Unit 3: Types of Life Policies

Types of term policies

1. Level 2. Increasing 3. Decreasing (L.I.D.)

Jumping juvenile policy

A common type of policy because it automatically increases in face amount at a given age,* usually 21,* but the premium remains level.

Juvenile life insurance

Any form of coverage written on the lives of minors/children.

Variable life policies

Have a level premium

Whole life: permanent life build cash value

Term: Term insurance provides coverage for a specific period of time; it is pure protection.

Whole life insurance

The policy is designed to provide coverage for the whole of life actually up to age 120, which is the highest age included in the current mortality tables.

Family maintenance policy

Whole life and level term

Individual ordinary insurance

individually own life insurance.

Limited payment whole life

policies and laws of policy owner to pay for the entire policy in a shorter period of time or to a specific age.

Variable life insurance characteristics:

-A level premium -A guaranteed minimum death benefit -Cash values that are not guaranteed - Regulated as securities.

Types of whole life policies

1. Continuous premium whole life street life inter 2. Single premium whole life 3. Limited payment whole life

Characteristics of whole life insurance

1. Endows at age 100 2. Matures at one of two events 3. Level premiums enter 4. Level face amount enter 5. Guaranteed cash value

Classes of life insurance

1. Individual or ordinary life insurance 2. Group life insurance 3. Credit life insurance 4.Industrial or service life insurance

Specialized policies

1. Joint life policies 2. Juvenile policies 3. Flexible policy 4. Adjustable life insurance 5. Universal life insurance 6. variable life insurance 7. Variable universal life insurance

Endow at age 100

A whole life contract is designed to invalidate 100 which is the age when the cash value equals the face amount.

Whole life insurance

Aka permanent insurance. If the policy were to actually allowed to reach its maturity date, the cash value would equal the face amount and the net insurance protection would have declined to 0.

Universal life insurance policies

Allow policy owners to adjust the death benefit and or premium payments, unlike whole life policy where the premium is fixed and never changes

Convertible term policy

Allows a policy owner to convert or exchange the temporary protection for some form of permanent protection without evidence of insurability . any type of conversion from term to cash and vice versa.

The cost of insurance will always overshadow any growth for cash value

Always blows up you just don't know when because of the stock market.

Level premiums

Annual premiums for whole life policies are level and guaranteed for as long as the policy remains in effect

Modified whole life policies

Are distinguished my premiums that are lower than typical whole life premiums during the first few years, usually three to five years, and then higher than normal afterwards.

Whole life premiums

Are higher because they have to cover mortality cost, expenses, and the savings account.

Variable universal life insurance

Backed by equity investments and allows the policy owner to adjust the amount of the death benefit and or the premium.

Premiums for limited payment policies will be higher than those for continues Payment Policies,

Because the total premiums has to be paid over a shorter period of time. (The cash value will also be slightly higher because more money is paid into the contract during the early years).

Uninsured make cash in a policy at any time

By surrendering it in exchange for cash value

Family income policy

Combines decreasing term insurance with a permanent policy

An insurer must establish a separate account / separate asset, for its variable products

Consists primarily of a portfolio of common stocks and other security based investments. Considered an investment risk, *there can be no guarantees as to future value.*

For fully guaranteed contracts, and insurer maintains a *general account aka general asset *,

Consists primarily of safe and conservative investments *fixed income and money market funds.*

Joint life policies

Covers two or more people. It pays at death of the first insured.

Decreasing

Decreasing death benefit in decreasing or level premium

Matures at one of two events

Either death of the insured or age 100 whichever comes first

FINRA

Financial Industry Regulatory Authority

Universal life has

Flexible premiums, choice of two death benefits, permanent insurance to age 100, and unbundling of premium. Premium is based on mortality + cost of insurance + interest. No securities license is required to sell it.

Limited pay whole life

Higher level premiums are paid for a specific period of time: 10 years, 20 years, 40 years, or at age 65. Still in endows at age 100.

Universal life insurance

Is known as a flexible policy. Developed in response to the relatively low interest rates earned by traditional whole life insurance cash value.

