Aflac- Types of Life Policies

Level Term Insurance

-"Level" refers to death benefit that does not change throughout life of policy -most common type Level Premium Term: -provides level death benefit and level premium Indeterminate Level Premium: -provides current premium scale (guaranteed) and maximum premium scale (guaranteed), beyond which premiums cannot be raised

Death Benefit Option B

-Increasing death benefit: includes annual increase in cash value so that death benefit gradually increases each year by amount that cash value increases -total death benefit will always be equal to face amount of policy plus current amount of cash value -since pure insurance remains level, expenses for option B are much greater, causing cash value to be lower in older years

Term Life Insurance: Special Features- Renewable and Convertible

-Renewable -Convertible -Renewable and Convertible Renewable: allows policyowners the right to renew coverage at expiration date WITHOUT evidence of insurability -premium for new policy is based on insureds current age Convertible: provides policyowner with right to convert policy to a permanent insurance policy WITHOUT evidence of insurability -premium is based on insureds attained age at time of conversion

Family Term Rider

Incorporates spouse term rider with children's term rider in a single rider -when added to whole life policy, family term rider provides level term life insurance benefits covering spouse and all children Family term = spouse term + childrens term

Joint Life

Single policy designed to insure two or more lives -can be in form of term insurance or permanent insurance -premium for joint life would be less than for the same type and amount of coverage on the same individuals Joint Whole Life: -premium is based on joint average age of insureds -death benefit is paid upon first death only -premium based on joint age is less than sum of 2 premiums based on individual age -joint life policies used when there is a need for two or more people protected, HOWEVER need for insurance is not present after first of insureds dies For example, a married couple purchasing a house may use a Joint Life policy for mortgage protection if both spouses work and earn close to the same amount of income. If one spouse dies, the insurance pays the mortgage for the surviving spouse. -also used to insure lives of business partners in funding of buy-sell agreements

Family Policy (Family Protection)

Combines whole life with term insurance to cover family in a single policy, providing coverage on every member -typically provides whole life on breadwinner and convertible on other members -spouse can convert coverage to permanent until age 65 -children automatically covered after birth for specified period of time (30 or 31 days); to continue coverage, parent must inform insurer of birth --> children can convert coverage to permanent at age 21 without evidence of insurability

Regulation of Variable Products

-dually regulated by State and Federal government -due to element of investment risk, federal gov. has declared that variable contracts are securities --> regulated by Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) --> also regulated by Insurance Department Agents selling variable life insurance products must: -be registered with FINRA -be licensed by state to sell life insurance -have received a securities license

Indeterminate Premium Whole Life Policies

-have premium rate that vary from year to year 2 Premium Rates: -guaranteed level premium: maximum premium -nonguaranteed lower premium rate: policyowner pays for a set period of time -after initial period (2-3) years, insurer establishes new rate which can be raised, kept the same or lowered -premium can never be higher than guaranteed maximum

Family Maintenance Policy

-life insurance based on family income policy which combines WHOLE LIFE with LEVEL TERM to provide beneficiary with income over a SPECIFIED PERIOD OF TIME if insured dies during that period -if insured dies within time period, level term insurance is sufficient to pay monthly income portion of contract -policy contains permanent life insurance protection to be paid upon death of insured -if insured survives time period, term portion expires with no value and contract is left with permanent life protection

Graded-Premium Whole Life

-start out low and then level off at a point in the future -typically starts with premium that is approx. 50% or lower than premium of straight life; then gradually increases each year for about 5-10 years, then remains level after -use as compromise between straight life and convertible term since premium is less than straight life in early years, but some cash value is accumulated -actual premiums paid are same as paying for straight life policy to age 100

