Types of Policies and Riders

Types of Whole Life Policy

1. Ordinary (straight life) 2. limited payment 3. sinple premium 4. indeterminate premium 5. current assumption (interest sensitive) Whole life 6. Enhanced ordinary life (economatic) 7. Equity indexed whole life

Modified Whole Life

1. Premiums are lower than a typical whole life policy in the early years 2. In the later years, the premiums are slightly higher than a typical whole life policy 3. The purpose of modified whole life is to make the purchase of permanent insurance more attractive for individuals who have limited finances presently, but have the potential for an improved position in the future, such as a new college graduate or a newly hired.

Family income (Policy or rider)

1. a combination of whole life and decreasing term insurance policy 2. its purpose is to provide a specified monthly income from the date of the insured's death until a specified future date 3. the income period begin from the effective date of the policy 4. if the insured dies within the term period the benefits are paid for the remainder of the term followed by whole benefits. If the insured lives beyond the income period, only the whole life benefits remain to be paid upon death. 5. the family income rider may be added to any permanent policy Example= policy purchased on 1/1/05 and a 20 year term ends on 1/1/25. If the breadwinner dies 1/1/20, the beneficiaries will receive monthly income for 5 year. If breadwinner dies 1/1/26, beneficiaries will only receive death benefit of the whole life no additional term income

Join Survivor (last to dies)

1. a policy is written to cover 2 or more lives 2. the death benefit is not paid until the last insured dies 3. premiums are based upon a joint issue age determined from a special table 4. couples who plan to defer estate taxes until the second spouse dies purchase 5. rates are lower than 2 separate policies and coverage is in larger amount 6. written on a whole life basis (matures at joint age 100)

Join Life (first to dies)

1. a policy that is written to cover 2 or more lives 2. the death benefit is paid upon the death of the first to die 3. premiums are beads upon a joint issue age, which is obtained by an average of both insureds' ages resulting in a lower premium than two separate policies. If you combine premiums of two straight life policies, the combined premium is always more than one joint life, or joint survivorship life policy 4. this policy provides income protection for spouses when both have earned income. It is also used to fund buy-sell agreements 5. written on a whole life basis (matures at join age 100)

Universal Life

1. allows policy owner to select face amount, within in insurer's allowable minimum and maximum. The frequency of premium is also chosen by the policy owner with the limits set by the insurer 2. universal life had divided the two elements of a traditional whole life policy , cash value and life insurance. The death benefit is the form of 1 year renewable term while cash value account earns interest at the current rate 3. pays premium that is placed in the policy's cash value account; the premium may be of any authorized mode. Each month a mortality rate is deducted from the policy's cash value account for the cost of the insurance protection and expenses (unbundled) 4. interest is credited to the cash value. The interest is credited at the current interest rate with a guaranteed minimum rate established. However, the amount of cash value is never guaranteed. 5. the policy owner may borrow or make partial withdrawals without terminating the policy. Loans may reduce the interest amount credited to the cash value 6. to comply with irs tax code's definition of life insurance, the cash value cannot be disproportionately larger than the term insurance portion of the policy 7. the policy owner receives an annual statement detailing expenses, mortality, and interest earned 8. any surrender charges must be stated in the policy showing the cost upon policy surrender 9. universal life is usually purchased to provide the policy owner with flexibility not found in whole life 10. offers two choices of death benefit options known as option a and b. this allows the policy owner to choose a level death benefit that builds more cash value or to choose option which increases the death benefits by paying the face amount plus cash value 11. flexibility of this policy and he separate accounts of the variable life policy were used in the 1980s to develop varial universal life.

Family maintenance

1. combination of whole life and level term insurance 2. provides monthly payments for a selected period of years beginning from the date of death of the insured, if death occurs during the stated term. The amount of term insurance is calculated using a multiple of thousands in the face amount. $20 monthly income/thousand would be $20x100=$2,000 for a $100,000 policy 3. the whole life death benefit is paid at the time of death. It is not paid at the end of the monthly payments as in a family income policy. 4. if the insured lives beyond the term, only the face amount of whole life is paid upon death 5. the family maintenance policy is more expensive than a family income policy of a like amount

Endowment Characteristics

1. endowments offer permanent protection until the policy endows. An endowment mature period is age 100 2. endowments contain cash, loan and nonforfeiture values 3. the owner may borrow from the cash value 4. Level premium and face amount provide protection until death or endowment, whichever comes first 5. the shorter the premium period, the higher the premium 6. settlement options are available upon the death of the insured or upon policy endowment 7. endowment policies place more emphasis on the savings element rather than on the insurance aspect. The endowment should not be considered for fulfilling a long term life insurance need. 8. endowment policies normally have higher premiums than whole life policies. It is considered the most expensive policy 9. the primary advantage of an endowment policy is to forced savings with a life insurance benefit

