6.1 Life Insurance

What are the types of level term?

- Annual Renewable Term - Level Premium Term

What are the advantages of term life insurance for insurers?

- For most people term insurance is temporary protection that cannot be renewed beyond a certain age, such as 75. - The insurer is betting the insured will live beyond the policy period, so the death benefit will not be paid out.

What are drawbacks of term life insurance?

- No living benefits - As a long-term life insurance tool, term insurance can be increasingly expensive. Each time a term policy is renewed, the premium increases. Term renewals use the attained age of the insured to assess mortality, not the original age at policy application. As a person ages, the likelihood of death is greater, and term insurance accounts for this by increasing premiums. - If term insurance must be discarded due to expense or the insured has surpassed the maximum age limit, then the insured may be left without any life insurance protection when it is needed most.

What are the advantages of term life insurance for consumers?

- Term insurance provides the largest amount of coverage for the least amount of premium. - Term insurance is appropriate for a person wanting to insure a short-term or long-term debt, such as a car loan or mortgage, respectively. - Term insurance is also appropriate for young families or young professionals who require a large amount of coverage, but cannot afford the larger premiums of permanent insurance until later on when their financials are more established.

What are the 3 main types of term life insurance?

1. Level 2. Decreasing 3. Increasing

What are the other types of term insurance?

1. Reentry term 2. Indeterminate Premium Term 3. Interim Term 4. Return of Premium (ROP) Term Policy 5. Life Expectancy Contract

What is a common use for decreasing term insurance?

A common use for decreasing term insurance is mortgage protection to pay off the mortgage in the event that the debt is outstanding when the insured dies.

Annual Renewable Term

Annual renewable term (ART) or yearly renewable term (YRT) provides a level face amount with an increasing premium. ART is guaranteed renewable annually without proof of insurability. ART usually has a maximum age at which the policy is no longer renewable.

In decreasing term, what happens as the mortgage is paid off?

As the mortgage is paid off, the amount of the term coverage decreases to match the balance of the mortgage. Decreasing term = falling death benefit

What does convertible term allow policy owners to do?

Convertible term allows term life policyowners to convert their term insurance into permanent policies without showing proof of insurability.

How is coverage provided in group life insurance?

Coverage is provided to the members of the group under one master contract. The group is underwritten as a whole, not on each individual member.

What does decreasing term insurance provide?

Decreasing term insurance provides a face amount that decreases to zero over the policy period.

Life Expectancy Contract

For a life expectancy term insurance contract, the number of years that the term policy will be in force is determined by the average life expectancy for insured's age and sex classification.

If the policy in term life insurance is renewed, why is the premium increased?

If the policy is renewed or converted, the premium is increased because the insured is older, requiring a higher premium.

In order to provide a level premium, what must the policy have?

In order to provide a level premium, the policy must have a premium that is on average higher in early policy years in order to offset the lower premium in the policy's later years.

What does increasing term insurance provide?

Increasing term insurance provides an increasing face amount with level premiums. The increase occurs at certain intervals over the policy period. Increasing Term = Rising Death benefit

Indeterminate Premium Term

Indeterminate premium policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. The fluctuating premiums account for the insurer's actual mortality expense and investment experience. Premiums are typically lower in the early policy years.

What kind of insurance is home service insurance?

Industrial life insurance - issued in very small face amounts, such as $1,000 to $5,000 - premium paid weekly or monthly

Level Premium Term

Level premium term, sometimes referred to as level premium level term, provides a level face amount with level premiums during the policy term. If the policy is renewed after the term expires, the policy premiums will be based on the insured's attained age, or the insured's present age at the time the policy is renewed.

What does level term insurance provide?

Level term insurance provides a level face amount throughout the policy period.

Reentry Term Insurance

Reentry term insurance, sometimes referred to as reissue, permits the policyowner to renew a term life policy at the end of the policy period by providing evidence of insurability, so the insured can obtain a lower premium than the renewal premium that is offered without evidence of insurability. In essence, the insured is applying for renewal coverage as if he or she was a new applicant.

What does renewable term allow policy owners to do?

Renewable term insurance allows the policyowner to renew the term policy after the designated term expires, without having to prove insurability.

What does the convertibility feature in a decreasing term policy allow a policyowner to do?

The convertibility feature in a decreasing term policy allows the policyowner to convert the term coverage to permanent coverage at any point during the policy period at the amount of the coverage at that point in time.

What element varies in level, decreasing, and increasing term life insurance?

The face amount

Return of Premium (ROP) Term Policy

The longer the term, the lower the premium. Premiums are returned to the insured if no death benefit has been paid and are not taxable.

What kind of ordinary life insurance provides both a death benefit and life benefits?

Whole life insurance

Interim Term

Interim term coverage provides instantaneous coverage and is intended for people who plan on purchasing permanent life insurance coverage within a year. Interim term is frequently offered to automatically convert to permanent coverage at a specified date in the future. The premium for interim term is based on the insured's age upon application. The premium for permanent coverage is based on the insured's attained age upon conversion to permanent protection.

What are the 3 main types of life insurance?

Ordinary Life, Industrial Life, and Group Life

Why is decreasing term usually not renewable upon policy expiration?

Some decreasing term insurance is convertible, but is usually not renewable upon policy expiration because the face amount is zero at the time of policy expiration.

What types of insurance does ordinary life insurance encompass?

Temporary (term), Permanent (whole), Universal, Variable and Other interest-sensitive plans

What kind of ordinary life insurance provides only a death benefit?

Term life insurance

What are step-rate policies?

Term policies that increase premiums upon renewal are called step-rate because the initial premium literally steps up to a higher amount each time the policy is renewed.

What are Term to 65 contracts?

Term to age 65 policies cover the insured to age 65. The premiums are level throughout the term of the policy. At the start of the policy, the policyholder pays a higher premium than he or she would for a shorter-term policy in order to build up extra cash reserves that keeps the premiums level until policy expiration. Term-to-65 = Option to Convert to Cash-Value Policy

How does the premium vary in level, decreasing, and increasing term life insurance?

The premium is usually level (constant) throughout the policy term.