Chapter 4 Types of Life insurance Policies (Pt1)

Multiple Protection Policies is

an insurance that pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after certain period, only face value of policy is paid.

Investor-owned life insurance (IOLI)

an investor pays a person to take a considerable life insurance policy for that person. The investor pays the person's premiums in exchange for their life insurance benefits.

Credit policy

are typically decreasing term policies with terms matched to the length of the loan along with the decreasing insurance amount matching the declining loan amount.

Convertible Term Policy is when

the insured person can change the policy from convertible to permanent without showing proof/evidence of insurability. Meaning without taking a physical, tends to be more expensive.

Types of whole life insurance include

1.) Straight whole life 2.) Limited Whole life 3.) single premium- whole life 4.)modified whole life 5.) graded whole life

What are the new life products (after 1980's) that were created to keep up with inflation and are interest sensitive? (5)

1.Interest sensitive whole, 2.adjustable life, 3.universal life, 4.variable life, and 5. variable universal life

Whole life last until death or usually what age?

100 years

Non-Medical Life Insurance

Non-Medical Life Insurance typically does not require a medical exam and tends to be more expensive than medically underwritten policies.

In Level Term, premiums tend to be ____than annual renewal terms, because they are level throughout the policy period.

higher

Whole life is similar to buying a

house. You can chose to pay it off fast or slow but once it's paid of it's yours.

S&P 500

market index of U.S. equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market

Family income policy term rider starts at the date of

purchase

Credit policies can only be in the amount of

the debt of loan outstanding

If a customer wanted coverage at the lowest possible cost that was good for a LIMITED period of time but offered the ability to continue coverage at expiration, they would want what kind of term?

A Renewable term

Annual Renewable Term is

A Term Life Insurance contract which gives the policyowner the option to renew the policy each year without showing proof of insurability. Premiums increase at each renewal.

Group Life

A life insurance policy that is offered to a group of people under a master policy and that does not require medical examinations if purchased during the initial eligibility period. It is usually issued to an employer for its employees or to members of an association.

Limited Pay Life is

A permanent life insurance policy in which the insurer's is covered their entire life(or age 100) but premiums are paid for a specified/ limited number of years or to a specified age of the insured. As premiums payment periods shorten, the cash value increases. Generally premiums are higher for this type of plan because they are only paid for a certain amount of time as opposed to your whole life, (ex straight life)

Accidental Death and Dismemberment (AD&D)

An insurance policy provision that protects the insured if he or she suffers loss of sight or loss of limb(s) or death by accident

Term Life is

An insurance policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. It only pays a death benefit if the insured dies during the policy term, and is a pure insurance policy that includes no cash value.

Since Level term has higher premiums, why might it actually save someone money in the long run as opposed to annually renewable?

Annually renewable premiums start off little but rise every year. Level term life premiums also rise at renewals but after a certain set of years. (ex 10 years) Annually renewable is only cost affective for a few years.

Modified Endowment Contract (MEC)

Any cash value policy that builds cash value faster than a Seven-Pay Whole Life Contract and therefore loses the tax advantages of life insurance. It is overfunded according to the IRS and treated as an investment/ just as taxable as income tax. Taxation only occurs when cash is distributed. If withdrawn prior to age 59 1/2 a 10 % penalty will be assessed. Subject to LIFO tax (last in first out)

Joint and Survivor (Second to Die) Or ( Survivorship life policy)

Benefits covers two lives but the benefit is paid upon the death of the last surviving insurer.

If you take out a term policy when you are young and want to take advantage of good health and the policy's lower premium but want the option to convert to a permanent policy once your finances get better, you would want what kind of term policy?

Convertible

Joint Life Policy

Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates. The age of the insurers' are averaged and a single premium is charged. The survivor has the option to change plan to a individual policy without evidence of insurability.

Attainable age

Current age at time of new insurance plan

Single Credit life insurance

Designed to cover the life of the debtor and pay the amount due on a loan if a debtor dies before loan is paid.

Seven-Pay Test

Determines whether a life insurance policy is a modified endowment contract, which it is if cumulative amounts paid under the contract at any time during the first seven contract years exceeds the cumulative amount that would have been paid had the policy's annual premium equaled the net level premium for a seven-pay life policy of the same type, using certain required assumptions

If you wanted a policy that would pay your beneficiary your income when you die, but only for a certain amount of time from when the policy started (ex 10 years) but also offers a full death benefit if outside of that period, you would want

Family income policy

If you wanted a plan where you were covered permanently but you could have your wife and children covered as temporary with the option to convert to permanent in the future you would probably want what type of policy?

Family plan policy

Whole life generally has what type of premiums?