Variable Life

1. fixed premium whole life policy under which the death benefit and/or cash value varies to reflect the investment experience of a separate pool of assets separate accounts supporting the reserves for the policy 2. premiums, less expensive and mortality, are paid into separate accounts (usually mutual fund) where they are invested 3. there is guaranteed minimum face amount (original issue amount) and maximum loan value (up to 90% of the cash value but no guarantee of minimum cash value. The loan may be at an 8% fixed or a variable interest rate 4. variable life is designed to provide a hedge against inflation 5. can only be sold by agents licensed with the financial industry regulatory authority (FINRA) in addition to a life insurance lices. The securities exchange commission (sec) regulates the investments that make up the separate accounts 6. policy owner has no control over investment fluctuations, but assumes the investment risk 7. the application for variable life must contain questions that enable the insured to determine if variable life is suitable for the applicant.

Graded premium

1. is similar to modified whole life, except the premium increases each year during the early years of the policy and then remain level 2. in the later years of the policy, the premium would be greater than a whole life

Juvenile

1. juvenile insurance is any policy written on the life of a minor 2. a popular type is commonly called "Jumping Juvenile" because it automatically increases the face amount at a given age (usually age 21 to 25) 3. the premium remains level for the life of the policy, and the usual increase in the face amount is 5 times the issue amount.

Types of term policy

1. level 2. decreasing 3. increasing 4. re-entry term 5. life expectancy term 6. annually renewable term

Adjustable Life

1. level premium, level-death benefit policy that can assume the form of term or whole life within a single policy while remaining within certain guidelines 2. all the common features of level premium cash value life insurance are still present 3. the policy owner may change or make adjustments without adding or exchanging existing policies. The type or amount of coverage and premium amount may be changed. 4. an increase in death benefit usually requires evidence of insurability 5. when the premiums paid exceed the cost of a policy a cash value develops 6. an increase in premium has the effect of increasing future cash values and either a. lengthening the period of protection if the policy is in the term range b. shortening the premium payment period if the policy is in the whole life range 7. adjustable life is most appropriate for those whose income is expected to fluctuate from year to year or those persons who may have a fluctuation in needs 8. this policy has proven to be difficult for the consumer to understand and has a high cost of administration and fo these reasons other flexible premium policies evolved.

Characteristics of whole life

1. permanent protection that matures at insured's age 100. It pays face amount to owner if insured lives to age 100. Premiums are paid at age 100 or to time of premature death which ever occurs first. Insurers assume insured will not live to 100 2. the policy builds cash, loan, and nonforfeiture values 3. the pure insurance protection is the face value minus the cash value. As the cash value increases, the pure protection decreases, but the face amount would remain the same. 4. the policy owner may borrow from the cash value. Policy loans may carry a fixed or variable loan interest rate 5. if the policy lapses from nonpayment of premium, nonforfeiture values are available for use by the policy owner. Each policy contains a nonforfeiture table showing of these benefits 6. the policy has a level premium and face amount. Premiums will be more than the cost of the policy in the early years and less than the cost in the later years 7. the shorter the premium paying period, the higher the premium (a limited pay life of 20 years would have a higher premium than a straight whole life) 8. settlement options are available upon the death of the insured or upon the policy's maturity 9. the cash value equals the face value upon maturity; age 100 10. you may add a tern rider to this policy, but you cannot convert it to a term policy

Variable Universal Life (VUL)

1. premium and death benefits are flexible, as in a traditional , however, instead of a cash account, the excess cash is placed in a separate account as an investment 2. normally the insurer allows the policy owner to select the type of separate account from those available within the policy (mutual funds). The policy owner is allowed to transfer funds between these accounts duing the life of the policy. The transfers are made without administration fees and are never taxed as the funds remain within the confines of the policy 3. the separate accounts (mutual funds) offered are grouped under accound headings (sometimes called family of funds) showing the actual investment participation and the historical performance of each account. 4. the prospectus for the VUL policy must be given to the prospective buyer showing detailed information on each of the separate accounts (securities)

Family Policy (family Protection Plan)

