Term Life Insurance

Re-entry Rating at Renewal

Periodic evidence of insurability required -Insured completes underwriting questionnaire If no change in insurability, renewal premiums drop If adverse change in insurability, regular premium schedule applies Insurance company uses Re-entry Rating to protect against adverse selection

Key Term Policy Provisions

- Guaranteed maximum and current premiums - Renewable - Re-entry Rating at renewal - Waiver of Premium - Convertible - Level Death Benefit

Permanent life insurance provides:

-Coverage until death, and, in contrast with term life insurance, its premiums remain consistent throughout the life of the policy. -Cash Value withdrawal and life income options -Safety of principal -Minimum interest rate guarantee on CV accumulation -Disability waiver of premium -Accelerated Death Benefit -Death benefit and cash value usually not subject to creditor claims

Life Insurance Advantages

-Face amount paid immediately at death -Death benefit is income tax free -Not part of probate estate -No delay in payment, no probate fees -Policy proceeds protected from creditors

Renewable

-For a small additional premium, the policy owner has the contractual right to continue or renew the contract at the end of the term. -Can renew the coverage for successive terms at higher premium. Term premiums increase at each renewal. -insurers do not have to sign forms or provide evidence of good health at each renewal period. -Renewal at insured's attained age -Check maximum age for renewal guarantee -Check the renewal premium schedule ---Low initial with high renewal premium means higher total cost

Mortality

-Mortality varies based on the date of the mortality table -More recent the mortality table, the lower the term rates

What is term life insurance?

-provides coverage for a certain time period. -often called "pure life insurance" because it's designed only to protect your dependents in case you die prematurely. -If you die within the term, your beneficiaries receive the payout. -Policy expires at the end of the term period -No cash value accumulation -

Insurance Company Expenses

Acquisition expenses - commissions State premium taxes Federal income tax General operating expenses Underwriting expenses Claims expenses

policies to avoid

Credit Life -Coverage limited to loan amount -High rates with death benefit paid to the financial institution

Current Premiums

Current premiums reflect current mortality and insurance company expenses -Current premiums are not guaranteed

Level Term

Death benefit is level for the term period

A reducing term policy can always be converted to permanent based on the original issue amount True or False?

False

Beneficiary on a Credit Life Policy is:

Financial institution that extended credit

Advantages of Term

Greatest death benefit for lowest premium at initial issue -Best for temporary needs -Renewable and convertible (Guarantees future insurability)

term convertibility

Guaranteed conversion to permanent policy w/o evidence of insurability -converstion privilege often expires after a specified number of years or after the insured reaches a certain age. -Conversion at insured's attained age -Check if policy is convertible with waiver of premium rider even if insured disabled at date of conversion

Guaranteed Maximum Premium

Guaranteed maximum premiums reflect maximum mortality and insurance company expenses -Enable life insurance company to hedge possibility of increased future mortality

policies to avoid

Limited Benefit Policies -Open enrollment with no underwriting -High rates with limited death benefit -No death benefit the first two years (return of premiums only)

term insurance

Maximum death benefit at minimum premium -Initial term premium much less than permanent LI premium -Pure LI, no cash value

Disadvantages of Term

No cash value accumulation No loan value Premiums increase with age Coverage expires at end of term Stricter underwriting than permanent life insurance

Definition of disability

Own occupation for first two years; any occupation for which suited thereafter

Disadvantages of decreasing term

Reduction in death benefit and reduction in the conversion amount . -Premium may be level with decreasing coverage which means higher cost per $1,000 of insurance.

Waiver of Premium

Waives premium in event of total disability from sickness or accident -Waiver feature expires at age 60 -policy holder must be disabled for at least 6 months. Some policies will waive premium if insured disabled and policy converted to permanent insurance?

what does term insurance create?

an instant estate to cover temporary needs -Family Income for spouse and children -Debt liquidation -college education

Which statment is true regarding the conversion feature of a term life policy? a)insured must be in good health at date of conversion b)Premium at conversion is based on insured's attained age c)Premium at conversion is based on insured's age when policy originally issued d)Term insurance does not include a conversion feature

b)Premium at conversion is based on insured's attained age

Under re-entry rating, if adverse change in insured's insurability, renewal premium will

increase

5, 10, 20, 30 year -To age 65

typical term periods

Decreasing Term

Death benefit reduces over time -Reduction usually tracks a mortgage amortization schedule

policies to avoid

Decreasing Term -Annual reduction in death benefit and in conversion amount. Higher cost per $1,000 of insurance.