Insurance: Types of Life Polices

Straight life

(also referred to as continuous premium whole life) is the basic whole life policy. The policyowner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever occurs first). Of the common whole life policies, straight life will have the lowest annual premium

Fixed Annuity

1. Guaranteed minimum rate of interest to be credited to the purchase payment or payments; 2. Income (annuity) payments that do not vary from one payment to the next; 3. The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant

Pure death protection

1. If the insured dies during this term, the policy pays the death benefit to the beneficiary; 2. If the policy is canceled or expires prior to the insured's death nothing is payable at the end of the term: 3. There is no cash value or other living benefits

Joint Life

2 or more annuitants receive payments until first death, then payments cease

License Requirements

A variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations

Renewable provision

Allows the policyowner the right to renew the cover age at the expiration date without evidence of insurability

Universal life

Also known as flexible premium adjustable life. That implies that the policy owner has the flexibility to increase the amount of premium going paid into the policy and to later decrease it again.

Indexed (or equity indexed) annuities

Are fixed annuities that invest in a relatively aggressive basis to aim for higher returns

Lump sum

At annuitization, and all interest accumulated is taxable. Additional 10% penalty can be imposed prior to annuitant's teaching 59 1/2

Adjustable life

Can assume the form of either term insurance or permanent insurance. Was developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage).

Guaranteed

Company must pay this minimum percentage. Typically around 3%

Current

Exceeds guaranteed rate. Paid to annuitant when a company's own investment is better than expected. "Bonus".

Increasing term

Features level premiums and a death benefit that increases each year over the duration of the policy term. Increasing term is often used by insurance companies to fund certain riders that provide a refund of premiums or a gradual increase in total coverage, such as the cost of living or return of premium riders

Refund life annuity

Guaranteed lifetime income. If annuitant dies, balance is "refunded" to beneficiary. Installment option gives beneficiary payments until purchase amount is paid out. Cash refund gives refund of balance of original annuity purchase amount minus payments made to annuitant

Fixed Annuities

Guaranteed, fixed payment amount. Premiums in general account.

Owner

Has all rights to policy (usually annuitant). Can be corporation or trust.

Flexible Premium

In which the amount and frequency of each installment varies

Periodic payments

In which the premiums are paid in installments over a period of time

Joint and Survivuor

Income for 2 or more that cannot be outlived. Often used with period certain. When one annuitant dies, the other receives either 1/2 or 2/3 offhe orginal payment amount

Life Only

Insured cannot outlive income. Any monies not paid out are retained by company at insured's death. Pays highest monthly amount.

Annuitant

Insured. Policy issued on annuitant's life. Must be a person

Equity Indexed Annuities

Interest rate tied to an index. Earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds

Variable universal life

Is a combination of universal life and variable life. Like universal life it provides the policyowner with flexible premiums and an adjustable death benefit. Like variable life the policy owner rather than the insurer decides where the net premium (cash value) will be invested.

Annuity

Is a contract that provides income for a specified period of years, or for life. An annuity protects a person against outliving his or her money.

Interest sensitive whole life or current assumption life

Is a fixed premium whole life policy that provides a guaranteed death benefit to age 100

Permanent life insurance

Is a general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid.

Target premium

Is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime

Joint life

Is a single policy that is designed to insure two or more lifes. Joint life policies can be in the form of term insurance or permanent insurance. The death benefit is paid upon the first death only.

Deffered Annuity

Is an annuity in which the income payments begin sometime after one year from the date of purchase

Limited Pay

Is designed so that the premiums for coverage will be completely paid up well before age 100. Also wellmsuited for those who don't want to be paying premiums beyond a certain point in time.

Variable life insurance

Is much like traditional whole life insurance. It is a fixed-premium policy with the addition of an underlying investment account. However, it does not contain the same guarantees of principal and interest that are found in traditional whole life policies.

Survivorship Life

Is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death.

Immediate Annuity

Is one that is purchased with a single lump-sum payment and provides income payments that start within one year from the date of purchase

Term Insurance or Pure Life Insurance

Is temporary protection because it only provides coverage for a specific period of time

Equity indexed whole life insurance

Is that cash value is dependent upon the performance of the equity index although a minumum cash value is guaranteed. Under this type of policy, the premium is fixed and the death benefit is guaranteed

Minimum premium

Is the amount needed to keep the policy in force for the current year. Paying the premium will make the policy perform as annually renewable term product.

Level term insurance

Is the most common type of temporary protection purchased. The word level refers to the death benefit that does not change throughout the life of the policy.

Accumulation Period or Pay-in period

Is the period of time over which the annuitant makes payments (premiums) into an annuity.

Annually renewable term (ART)

Is the purest form of term insurance. The death benefits remains level (in that sense, it's a level insurance), and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age as the probability of death increases

Annuity Period/Annuitization Period/Liquidization Period/Payout Period

Is the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant

Variable annuity

Is variable from the standpoint that the annuitant may receive varying rates of return on the funds that are paid into annuity

Interest Rate

Issuing insurance company does not guarantee a minimum interest rate

Return of Premium (ROP)

Life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specific period of time or if the insured outlives the policy term.

Single Payment

Lump sum

Single

ONE lump sum payments. The principal is created immediately (used for both immediate and deferred annuities).

Annuities Certain

Payment guaranteed for fixed period or until certain fixed amount paid. NO LIFE option.

Variable Annuities

Payment not guaranteed. Premiums are in separate account, and invested in stocks and bonds

Accumulation Phase

Payments in, to insurer

Annuitizatuon Period

Payments out, to insured

Decreasing term

Policies feature a level premium and a death benefit that decreases each year over the duration of the policy term. Decreasing term is primarily used when the amount of needed protection is fine sensitive, or decreases over time. Decreasing term coverage is purchased to insure the payment of a mortgage or debts if the insured dies prematurely

Whole life insurance

Provides lifetime protection, and includes a savings element (or cash value).

Convertible provision

Provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. The premium will be based on the insured's attained age at the time of conversion.

Immediate

Purchased with a single premium. Income payments start within one year from the date of purchase

Deferred

Purchased with ether lump sum or periodic-payments premium. Benefits start sometime after one year from the date of purchase (often used to accumulate funds for retirement)

Life with Period Certain

Specific monthly payment for life and a specific period of time (e.g. Life plus 10-year certain). If annuitant dies before payment period is up, payment goes to beneficiary.

Cash value

The cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 and is paid out to the policyowner. (Remember: the insured and the policyowner may not be the same)

Option B (Increasing Death Benefit option)

The death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.

Death benefit

The death benefit is guaranteed and also remains level for life

Option A (Level Death Benefit option)

The death benefit remains level while the cash value gradually increases, therefore lowering the pure insurance with the insurer in later years.

Underlying Investment

The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account, not their general account.

Annuitant

The person who receives the benefits or payments from the annuity

Living benefits

The policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered

Level premium

The premium for whole policies is based in the issue age; therefore, it remains the same throughout the life of the policy

Beneficiary

Will receive any amount contributed to annuity (plus any gain) if annuitant dies during accumulation period

Level Benefit Payment Amount

With fixed anuuities, the annuitant knows he exact amount of each payment received from annuity during the annuity period

Single premium whole life (SPWL)

is designed to provide a level death benefit to the insured's age 100 for a one time, lump sum payment

Periodic (Flexible)

multiple payments; annuity principal fund is created over time (used for deferred annuity only).