1. the family policy provides life insurance in a single contract for all members of the family 2. a whole life policy is written on the head (wage earner) of the family. It may have riders attached (waiver of premium, accidental death, etc) 3. level term coverage is written on the spouse and the child or children, known as the family rider in some states 4. the spousal coverage is generally term to age 65, at which time it expires. This coverage is guaranteed convertible while in force. 5. The child rider provides coverage for all children who are 14 to 15 days old and a dependant member of the insured's family. The maximum age of coverage is 25. Those additional children born to the primary insured after the policy is issued are covered automatically after 14 or 15 days of age at no additional premium. adopted and stepchildren are also covered. Upon reaching the maximum age, the coverage is convertible without evidence of insurabiligy. 6. the premium paying period of the base plan is usually longer than the term rider(s) 7. if the primary insured dies while the family rider is in force, the rider is paid up while each family member's term of coverage expires.

Waiver of premium/disability income

: in the event of disability, premiums are waived and the insured is paid a monthly income, such as $10 per month for each $1000 if face amount

Characteristics of term policies

Characteristics 1. term insurance is temporary protection; expires at an attained age (65) or after a specific period of time (10-year term). Does not have cash value or loan value; it provides purely protection. The face amount is only paid if interest the insured dies during the specified term of the policy; the low, initial premium outlay when the insured is young increases at renewal or conversation, and as the insured's age advances, the policy becomes more expensive. The maximum age limit for issue or renewal of coverage is usually 70. Term insurance can be written separately or with other types of insurance (as a rider) to suit individual needs. Rates charged are based upon the age and gender of the insured and upon the length of time protection is provided; rates are higher for 10 year level term then for a 5 year level term.

Comparing Policy Values

The two most popular comparisons are Surrender Cost Index and Comparative Interest Rate (CTR)

Chronically Ill

a condition which means a person is unable to perform at least 2 activities of daily living.

Viatiacal Settle Provider

a person other than the viator, who enters into a vaitical settlement contract, oe who obtains financing from a financing entity for the purchase, acquisition, transfer or toher assignment of one or more viatical settlement contracts, viaticated polcieis or interests therein or who otherwise sells, assigns, transfers, pledges, hypothecates or otherwise disposes of one or more viatical settlement contracts, viaticated policies or interests therein.

Viatical Settlement Broker

a person that , on behalf of a viator and for a fee, commission or other valuable consideration, offers or attempts to negotiate viatical settlements between a viator and one or more viatical settlement providers.

Viatical Loan Broker

a person that, on behalf of viatical loan borrower and for a fee, commission of other valuable consideration, offers or attempts to negotiate viatical loan contracts between a viatical loan borrower and one or more viatical loan proviers.

Viatical Settlement Purchaser

a person who gives a sum of money as consideration for a life insurance policy or an interest in the death benefits of a life insurance policy or a person who owns, acquires, or is entitled to a beneficiary or a life insurance policy which has been or will be the subject of a viatical settlement contract for the purpose of deriving an economic benefit.

Viatical loan representative

a person who is an authorized agent of a duly licensed viatical loan provider or viatical loan broker and who acts or assists in any manner in the solicitation of viatical loan on behalf of such viatical loan provider or viatical loan broker, as applicable.

Viatical Settlement Representative

a person who is an authorized agent of a duly licensed viatical settlement provider or vaitical settlement broker as applicable, and who acts or assists in any manner in the solicitation of a viatical settlement on behalf of a such viatical settlement provider or viatical settlement broker

Waiver of cost of insurance

a rider that waives the deduction of the monthly cost of insurance and expense charges associated with a universal life policy while the insured is totally disabled, usually after 6 month of continuous disability. Usually, the disability must occur prior to a stipulated age.

Current Assumptions (interest Sensitive) whole life

a straight whole life policy with the following variations: a. flexible premiums with adjustment made on specific anniversaries, as specified by the insurer b. the face amount (death benefit) doesn't fluctuate c. the current interest rate is higher than the insurer's rate for traditional whole life policies, thusly providing more inflation protection

Viatical Settlement Contract

a written agreement entered into between a viatical settlement provider and a viator. The agreement shall establish the terms under which the viatical settlement provider will pau compensation or anything of value, which is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion fo the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider.

Viatical Loan Provider

a written agreement through which a person owning a life insurance policy or who owns or is covered under a group policy insuring the life of a person who has a catastrophic, life threatening or chronic inless or condition secures a loan from a viatical loan provider by using the policy as collateral

Viatical Loan contract

a written agreement through which a person woning a life insurance policy or who owns or is covered under a group policy insuring the life of a person who has a catastrophic, life threatening or chronic inless or condition secures a loan from a viatical loan provider by using the policy as collateral.