Policies Compared

Adjustable Life Key Features: can be term or whole life; can convert from one to the other Premium: can be increased/decreased by policyowner Face Amount: flexible; set by policyowner with proof of insurability Cash Value: fixed rate of return; general account Policy Loans: can borrow cash value Universal Life Key Features: permanent insurance with renewable term protection component Premium: flexible; minimum or target Face Amount: flexible; set by policyowner with proof of insurability Cash Value: guaranteed at minimum level; general account Policy Loans: can borrow cash value Variable Life Key Features: permanent insurance Premium: fixed (whole life); flexible (universal life) Face Amount: can increase/decrease to a stated minimum Cash Value: not guaranteed' separate account Policy Loans: can borrow cash value

Flexible Premium Policies

Allow policyowner to pay more or less than the planned premium

Jumping Juvenile

Any life insurance written on the life of a minor -face amount increases at predetermined age, often 21; face amount jumps, but premium remains level

Whole Life: Modified Life

Charges a lower premium in first few policy years (3-5) then higher level premium for remainder of insured life -similar to term rates -higher subsequent premium is higher than straight life premium -developed to make purchase of whole life more attractive to individuals just starting out with limited financial resources and able to afford higher premiums as future income grows -use as compromise between straight life and convertible term since premium is less than straight life in early years, but some cash value is accumulated -actual premiums paid are same as paying for straight life policy to age 100

Variable Universal Life Insurance

Combines many features of whole life with flexible premium of universal life and the investment component of variable life -makes it securities version of universal life insurance Features and Characteristics: -flexible premium that can be increased, decreased, or skipped as long as there is enough value in policy to fund death benefit -increasing/decreasing amount of insurance -cash withdrawals or policy loans -unlike universal life, most investment vehicles in variable policies do not guarantee return

Whole Life- Limited Payment

Designed so premiums for coverage will be completely paid up before age 100 -common versions: 20 pay life (coverage paid for in 20 years) and life paid up at 65 (LP-65) (coverage paid for by age 65) -has shorter premium paying period than straight life, so annual premium is higher -cash value builds up faster -well suited for insureds who do not want to be paying premiums beyond a certain point in time

Single Premium Whole Life (SPWL)

Designed to provide level death benefit to insureds age 100 for a one time, lump sum payment -completely paid up after one premium and generates immediate cash

Guaranteed Universal Life Insurance

Eliminates reliance on market risk and provides more affordable coverage -does not accumulate cash value, allowing for lower monthly premiums -death benefit remains level due to no cash value -no lapse guarantee: as long as policyowner pays premium, coverage will remain in force -provides coverage up to a certain period; may be set for the rest of insureds life or up to specific age

Decreasing Term

Feature level premium and death benefit that decreases each year over duration of the term -used when amount of needed protection is time sensitive -commonly purchased to insure payment of mortgage or debts if insured dies prematurely -amount of coverage decreases as outstanding loan balance decreases -usually convertible but not renewable

Increasing Term

Features level premiums and increasing death benefit each year -amount of increase death benefit is a specific amount or percentage of original amount -often used by insurers to fund certain riders that provide a refund of premiums or gradual increase in total coverage -this type of policy is ideal to handle inflation and increase cost of living

Whole Life: Straight Life (Continuous Premium or Ordinary Life)

Illustration- x/y increasing line -Policyowner pays premium from time policy is issued until insureds death or age 100 (whichever occurs first) -has lowest annual premium

Policies linked to Indexes

Indexed Whole Life/Equity Index Whole Life: cash value is dependent upon the performance of the equity index -face amount increases annually to keep pace with inflation; WITHOUT requiring evidence of insurability -classified depending on whether the policyowner or insurer assumes the inflation risk --> if policyowner assumes risk, policy premiums increase with increasing face amount --> if insurer assumes risk, premium remains level

Mortgage Redemption Provision

Insures borrower for an amount equal to their mortgages -if borrower/insured dies, insurer assumes responsibility for paying outstanding loan balance to insured's creditor

