Ch. 12

Single-Premium Life Insurance

An extreme form of limited-pay life insurance; the entire premium is paid up-front

Cash-Value Life Insurance

Is a combination of decreasing term insurance and an investment account; often called permanent insurance as policies do not need to be renewed as long as the premiums are paid

Life Insurance

Is insurance that protects against financial losses resulting from death.

Guaranteed Renewable Term Insurance

Protects against the possibility of becoming uninsurable. The number of times you can do this without proving insurability may be limited, and a maximum age may be specified for these renewals. Unless you are positive that you will not need a renewal, this is recommended.

Limited-Pay Life Insurance

Provides life-time insurance coverage; Premiums are paid for a specified number of years; e.g, 20-pay Life Insurance or paid-at-65 Life Insurance

Decreasing Term Insurance

The face amount of coverage declines annually, while the premiums remain constant. The owner chooses an initial face amount and a contract period, after which the face amount of the policy gradually declines (usually each year) to some minimum in the last year of the contract.

Multiple Earnings Approach (more complex) to Estimating Life Insurance Needs

addresses only one factor, that of income replacement; easy but not as accurate as the Needs Approach

Guaranteed Insurability

allows you to increase the face amount without a medical exam on specific dates or when the insured marries or has children

Group Term Life Insurance

issued by the employer; premiums paid are reflected as OI; the first $50,000 is tax deductible.

Guaranteed Renewable Term Insurance

premiums go up at each renewal; policy may limit the number of renewals and may specify a maximum age for renewal; does not require a physical for each renewal; premium increases for age only.

Cash Surrender Value =

the accumulated Cash-Value (including accrued but unpaid interest/dividends), minus any loans and accrued but unpaid interest, minus any surrender charges

Term Life Insurance

this is known as "pure protection" insurance and is less expensive than "permanent" life insurance. Used for death protection only.

Level Premium Term Life Insurance

A term policy with a long time period (perhaps 5, 20, or 10 years). Under such a policy, the premiums remian constant, possibly throughout the entire life of the policy. Premiums charged in the earlier years are higher than necessary to balance out the lower than necessary premiums in later years covered by the policy.

Variable Universal Life Insurance ("VUL")

Is a form of universal life insurance the gives the policyholder some choice in the investments made with the cash-value accumulated by the policy. This is the most popular form of cash-value life insurance, and most closely embodied the philosophy "buy term and the invest the difference."

Variable Life Insurance

also referred to as "unbundled" life insurance; you can invest in stocks, bonds, mutual funds, zero coupon bonds, money market instruments, etc.; death benefit and cash value portion fluctuate with changes in rates of return on the investment(s); usually a guaranteed minimum death benefit which may increase over the life of the policy, depending on investment performance; funding of the death benefit uses an "assumed interest rate"; cash values are not guaranteed and are usually determined daily; some policies contain provisions calling for the payment of fees and sales charges before there are any policyholder returns (always read the policy); fees and sales charges can be somewhat high, between 1%-1.5%

Vanishing- Premium Life Insurance

another name for Limited-Pay Life Insurance; when premiums stop depends on the success of the investment element; "vanished" premiums are paid out of cash value

Group Term Life Insurance

Is issued to people as members of a group rather than individuals. Most such policies are written for a large number of employees, with premiums being paid in full or in part by the employer.

Term Life Insurance

Is often described as "pure protection" because it pays benefits only if the insured person dies within the time period (term) covered by the policy. The policy must be renewed if coverage is desired for another time period.

Limited-Pay Life Insurance

Is whole life insurance that allows premium payments to cease before you reach the age of 100. Two common examples are 20-pay life policies, which allow premium payments to cease after 20 years, and paid-at-65 policies, which require payment of premiums only until the insured turns 65.

Convertible Term

Offers the policy the option of exchanging a term policy for a cash-value policy without evidence of insurability. Usually, this is available only in the early years of the term policy. Some policies exchanges the policies automatically after a certain amount of years.

Cash-Value Life Insurance

Pays benefits at death and includes a savings/investment element that can provide benefits to the policyholder prior to the death of the insured person. Thus, it includes a cash-value representing the value of the investment element in the life insurance policy.

Credit Term Life Insurance

Will pay the remaining balance of a loan if the insured dies before repaying the debt. In essence, it is a decreasing term insurance policy with the creditor named as beneficiary. This product is usually grossly overpriced, the only people who should consider its purpose are those who are uninsurable because of a serious health condition.

Needs Approach to Estimating Life Insurance Needs

considers all of the factors that might potentially affect the level of need. It improves upon the calculations of the multiple-of-earnings approach by including a more accurate assessment of income-replacement needs and incorporates factors that add to and reduce the level of need.

Credit Term Life Insurance

pays the remaining balance of a loan if the insured dies; can be very expensive but may be the only insurance available to an individual because of health problems.

Level Premium Term Life Insurance

premium is constant for a fixed time period of 1, 5, 10 or 20 years; the constant premium is an average premium over the fixed time period; assuming that it is renewable, the premium is increased due to the increased age of the insured; can also be convertible to "permanent insurance".

Universal Life Insurance

referred to as "unbundled" life insurance; Easier to see the charges for term insurance, company expenses and the interest being paid on the cash accumulation account; Greater flexibility; can change almost anything in policy; Can increase death benefits subject to insurability requirements; Can lower the amount of death benefit amount thus more of the premium goes to cash-value buildup; Premiums may be changed as long as premium is paid to maintain the policy; Two rates of return within Universal Life Insurance: 1.) Current year guaranteed rate and 2.) Contract rate; no guaranteed minimum death benefit like the Variable Life Insurance policy; Includes Option A - level death benefit (face amount of the policy) and Option B , which has an increasing death benefit where the payout at time of death is the death benefit plus the cash accumulation account

Adjustable Life Insurance

sometimes called Premier Whole Life; the basic premise is a money purchase concept; the amount of premiums paid determines the amount of protection and length of protection; llevel premium and level death benefit unless changed as indicated below; you can adjust various facets of the policy over time as the need for protection, length of protection, and the ability to pay premiums changes, but you must formally request this; purpose is to provide flexibility to customers

Whole Life Insurance

sometimes called straight life insurance or ordinary life insurance; can provide lifetime insurance coverage; in this case, fixed premiums are paid for life; pays interest on the cash value portion with a guaranteed minimum interest rate during life of the contract

Variable Universal Life Insurance ("VUL")

the most popular form of cash-value life insurance; usually no guaranteed minimum rate of return; fees and commissions are likely to be higher than for Variable Life (2% - 5%); primary difference from Variable Life; after the first year, you CAN vary the premium on most of these policies (something you cannot do with Variable Life) and adjust the face amount and cash-value buildup rate; based on the results of the cash-value portion after the first year and succeeding years, the insured may never have to pay another premium if he or she decides not to; however, there is a guaranteed minimum death benefit like Variable Life Insurance has; death benefit depends on which option the policy owner chooses (same as Universal Life Insurance); you choose the investment vehicle(s)

Endowment Life Insurance

this life insurance is designed to pay the face amount at death or some pre-set time, whichever comes first; the date of payment ("endowment date") is commonly specified for xxx number of years, such as 20 or 30 years; because of tax law changes, new _______life insurance policies are no longer available.

Decreasing Term Insurance

usually written for terms of 10 or 20 years; face amount of insurance declines each year down to zero at its expiration date; premium remains level each year; usually written as convertible to "permanent" insurance".