Disabilities Riders

a. Waiver of Premium b.Payer benefit (waiver of payor's premium) c. waiver of premium/disability income d. waiver of cost of insurance

Riders affecting the death benefit amount

a. accidental death (double indemnity) b. accidental death and dismemberment c. guaranteed insurability d. return of premium e. return cash value d. cost of living (COL) f. Living need (accelerated Benefit)

Special features of term insurance

a. renewable b. convertible

Riders covering additional insureds

a. spouse rider b. child rider c. fanmily rider d. non family rider

term policies do not have a characteristic of cash value accumulation. you would however find a guaranteed cash value accumulation in all of the following

a. whole life (all types0 b. endowment c. family and some Juvenile policies d. graded premium e. joint life (both types)

Living need (accelerated benefit)

allows the early payment of a portion of the face amount before death, should the insured become terminally ill. (monthly reports must include the benefit amount remaining). Upon death, the early payments will be deducted from the benefit paid to the beneficiary. It could also include nursing home benefits and dread disease benefits, but doesn't include a disability income benefit. The rider is normally provided without a premium charge because it is an advance of the death benefit.

Guaranteed Insurability

allows the insured to purchase additional amounts of insurance at certain ages, events, or specified dates without evidence of insurability. The premiums are based on attained age. 4. Return of Premium-is increasing term insurance equal to the amount of premium paid. If the insured dies within the term, the beneficiary would receive the face value amount plus equal to the premium paid. It adds flexibility when added to a whole life policy.

Fraudulent Viatical Settlement Act

an act or omission committed by any person who knowingly deprives another of property or intentionally defrauds for pecuniary gain.

Viatical Trust Settlement agreements

an agreement between a business firm (specializing in such transactions) and a life insurance policy owner insuring the life of an individual with a life-threatening or terminal illness, normally with a life expectancy of 2 years or less. The firm purchases the policy at 60 to 80% of the face amount, expecting benefit as the new policy owner. The insured is provided with tax-exempt discounted value during the terminal illness, relinquishing all ownership rights to the buyer (e.g. an insured has a $100,000 policy and the viatical agreement is $60,000, the new owner upon the insured's death could profit up to $40,000 less a very minimum business expense). The discounted must be in force when the agreement takes place. This is the latest use of life insurance.

Life Insurance Riders

an amendment or rider modifies conditions of the policy by expanding or decreasing its benefits, or excluding certain conditions from coverage, and are at the option of the insured.

re-entry term

characterized by lower premiums at issue. The insured is able to renew the policy at the lower premium classification as long as he/he can provide proof of insurability.

Ordinary (straight Life)

continuous premium or permanent life)-both the premium and the face amount (death benefit) remain level to age 100 or death of the insured, whichever comes first

nonfamily rider

covers additional insured with an insurable interest

Enhanced Ordinary Life (Economatic)

designed for participating policies using the dividends to purchase additional insurance. The applicant need a greater amount of protection than he/she can presently afford. It allows the applicant to purchase a reduced amount of whole life with a term rider attached to make up the difference. The plan is generally computed on a 70/30 percent split (70% whole life 30% term)

Comperative Interest Rate (CTR)

determines the amount of interest rate necessary to compare a cash value policy with a term plan and investing the premium difference. The calculation is to determine the interest rate necessary to equal the cash value at any type of policy comparison. None of the following policies has a guaranteed cash value. Universal life, variable life or variable universal life.

Terminally Ill

having an illness or sickness that can reasonably be expected to result in death in 24 months or less

Waiver of premium

if the insured becomes totally disabled, the company waives premiums for the duration of the disability. There is usually a maximum 6-month elimination period before premiums are waived. Waiver of premium dividends continue as under normal premium payments

accidental death (double indemnity)

in the event of a claim, the policy normally pays double the face amount if the death was a result of an accident (maybe called multiple indemnity rider, paying multiple times face amount). Normally, this is of lower cost per $1000 than the base policy and is payable only if death occurs before a specific age and within 90 days of the accident. It does not add any additional values to the base policy. Maybe added to any type of individual life policy.

