk of dying is greater

Joint Life Policy

-usually covers 2 or more lives with the death benefit being paid when the first insured dies (aka first-to-die policies) -once the death benefit is paid out, policy ends -costs less than 2 individual policies

Which of the following insurance policies allow for partial surrenders from the cash value? A) whole life B) universal life C) convertible term D) single premium whole life

B) universal life *Both whole life & universal life policies allow policy loans from the cash value. Only universal life allows withdrawals or partial surrenders that do NOT have to be paid back.

Benefits that are available when the insured is still alive are known in the insurance world as A) retirement accounts B) saving accounts C) living benefits D) investments

C) living benefits *Life insurance policies offer death benefits and living benefits. Living benefits are available for use while the insured is still alive.

All of the following are advantages of whole life insurance EXCEPT A) premiums are lower than other types of life insurance policies B) whole life insurance has guaranteed level premiums and does not expire C) cash values accumulate tax deferred D) whole life insurance is permanent coverage

C) premiums are lower than other types of life insurance policies *Whole life policies have higher premiums than term life insurance.

Universal Life

Death Benefit: adjustable, or level, or increasing options; Option A: level death benefit (insurance amount only); Option B: increasing death benefit (insurance amount plus cash account) Premiums: flexible schedule, flexible amount Cash Values: current interest rate with guaranteed minimum rate; cost of insurance withdrawn monthly; fees withdrawn monthly

Variable Universal Life

Death Benefit: adjustable; level or increasing options (no guaranteed death benefit) Premiums: flexible schedule, flexible amount Cash Values: varies w/ investment performance; no guaranteed minimum at risk for loss

Current Assumption Whole Life

Death Benefit: fixed and level Premiums: fixed schedule; amount may increase or decrease, but may not go above a guaranteed maximum Cash Values: current interest with guaranteed minimum rate

Whole Life (permanent) insurance

Death Benefit: fixed and level; amount at risk to the company; plus cash values Premiums: fixed schedule, level amount Cash Values: fixed and guaranteed interest; may be surrendered; may be borrowed; endows at age 100 Policy is guaranteed to remain in force for the insured's entire lifetime ("whole life") provided the required premiums are paid, or to the policy mature date -Whole life insurance is designed to remain in force for the whole life of the insured and premiums will never increase **more affordable at older ages

Level Term

Death Benefit: level; expires at end of term Premiums: level for the term; fixed schedule, increases at each renewal Cash Values: none policy's term of coverage may be expressed in reference to either number of years (i.e., 1-year term) or specified age (term to age 65)

Variable Life

Death Benefit: varies w/ investment performance; original face amount is guaranteed minimum; can increase (death benefit is guaranteed) Premiums: fixed schedule, level amount Cash Values: varies w/ investment performance; no guaranteed minimum at risk for loss

Living Benefits

financial benefits that are available while the insured is still alive

level premium

purpose of level premium (w/ WL policies) is to make lifetime coverage affordable at older ages