Fixed/Level premiums

If you wanted to pay lower premiums for 5 years, but have them gradually increase each year until year 5, and then become fixed, you would want what type of insurance?

Graded whole life

What is a payor provision?

In the event of the death or disability of the adult premium payor, the premiums will be waived until the child reaches a specified age (18, 21 or 25) Typically added to juvenile insurance.

What is type of term insurance is often tied to the cost of living index, or consumer index? Which may occur as a rider to protect against inflation?

Increasing term life

Ordinary Life Insurance

Individual life insurance that includes many types of temporary (term) and permanent (whole) insurance protection plans written on individuals. Premiums are normally paid monthly, quarterly, semiannually, or annually. Ordinary life insurance is the principal type of life insurance purchased in the United States and includes such types of insurance as whole, term, universal, and variable life coverage as well as endowment policies.

Variable Universal Life

Insurance that builds cash value but the premium is flexible (as opposed to Variable whole life). The cash value can be invested into available separate accounts at the choice of the contract owner in which the value varies. The flexibility allows adjustable death benefits, with minimum death benefit guaranteed but potential for higher returns or loss. - Mortality Rates are current & have a guaranteed maximum - Yes, investment options - Yes, partial surrenders Evidence of insurability is usually required when increasing death benefit.

Modified Whole Life is

Insurance with level premiums for designated timeframe (typically 5 years); higher premiums thereafter. Premiums increase just once, but remain fixed after.

Interim Term

Interim term coverage provides instantaneous coverage and is intended for people who plan on purchasing permanent life insurance coverage within one year. Usually set up to automatically change over.

What happens to the premium when you renew term insurance?

It typically goes up

What type of insurance would you want if you wanted to get a lower premium by averaging your age with your spouse?

Joint Life

If R needs life insurance that provides coverage for the remainder of only her working years and wants to pay as little as possible, R wants

Level Term insurance

Adjustable Life

Life insurance which permits changes in the face amount, premium amount, period of protection, and the duration of the premium payment period. Allows you to change plan as needed without making a new one. No evidence of insurability is needed(unless increasing face value) Defined by the flexibility of combining whole life and term life. Can be converted to whole life or term life, or limited premium life.

a plan that you pay premiums on until you're 65, or you plan to pay for a certain number of years(ex 20) but it still covers your entire life is

Limited Pay Life

What is decreasing term insurance most commonly used for?

Loans or Mortgage protection/ payoff

If you wanted to pay a lower amount for 5 years, and then pay a fixed higher amount for the rest of your life you would want what type of insurance?

Modified Whole Life

If using convertible term insurance, will your premiums still be the same when you convert since you are in good health?

No, they will go up based on your attained age/current age.

Single Premium Whole Life

Paid up for life with one large premium payment and have coverage for your entire life

Participating vs Nonparticipating

Participating= allowed to share policy owners and receives dividend payments. nonparticipating = Not sharing access to policy earning resulting in no dividends with earnings and mortality experience of insurer do not influence premiums.

Equity Index Universal Life Insurance

Permanent insurance plan that allows policyholders to link accumulation values to an outside equity index/stock market index.( like the S&P 500) 80-90% is invested in traditional fixed income securities and the remainder is invested to contract tied to a stipulated stock market index. Minimum guaranteed fixed interest rate along with the indexed account option. (possible extra interest &growth) If the return on the index exceeds the policy's guaranteed rate of return, the cash value will reflect that of the index

Juvenile Insurance

Permanent insurance written on underage children (usually from one day to age 14 or 15 years.) The adult applicant is the premium payor. A payor provision is typically attached

Level Term (also known as Level Premium Level Term ) :

Premiums and death benefits(face amount) stay the same for the life of the policy.

Interest Sensitive Whole Life (assumption whole life insurance)

Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors. Cash life can exceed the stated guaranteed amount if economic conditions warrant. It gives the insurer the opportunity to increase the face amount or use the extra cash value to lower future premiums.

What accumulates with whole life insurance?

The cash value

Family Maintenance Policy

Same as whole life but with Level Term rider; upon death, pays monthly income for certain amount of time with fixed benefits for that time frame, and then pays face value after income the benefits. It is called maintenance because it maintains the family using a level term starting at the time of the insurer's death.

An immediate nonforfeiture is created, an immediate cash value is created, and a large part of the premium is used to set up the policy's reserve in what type of insurance?

Single Premium whole life

What type of insurance is paid until age 100(maturity of the policy)....which is the same as the face amount because it has level/fixed premiums?

Straight life insurance (ordinary )

What type of life insurance is typically inexpensive? (whole or term)? A: ____ insurance

Term Life

What type of insurance gives you the greatest amount of coverage for a certain period of time?