A renewable term policy

Issued for specified term and may be renewed at the end of that term *without evidence of insurability*

Credit life insurance

Issued on an individual or group basis to cover the lives of debtors for the benefit of creditors. It is written specifically to protect the balance of an unpaid loan if the debtor should die prior to paying the the indebtedness

level

Level death benefit and premium

Modified whole life

Lower premium for first 5 years with 1 premium increase

Graded premium whole life

Lower premium for the first year with one gradual increase every year until level. Endow at age 100.

Whole life policies

Mature at the death of the insured, or at age 100, whichever comes first.

Borrow a portion of the cash value in the form of a policy loan

Must be paid back with interest in order to restore policy values.

Group life insurance

Never ordinary. Frequently issued to employers, labor unions, trust, or associations to cover employees or members.

Pair benefit provision

Often included in a juvenile policy for an extra premium it provides that the premium on the child policy will be waived if the applicant dies or becomes disabled before the child attains a stated age, usually 21.

Term insurance

Provide temporary insurance protection for a specified period of time (the policy term), pea death benefit only if the insured dies during the term of coverage and does not accumulate cash value.

OPTION 1 regarding the death benefit payable under a universal life policy.

Provides a level death benefit equal to the policies basement as the policies cash value increases, net the protection actually decrease is over the life of the policy, which making the policy structure similar to a whole life contacts. Either one

OPTION 2 regarding the death benefit payable under a universal life policy.

Provides for an increasing death benefit equal to the policy's face amount plus the cash account so both cash and benefit.

Sec

Securities and Exchange Commission

Single premium whole life

Simply a whole life policy with one premium payment (a lump sum amount which, together with the interest it will learn, will be sufficient to cover all future premium payments.)

Graded premium whole life policies

Slightly different than modified life policies. This policy is a gradual increase in premium compared with a modified life, which has just one increase.

Industrial life insurance

Small amounts, face value of $2000 or less, and is characterized by frequent premium payment collected by the agent. May not exceed $10,000. No longer marketed but policies are still in force.

Whole life: remain in effect until age 100 as long as premiums are paid

Term: term insurance does not have cash value

Whole life: guaranteed interest rate

Term: term insurance will provide the highest face amount for the lowest premium

During the initial period of modified whole life policies

The coverage in premium are based as if it was the term life policy. Afterward, the premium is higher than that of a typical whole life policy.

Equity index

The death benefit is usually linked to an equity index the insurance company may simply increase in premium when it increases the coverage, or it might make advanced assumption about the rate of inflation and charge a slightly higher premium from the original inception date.

Level face amount

The face amount of the policy (the amount payable upon death at any age) is fixed and will not change while the policy remains in effect

Continuous premium whole life straight life.

The most common type of whole life insurance old. These policies just the premium payments over the whole life of the insured (to age 100 or earlier death). It does not deviate in any way from the whole life concept.

Adjustable life insurance

The policy owner can adjust face amount with evidence of insurability, premiums increase or decrease, plan type whole or term. Insured selects two of these; insurer determines third. Changes made on anniversary date annually are *NOT* retroactive.

Family Protection Policy

This type of policy consists of whole life on the breadwinner and convertible term on the spouse and children. Once the policy is issued *additional children are automatically included at no extra cost*

Variable life insurance / variable whole life

This was developed in response to the low returns earned by traditional cash value policies. Death protection and saving / investment element.

Free universal life policy is similar to a whole life policy

Two components death protection and cash value. premium amounts may be changed as long as enough premium is paid to maintain the policy.

Indeptedness

When a policy owner takes a cash value loan, the amount borrowed and any accumulated interest due on the loan go against the policy.

Guaranteed cash value

Whole life policies included savings element that is guaranteed to accumulate and earn a specified rate of interest. The policy has little or no cash value during the first couple of policy years after the 3rd or 4th policy year cash value begins to accumulate.

Increasing

Increasing death benefit an increasing or level premium

Survivorship life policies

Second to die okay see a certain amount, not upon the death of the first since you're done but upon the death of the last surviving insured.