Universal Life Insurance/ Flexible Premium Adjustable Life

Policyowner has flexibility to increase amount of premium paid into policy and later decrease it again -may even skip paying a premium and policy will not lapse as long as there is sufficient cash value at the time to cover monthly deductions for cost of insurance --> if cash value is too small, policy will expire Companies give policyowner two types of premium pay options: -Minimum premium: amount needed to keep policy in force for current year; will make policy perform as an annually renewable term product -Target Premium: a recommended amount that should be paid on a policy in order to cover cost of insurance protection and to keep policy in force -is an interest sensitive policy: insurer guarantees contract interest rate (3-6%), there is potential to get current interest rate This policy has two components: -insurance component: always annually renewable term insurance -cash account -Allow partial withdrawal (partial surrender) of cash value --> during withdrawal, interest earned may be taxed --> death benefit will be reduced by amount of any partial surrender --> partial surrender is not the same as policy loan

Return of Premium Rider

Uses increasing term insurance -When added to a whole life policy, it provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary. usually expires at specified age (such as 60)

Variable Products

Variable life insurance or annuities are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance -keep pace with inflation and determined by value of securities backing it

Group Life Insurance

Written as a master policy, issued to sponsoring organization, covering lives of more than one individual member -individuals do not receive a policy, but a certificate of insurance from master policy -amount of coverage on certificate must be determined according to nondiscriminatory rules -rate and coverage are based upon group underwriting with all individuals covered for same amount and rate -cost of coverage paid by employer in excess of $50,000 is taxed to employee Other characteristics: -group must exist for reason other than purchasing group insurance -individual members covered under group must have right to convert to an individual policy without evidence of insurability should they leave the group

Family Income Policy

Combination of decreasing term insurance and whole life (on breadwinner) -provide an income period beginning from effective date for 20 years (can be issued for 10 years or to age 65) -income period is funded with decreasing term insurance -if insured dies, family is provided with monthly income for remainder of income period --> at end of income period, face amount is paid to beneficiary --> if insured dies after income period, only whole life portion is paid to beneficiary For example, if one purchases a 20-year family income policy and dies five years after the policy is issued, the decreasing term portion of the plan would provide his or her surviving family with a monthly income for 15 years. At the end of the 15-year period, the whole life death benefit would then be paid to the family.

Return of Premium (ROP)

Is an increasing term policy -pays additional death benefit to beneficiary equal to amount of premiums paid -ROP is paid if death occurs within specified period of time or if insured outlives policy term -structured to consider a low risk factor but at significant increase in premiums -ROP offers pure protection but if insured remains healthy and is alive once term limit expires, insurance company guarantees return of premium -returned premiums are not taxable Example: A healthy, 30-year old male pays $380 annually for a $250,000, 30-year term policy. At the end of the 30 years, he has paid a total of $11,400 in premiums which will be returned to him if he is still alive. The insurance company has determined that $250 per year, or $7,500 over 30 years, will cover the actual cost of protection. The excess funds, which the insurer invests, provide the cash for the returned premiums.

Variable Life Insurance/ Variable Whole Life Insurance

Level, fixed premium, investment-based product -guaranteed minimum death benefit -cash value of policy is not guaranteed and fluctuates with performance of the portfolio in which premiums have been invested by insurer --> policyowner bears investment risk in variable contracts -these assets must be held in separate account which invests in stocks, bonds, other securities investment options -domestic insurers issuing variable contracts must establish one or more separate accounts

Interest Sensitive Whole Life/Current Assumption Life

Provides guaranteed death benefit at age 100 -insurer sets initial premium based on current assumptions about risk, interest and expense -credit the cash value with current interest rate that is comparable to money market rates -can be higher than guaranteed levels -provides minimum guaranteed rate of interest -provides same benefits as other traditional whole life policies with added benefit of current interest rates, which may allow for greater cash value accumulation or shorter premium pay period

Indexed Universal Life

Universal life policy with an equity index as its investment feature -has flexible premiums, adjustable death benefit, policyowner decides where cash value will be invested -policys cash value is dependent upon performance of the equity index --> cash values and death benefit are not guaranteed --> sale does not require securities license

Annually Renewable Term (ART)

death benefit remains level, premium increases annually according to attained age as probability of death increases -purest form of term insurance