Cost of Living (COL)

increasing term insurance that increases the consumer price index increases. Adjustments are normally made each anniversary. Premiums are adjusted to pay for adjusted coverage

Spousal Rider

is a level or decreasing term rider added to cover primary insured's present spouse as named in the application; sometimes referred to as the other insured rider

Child rider

is a term rider that covers one child or several children. The children are covered from age 14 or 15 days, and may remain covered up to age 21, with some insurers offering the coverage to the child's 25th birthday. Those born after the rider is issued are covered automatically after 14 or 15 days at no additional premium and those adopted are covered immediately. Upon reaching the maximum age, the coverage is convertible without evidence of insurability. If the primary insured should die while the rider is in force the rider becomes a term policy and will be in force until the age stated in the policy.

Return of Premium

is increasing term insurance equal to the amount of premium paid. If the insured dies within the term, the beneficiary would receive the face value amount plus equal to the premium paid. It adds flexibility when added to a whole life policy.

Return Cash Value

is increasing term insurance equal to the cash value. This rider provides the payment of term insurance equal to the cash value amount at the time of death. This doesn't relieve the obligation to pay loans from the claim proceeds at time of death.

Term Riders

may be attached to an existing permanent policy or interest sensitive policy to provide an amount of temporary extra insurance protection. These riders are useful when an insured needs more insurance or decreasing amount of coverage for a limited time. Ex. Mortgage protection

Equity Indexed Whole Life

most premium 80-90% is invested in traditional fixed income securities. The remainder of the premium is invest in contracts tied to a stipulated stock index. When there is an increase in the market, a given percentage of the gain is credited to the policy. When the market declines, the policy is credited with the minimum guaranteed rate.

accidental death and dismemberment

pays a multiple of the face amount (principle amount) upon accidental death, loss of sight, or loss of 2 limbs. It also pays a smaller amount (capital amount) as per policy schedule for lesser accidental dismemberment losses.

Payor Benefit (waiver of payor's premium)

premium is waived if the premium payor becomes disabled or dies. It is commonly used on juvenile policies or policies in which the owner and the insured are two different people, policy, the waiver normally cancels at insureds age 21 and 25.

limited payment

premium payments are for a specified time, such as 20 pay, 30 pay or age 65. However the face amount remains level to age 100

life expectancy term

provides a level term benefit over the life expectancy of the insured using a specific mortality table. The contract is pure protection but with the level premium concept, a cash value accumulates to help offset the required premiums in the later years.

Indeterminate Premium

specifies two premium rates: a guaranteed maximum, and a lower rate the insured actually pays. The lower premium level is for a set period of time. Then the company establishes a new rate that may be higher or lower than the initial premium. your premium can never be more than the guaranteed maximum

decreasing

the death benefit decrease, but premiums usually remain level for the policy term; often utilized as mortgage redemption or credit life insurance

increasing

the death benefit increases over the life of the policy and the premiums remain level.

Face amount

the death benefit payable on a life policy; may also be called lime of liability

level

the death benefit remains level and the premiums remain level during the policy term. Most group life insure is written level

Single Premium

the entire cost of the policy is paid at the time of purchase. The face amount remains level to age 100. The cash value builds more quickly than in straight life or limited life.

endowment

the maturity date or time at which the cash value equals the face amount. If policy matures it is said to endow and the proceeds are paid to the owner

Surrender Coast Index

the most recognized method of comparing policies of the same type. This method cannot be used to compare any policy that doesn't have a fixed interest rate and a systematic accumulation of cash value

Viator

the owner of a life insurance policy or a certificate holder under a group policy insuring the life of an individual with a catastrophic, life threatening or chronic illness or condition who enters or seeks to enter into a viatical settlement contract.

Viatical Loan Borrower

the owner of a life insurance policy or the certificate holder under a group life insurance contract insuring the life of a person with a catastrophic, life-threatening or chronic illness or condition who enters into a viatical loan contract with a viatical loan provider.

Convertible

the right to convert to a permanent policy without evidence of insurability. Premium is based upon attained age or issue age

renewable

the right to renew on renewal date without evidence of insurability. The renewal premium is based upon attained age. Decreasing term is never renewable

Annually Renewable Term

the simplest form of term life insurance is a term of one year. The death benefit us paid by the insurer if the insured dies during the one year term, while no benefit is paid if the insured dies one day after the last day of the term.

Family Rider

this is the combination of writing both the spouse and child rider as one policy. This may be written as a policy or a rider; in the market today, it is normally written in the form of a rider. Some insurers who write this coverage in policy form use the unit method. For each $1000 or $5000 of coverage on the primary insured, the spouse and children are covered for stated amount that is always less than the primary insured's coverage.

whole Life Policies (Ordinary Whole Life or Continuous Pay life)

used for permanent need of protection