_2_ Types of Life Insurance

Variable Life How does it work

level premiums p/h can choose how funds are invested, but investment performance impacts policy cash value p/h can move cash value among investments w/o incurring any current income tax liability for capital gains

Second-to-Die Life What is it?

policy where two lives are insured in a single policy, with death benefits payable to the beneficiary when both insureds have died usually a married couple using death benefit to pay for federal estate taxes due in larger estates can be whole life, current assumption, universal life, or even a combination of permanent and term life

Current Assumption Whole Life when are these policies appealing?

when interest rates are rising b/c higher interest earnings for the insurer can result in reduced premiums and/or increased cash value for the p/h

Current Assumption Whole Life what is it?

AKA interest sensitive life insurance includes features of whole life and universal life premium and cash value can be periodically recalculated by the insurer based on new actuarial assumptions

Term Life Insurance What is it?

Insurance that provides coverage for a specified period with no cash value. If insured dies during the policy term, the policy value is paid to the beneficiary

List the (6) common types of life insurance

Term Life Whole Life Universal Life Variable Life Variable Universal Life Specialty Products (i.e. second to die insurance)

Whole Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Permanent* Death Benefit? *Yes* Investment/Savings Component? *Yes* Low Cost? *No* Flexible Premiums? *No* Investment Choices? *No*

Variable Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Permanent* Death Benefit? *Yes* Investment/Savings Component? *Yes* Low Cost? *No* Flexible Premiums? *No* Investment Choices? *Yes*

Current Assumption Whole Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Permanent* Death Benefit? *Yes* Investment/Savings Component? *Yes* Low Cost? *No* Flexible Premiums? *Yes* Investment Choices? *No*

Universal Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Permanent* Death Benefit? *Yes* Investment/Savings Component? *Yes* Low Cost? *No* Flexible Premiums? *Yes* Investment Choices? *No*

Variable Life what is it?

a form of life insurance that provides a death benefit that may change with time due to its variable cash value

Term Life Insurance Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Temporary* Death Benefit? *Yes* Investment/Savings Component? *No* Low Cost? *Yes* Flexible Premiums? *No* Investment Choices? *N/A*

First-to-Die Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Varies* Death Benefit? *Yes* Investment/Savings Component? *Varies* Low Cost? *Yes* Flexible Premiums? *Varies* Investment Choices? *No*

Second-to-Die Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Varies* Death Benefit? *Yes* Investment/Savings Component? *Varies* Low Cost? *Yes* Flexible Premiums? *Varies* Investment Choices? *No*

Universal Life What is it?

a flexible premium permanent life insurance product that combines life insurance protection with an investment or savings aspect it has separate protection, savings, and expense components

Whole Life What is it

a hybrid combination of life insurance and an investment vehicle coverage is not limited to a fixed period designed to provide coverage for a lifetime

Whole Life How does premium compare to term? Discuss 'cash value' of a whole life policy

for a given amount of coverage, the annual premium for whole life is higher than for term life (this could prompt who has limited disposable income to underinsure) the selling point is that whole life will develop cash value as time passes usually the cash value of the policy is available to the insured as either a loan or as a cash payment upon surrender of the policy

Variable Universal Life Fees and Charges

significant initial expense and surrender charges for managing p/h investment accounts, over time the surrender charges decline and drop to zero may change annual investment management fees, and sometimes other admin fees these fees are in addition to the charge for the mortality cost of the insurance protection covered by the policy

Term Life Insurance Convertibility

simply means that insured may exchange policy for a whole life without going through another round of u/w requirements

Whole Life Who should get it?

someone who wants permanent protection and who needs the discipline of paying insurance premiums to enforce savings

Term Life Insurance Renewability

usually renewal is guaranteed (beyond end of term) for a specific period or to a specific age

Universal Life what is the investment component?

just a tax deferred accumulation of cash

Variable Universal Life Time Period? Death Benefit? Investment/Savings Component? Low Cost? Flexible Premiums? Investment Choices?

Time Period? *Permanent* Death Benefit? *Yes* Investment/Savings Component? *Yes* Low Cost? *No* Flexible Premiums? *Yes* Investment Choices? *Yes*

Universal Life what does flexible premium payment mean?

assuming that there is enough cash value in the policy to cover the cost of insurance and expenses... insured may increase / decrease or even miss a premium payment *flexibility is a fundamental characteristic of universal life*

Variable Universal Life what is it?

combines the features of universal life and variable life cash value is not guaranteed no guaranteed minimum interest rate policyholder can select the separate account in which the flexible premiums are invested

Universal Life what are the risks associated with universal life

flexibility allows insureds to be less than fully committed to a premium payment discipline...policies can lapse if premiums not paid and the cash value is not sufficient to cover the cost of insurance expenses in an interest of falling interest rates, the cash value may grow more slowly than hoped and require larger premium payments to maintain coverage

Universal Life what options does the insured have within one of these policies?

flexibility with premium payments increase death benefit borrow against cash value add insureds to the policy

Term Life Insurance Who should get it?

good for someone whose current need for life insurance will diminish after a number of years

Term Life Insurance Premium

higher for older as based on mortality tables can also by fixed annual premium (premium will be higher in early years, but more affordable later)

Universal Life why are two interest rates stipulated on the policy?

one is a guaranteed minimum rate (cash value must earn interest at this rate or higher) the other is the current market interest rate (if market rate is higher, earn interest at the market rate)

Universal Life Separation of Components (what is it?)

p/h receives annual disclosure that shows the amount of premiums paid, the amount of insurance (death benefit), expenses, and interest earned and credited on the cash value

First-to-Die Life what is it?

policy that covers two individuals and death benefit is payable upon first death (typically used for dual income married couple) premiums are higher, but still less costly than taking separate policies on each life