insurance ch 8

policy loan

The cash value can also be loaned to the policyowner. The term, loan is used, but this loan does not have to be repaid unless the policyowner elects to repay it. Just as with a partial withdrawal of the cash value, a cash value loan (for the available amount of cash at that point in time) that is not repaid will reduce both the face amount of the policy and the cash value available.

Nonforfeiture value

The cash value in the policy belongs to the policyowner. If he or she wishes to, some or all of the cash value may be withdrawn from the policy. Any withdrawal of cash value will reduce both the face value of the policy and the amount of cash value available. The policyowner is entitled to this living benefit at any time. If the policyowner decides to cease paying premiums, he or she may cash the policy in for the available cash value.

double indemnity

This amount, usually referred to as the principal sum, is usually the same as the face value of the policy. occurs when an accidental death benefit (ADB) rider is added to an insurance policy to provide an additional amount to be paid to the beneficiary should the insured die as the result of an accident.

accelerated benefits

This rider allows policyowners who are terminally ill, or who require long-term care or permanent confinement to a nursing home, to collect all or part of their death benefit while they are still alive. This can help relieve some of the financial distress caused by an insured's inability to continue working and the rising costs of health care.

Riders

take their name from the concept that they have no independent existence. They have force and effect only when they are attached to a policy. special policy provisions that provide benefits that are not found in the original contract, or that make adjustments to it. These special provisions are, in effect, attached to the policy or "ride" it.

face amount

the amount of money listed on the face page (first page) of the policy. This is the amount that will be paid in the event of the insured's death. Aka face value.

continuous premium

the most common type of whole life insurance sold. these policies stretch the premium payments over the whole life of the insured. "straight" life insurance

waiver

type of rider that is usually used to exclude benefits and for which no premium is charged. For example, for underwriting reasons, a waiver may be attached to a policy that excludes benefits for death by a specified cause, such as a particularly hazardous hobby or occupation.

Level

type of term provides a level death benefit and level premium during the policy term. Each year the policy is simply renewed at the same face amount by the payment of the new, higher premium. A new application is not required nor is a new policy issued. The only thing that changes is the age of the insured and subsequently the policy's premium.

interim

type of term that may be used to cover the period of time before permanent protection is to begin when a person wants immediate protection and is thinking of starting a permanent insurance policy in the near future.

decreasing

type of term where the face amount decreases throughout the life of the policy down to zero at the date of policy expiration. The annual premium remains level during the term of the policy. A common use is to cover a home mortgage. The policy amount decreases each year at the same rate as the balance on the mortgage.

increasing

type of term, which is not used as often as level or decreasing term. Basically the opposite of decreasing term. The death benefit increases over the life of the policy, and the premium remains level.

juvenile policy

specialized policy written on the life of a person who is not yet considered an adult for life insurance purposes. In most places, this includes anyone who is under the age of 15 (16 in Canada).

jumping juvenile

A popular juvenile policy. It is normally purchased by a parent for a child. The face amount of this policy might be for as little as $1,000 initially. At the time the child turns age 21, however, the face amount automatically jumps by an amount usually five times greater than the original face amount with no increase in premium and no evidence of insurability required.

viatical settlement

Under this contract, the insured, or viator, sells his or her life insurance policy to a viatical settlement provider for a reduced percentage of the policy's face value. After the exchange, the viatical settlement provider becomes the owner of the policy and the beneficiary. While the viator lives, the provider must continue to pay premiums to keep the policy in force. When the insured dies, the viatical settlement provider receives the entire death benefit.

family protection policy

specialized policy, term insurance coverage is provided without additional premium for children born or adopted after the policy is issued. The term insurance expires on each child as he or she reaches a specified age— 18, perhaps 21, sometimes as late as 25. Coverage on the children is usually convertible to any permanent insurance without evidence of insurability.

reentry

a common feature of term policies. This option gives the insured the opportunity to provide evidence of insurability at the end of the term in order to qualify to renew the policy at a lower premium rate than the guaranteed rate that is available without evidence of insurability. Essentially, the renewing insured is reviewed as a new applicant for term insurance. also known as reissue

universal

a flexible premium, adjustable benefit life insurance contract that accumulates cash value. A prime feature of universal life is premium flexibility. Premiums paid into a universal life policy accumulate and, together with interest, make up the policy's cash value. After sufficient cash value is accumulated, the policyowner has considerable flexibility with regard to subsequent premium payments.

convertible

a term policy that allows the policyowner to convert or exchange the temporary protection for permanent protection without evidence of insurability.

renewable

a term policy that may be renewed at the end of the specified period of time for another term period without evidence of insurability. When a renewable term policy is being renewed, however, the rates will be based on the age the insured has reached at the time of renewal. This is why premiums for renewable term coverage are often called step-rate premiums.

indeterminate premium

a type of term insurance where the premium may fluctuate between the current premium charge and a maximum premium charge that is stipulated in the insurer's premium tables, based on the insurer's mortality experience, expenses, and investment returns.

variable

a whole life policy designed to protect the policyowner and the beneficiaries from the erosion of their insurance dollars due to inflation. is designed to be a hedge against inflation.

cash value

accumulates year by year as the policyowner continues to pay the premiums. The amount of pure insurance protection the insurance company must provide decreases as this amount increases.

endowment

another category of permanent insurance. as with other types of policies, this pays a death benefit upon the death of the insured. And like the limited pay policy, the premiums are paid only for a specified period of time. So if the insured is alive at the end of the premium paying period, the policyowner would receive the face amount maturity benefit and the insurance coverage would terminate. Thus, the policy endows at the end of the premium-paying period.

attained age

another name for the "present age" of the insured at the time of converting a term policy to permanent insurance.

original age

another name for the age of the insured at the time the original term policy was purchased. Used at the time of converting a term policy to permanent insurance.

