finance 8-10

Universal life insurance premium

A portion of a universal life insurance premium pays for a death benefit and —after the insurance company deducts its annual fees— the remainder of the premium is invested in a separate savings component where it accumulates cash value at a market-based interest rate

True or False: Under the terms of a standard universal policy, if Jake stops paying his premiums, then his policy will be cancelled and the value of the cash portion will be paid out to him immediately.

False

Convertibility provision

Felix is in law school and currently has $80,000 in student loan debt After completing law school, Felix finds a job with a good law firm and wants to switch to a plan that provides a savings component as well. He can achieve this without changing insurance companies as long as his original policy included a ______ provision.

term

Felix is in law school and currently has $80,000 in student loan debt Because of the relatively low premiums and high face value, the best option for Felix is a ____ life insurance policy.

term life insurance

I want a large amount of coverage but can only pay a small amount in the near future.

universal life insurance

I want flexibility in the amount I pay in premiums in each month.

whole life insurance & universal life

I want to use my life insurance as a savings vehicle as well.

whole life insurance & universal life insurance

If I decide to cancel my policy while I'm still alive, I want access to the cash value.

term life insurance

The cost of the death benefit portion of universal policies is only fixed for certain periods and rises with age, as is the case with term life insurance policies

Nonforfeiture Right

The right to withdraw the cash value of a plan at any time prior to the policyholder's death is due to which of the following?

policy loan

This is a cash advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder.

renewability

This is a provision of a term life policy that allows the insured to renew policy at the end of its term without having to show evidence of his or her insurability.

whole life insurance

This is life insurance that is designed to offer insurance coverage over an insured's entire life, and which offers both a death benefit and a saving function.

underwriting

This is the process by which insurers decide who can be insured and the appropriate rates and premiums.

multiple of earnings approach

This refers to a method of determining the amount of life insurance coverage needed by multiplying the insured's gross annual earning by some selected number.

True or False: Under the terms of a standard universal policy, if Clancy stops paying his premiums, then the administrative fee and cost of death benefit will be deducted from the savings portion of his policy (assuming sufficient cash value accumulation,) and the policy will remain active.

True

change-of-policy provision

allows you to change your policy without cancelling it

Universal Life Insurance

combines elements from term life insurance and whole life insurance - Term Life policies: provide a death benefitand no savings component - Whole Life policies: provide a death benefit bundled with a savings component, and universal policies provide a death benefit and a separate savings component

3 major types of whole life insurance

continuous premium (aka straight life), limited payment, and single premium

fixed-amount settlement option

if you'd like your beneficiaries to receive regular payments until the policy runs out, get the ...

contingent beneficiaries

in the event that your primary beneficiary does not outlive you, the benefits will be distributed among your contingent beneficiaries

Continuous premium whole life

insurance policies require policyholders to pay premiums each year until they die or cancel the policies - offers the greatest amount of death protection per premium dollar but the least amount of savings

premiums vary

premiums can vary considerably for similar policies, so you must plan to collect quotes from other companies as well

Single premium whole life insurance

provides lifelong coverage but is purchased with a single payment - This type of policy provides instant cash value and thus makes a more attractive savings vehicle than the other types of whole life

Limited payment whole life insurance

provides lifelong coverage, but the premium payments are structured such that the policyholder stops paying after a certain age, at which point the policy is paid up - A person who has sufficient life insurance already can use a limited payment plan as part of a savings or retirement plan, as it builds cash value faster than a continuous premium plan

primary beneficiary

the person who will receive the entire death benefit

True or False: Alternatively, the Taylors could have estimated their life insurance needs using the multiple-of-earnings method, a less complicated but less accurate method than the needs analysis.

true