Term Life Insurance

Renewable Term is

Term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability. Premiums increase each renewal.

Family Income Policy is

The same as whole life but with Decreasing Term rider; Will pay a monthly income to beneficiary upon death of insurer within a certain period time from when the policy started. If the insured dies after the certain time period, then only face value is paid. Decreasing term expires after set time period.

What is an advantage of joint life/ survivorship policies?

They have lower premium cost as opposed to 2 separate individual plans with two premiums.

Increasing term life insurance is

This form of term life features a death benefit that rises over time, usually a stated amount or a percentage of the original amount. It is most commonly used as a "cost-of-living increase" rider on a permanent life insurance policy. The premium normally remains level, though at a higher level than either level or decreasing term.

Re-Entry Term (revertible)

This option gives the insured the opportunity to show evidence of insurability at the end of the term to qualify for a possible continued lower premium at renewal.

With level term, premiums increase at each renewal? T/F

True

indexed account option

gives policyholders the security of a minimum guaranteed fixed universal life component along with the growth potential of variable life insurance.

Stranger/Investor-Owned Life Insurance (STOLI)

When a person purchases life insurance to sell to a third party with no insurable interest. The third party could not take out the original life insurance because it would be illegal. This is usually prohibited in most stated.

Provides both living and death benefits, and provides permanent death protection for the insurers entire life is what type of insurance?

Whole life insurance

Do you pay level premiums on a credit policies/decreasing term insurance?

Yes

Does term life offer the same face value as whole life?

Yes

Is term life is often renewal and convertible?

Yes

If you renew or convert an insurance policy an insurance company will use what to determine new premiums?

Your attainable age

Surrender Charge

a fee charged to the insured when a life policy or annuity is surrendered for its cash value

Variable Whole Life Insurance

a fixed-premium policy in which the death benefit and cash values vary (not guaranteed) according to the investment experience of a separate account maintained by the insurer. There is a guaranteed minimum death benefit which may also fluctuate over the minimum. The separate investment account held by the insurer houses common stock, bonds, money market, and other security investment options. Was created to help offset the inflation of the death expenses. The

Universal Life Insurance

a flexible premium, adjustable death benefit life insurance contract that accumulates cash value. Part of the premium goes into a separate investment account and grows interest. Allows policy owners to borrow/withdraw cash value. (subject to surrender charge) Includes a mortality charge that increases over time.

Mortality Charge

a part of a life insurance premium includes company expense, loading charges,

straight life insurance (ordinary) is

basic whole life insurance with level face amounts and fixed premiums payable over the insured's entire life. The premiums are paid until death or the face value is met. Which means when the insurer is aged 100. (maturity of the policy)

Whole life offers "living benefits" such as

cash value and policy loans

Family maintenance policy term rider starts at date of

death

Universal Life Option A or one

death benefit equals cash value plus remaining pure insurance (face value). This is (decreasing term plus increasing cash value). If the total death value is over what is federally allowed an additional amount of pure insurance is added to lower it to the federally allowed amt.

Universal Life Option B or two

death benefits equal the face value (pure insurance) plus cash value (level term plus increasing cash value) to comply with the tax law, cash values cannot be disproportionately larger than the term insurance portion.

back-end load

fees assessed when surrendering a policy

front-end load

fees assessed when the policy is initially issued

Industrial Life

insurance issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Family Plan Policies is

insurance that covers the family head with permanent (whole) life insurance, and the coverage on spouse and children are term insurance in the term or a rider. It combines whole life with decreasing terms for all family members. It is cheaper than every family member getting their own policy.

The number one factor that impacts life insurance premium is the:

insurer's current age/ attainable age

Term Riders

is a type of life insurance that product that covers children under the parent's policy

whole life insurance is

kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be. It also provides a cash value. It usually includes level premiums and matures at the age of 100.

A term rider is always

level

Decreasing Term Insurance

term insurance in which the annual premium remains constant/level but the face amount of the policy declines each year.

Special uses policies

when insurer packages two or more coverages (usually permanent and term) to fit needs of client

Graded Whole Life is

when the premium increases yearly for a stated number of years, then remains level. Premiums continue to stay level for the remainder of the policy after certain period. The policy can start out low in a graded whole life and increase a small amount every year up until the specified year, then levels off for the remainder of the policy.

If you renew or convert insurance to a new type, what is locked in?

your insurability

Advantages of Whole Life Insurance

• Covers the entire life of the insured • Living benefits - "cash value and policy loans" • Fixed premiums

Drawbacks of whole life insurance

• Protection is more expensive because of living benefits. • Premium paying period may extend beyond the income-earning years