Term life insurance

designed to provide life insurance for a limited period of time. It might be for 1 year or 10 years, but the face amount of the policy is payable only if the insured dies during the time specified in the policy. If the insured survives the limited term of the policy, the insurance company has fulfilled its part of the contract and no payment or refund is due.

variable universal

essentially universal life with a separate account. It combines the investment features of variable life with the flexibility of universal life.

waiver of premium

exempts a disabled policyowner from needing to pay premiums during the term of disability, while keeping the policy in force. For the waiver of premium to apply, the disability must be permanent and total.

whole life insurance

insurance designed to provide protection for the whole life of the insured. sometimes known as permanent insurance or ordinary insurance

adjustable

life insurance policy that offers the policyowner the options to adjust the policy's face amount, premium, and length of protection without ever having to complete a new application or have another policy issued. introduces the flexibility to convert to any form of insurance (such as from term to whole life) without adding, dropping, or exchanging policies. based on a money purchase concept.

industrial

life insurance policy written for a small face amount, usually $2,000 or less, and the premiums are payable as frequently as weekly, and occasionally, monthly. It derived its name from the fact that it was originally sold in England to the industrial class of factory workers. The insured would determine how much he could pay each week and the face amount would be determined by the amount of premium the insured could pay. The policy benefit was used primarily to pay for last illness and burial expenses.

credit

life insurance providing that, in the event of the death of an insured debtor, the outstanding balance is usually paid off in full. Credit life insurance can be written on a group basis or in individual credit life policies. It is usually written as a decreasing term type of coverage so the amount of insurance reduces as the amount of the obligation reduces.

modified premium

specialized policy - an ordinary life policy in which the premium obligation is redistributed. Premiums are lower during the first 3-5 years of the policy, usually only a little more than would be paid for a level term policy for the same period of time. After this initial period, the premiums go up so that they're somewhat higher than would be paid for an ordinary whole life policy.

multiple protection

specialized policy - combinations of whole life and term whereby the amount of protection is higher in the early years of the policy and less in the later years.

deposit term

specialized policy - level term insurance policy that has a much higher premium for the first year than for subsequent years. The initial premium is significantly higher than the average premium needed to cover the cost of mortality during the term period. The excess front-end premium (the deposit) is then set aside to earn interest, and these dollars (deposit plus interest) will be applied to reduce the premium payments required in the following years.

minimum deposit

specialized policy - technically a method of paying for insurance and not a type of policy. It is a high cash and loan value whole life policy. Such policies were devised in the late 1950s to take advantage of the fact that at the time, the Internal Revenue Service allowed the interest paid on a policy loan to be deducted in full for income tax purposes. Thus a prospect could buy such a policy and immediately borrow back the loan value so that, in effect, his or her INITIAL PREMIUM outlay was very SMALL. Since that time, however, the IRS has placed restrictions on the interest deduction when the loan is to finance insurance, so its popularity has diminished

retirement income policy

specialized policy accumulates a sum of money for retirement while providing a death benefit. Upon retirement, the policy pays an income such as $10 per $1,000 of life insurance for the insured's lifetime or a specified period. These policies are expensive and cash value accumulation is high to pay for the monthly income. As the cash value in the policy approaches the face amount, the face amount must be increased to maintain the policy's status as life insurance.

joint life policies

specialized policy available to insure the lives of two or more people. A joint life policy may pay the face amount upon the first death among the persons covered by the policy or upon the last death among the persons covered by the policy.

family income policy

specialized policy combines whole life insurance with decreasing term coverage. provides temporary protection and permanent coverage. provides an income to be paid upon the death of the family breadwinner.

family maintenance policy

specialized policy similar to family income policies except that coverage is provided by combining level term insurance with a permanent policy. provides income for a stated number of years from the date of death of the insured, provided the insured dies before a predetermined time. The family maintenance portion of the coverage comes from a level term policy.

current assumption

type of whole life (also known as interest-sensitive whole life) offers flexible premium payments that are tied into current interest rate fluctuations. The insurance company reserves the right to increase or decrease the premium within a certain range depending on interest rate fluctuations. During a period of relatively high interest rates, premiums could be reduced. During periods of low interest rates, premiums could be increased within certain limits. Usually, any premium adjustment is made on an annual basis.

indeterminate premium

type of whole life - These policies employ a dual premium concept—a maximum premium and discounts that may reduce the premium. The discounts vary with insurance company investment performance, but the actual premium charged will never be more than the maximum premium specified in the contract.

economatic

type of whole life - a policy with a term rider that uses dividends to purchase additional paid-up insurance

single premium

type of whole life - the most extreme version of a limited pay policy is one that can be paid for with only one premium. the premium for such a policy may be many thousands of dollars

limited payment

type of whole life allows the policyowner to pay for the entire policy in a shorter period of time. the premium for any whole life policy can be broken down into any desired number of installments