Whole Life Insurance-Permanent Life Insurance

Permanent Life Insurance: tern used to refer to life insurance policies that build cash value and remain in effect for entire life of insured (or until age 100) as long as premium is paid -most common is whole life Whole Life Insurance: -provides lifetime protection -includes savings element (or cash value) -endow at insureds age 100: means cash value created by accumulation of premium is scheduled to equal face amount of policy at age 100 -premium is calculated assuming premiums will be paid until that age -premiums for whole life are higher than term

Survivorship Life (Second-to-Die or Last Survivor) Policy

Insures two or more lives for premium based on a joint average age -pays upon the last death (rather than first like joint life) -death benefit is extended, resulting in lower premium than joint life -typically used to offset liability of estate tax upon death of last insured

Key Characteristics of Whole Life Insurance

Level Premium: premium for whole life is based on the issue age, so it remains the same throughout life of policy Death Benefit: is guaranteed and remains level for life Cash Value: created by accumulation of premium -scheduled to equal face amount of policy when insured reaches age 100 (policy maturity date); is paid out to policyowner -cash values are credited to policy on a regular basis and have a guaranteed interest rate Living Benefits: policyowner can borrow against cash value while policy is in effect or can receive cash value upon surrender -cash value (nonforfeiture value) does not accumulate until third policy year and it grows tax deferred Three Basic Forms of Whole Life Insurance: -straight whole life -limited pay whole life -single premium whole life -combination of plans

Death Benefit Option A

Option A: level death benefit -death benefit remains level while cash value gradually increases = lowering pure insurance with insurer in later years -IRS 'corridor': gap maintained between cash value and death benefit --> if not maintained, policy is no longer defined as life insurance for tax purposes and loses most of tax advantages

Survivorship Universal Life (SUL) (Second-to-Die Life Insurance)

Permanent life insurance policy that covers two people -pay benefits after both insureds have passed away -considered more affordable than two individual permanent policies -suitable option for insureds who intend to leave policy proceeds to beneficiaries, fund a buy-sell agreement on a business, or make charitable donations -insureds may choose to raise or lower premiums as needed -cash value grows tax deferred -death benefits paid to beneficiaries are income tax free

Payor Benefit Rider

Primarily used with juvenile policies; otherwise functions like the waiver of premium -insurer will waive premiums until minor reaches certain age if payor (parent or guardian) become disabled for at least 6 months or dies -also used when owner and insured are different people

Adjustible Life

Provide policyowner with term and permanent coverage -insured determines how much coverage is needed and affordable amount of premium -insurer then determines appropriate type of insurance to meet insureds needs -as insureds needs change, policyowner can make adjustments to policy --> Options policyowner has: -increase/decrease premium or premium paying period -increase/decrease face amount -change period of protection -policyowner has option of converting from term to whole life, or vice versa -increases in death benefit or lowering of premium require proof of insurability -converting from whole life to term, insurer may adjust death benefit -policyowner may pay additional premiums under permanent form in order to accumulate greater cash value or shorten premium payment period -cash value only develops when premiums paid are more than the cost of the policy

Term Life Insurance/Pure Life Insurance

Temporary protection- only provides coverage for specific period of time -provide greatest amount of coverage for lowest premium -usually a maximum age which coverage is not offered or renewed Provides "pure death protection": -if insured dies, death benefit goes to beneficiary -if policy is cancelled or expires before insureds death, nothing is payable at end of term -there is no cash value or other living benefits 3 basic types, based on how the face amount (death benefit) changes during policy term: -level -increasing -decreasing -regardless of type, premium is level throughout term; only amount of death benefit fluctuates -premium is determined by insureds age at time of transaction

Credit Life Insurance

Written to insure life of debtor and pay off the balance of a loan in event of death of the debtor -written as decreasing term insurance -may be written as group plan or individual policy --> group plan: creditor is owner of master policy, each debtor receive certificate of insurance -creditor is owner and beneficiary of the policy --> premiums are paid by borrower (debtor) -cannot pay out more than the balance of the debt (so there is no financial incentive for death of insured) -creditors may require debtor to have life insurance; but not from specific insurer