A.D. Banker -Life/Health Insurance Chapter 3 Type of Policies and Riders

Variable Universal Life Insurance

A flexible premium and face amount policy with cash value fluctuations reflecting the investment performance of the underlying separate account

Adjustable Face Amount

The insured can increase or decrease the face amount of the policy. Any increase in the face amount will require evidence of insurability.

Policy Matures or Endows

The policy matures/endows when the cash value in the policy equals the face amount of the policy (and the insured is still living) Upon maturity or endowment, the entire face amount is paid to the owner and the policy contract ends

Fixed Premium

The premium is determined by the insurer and remains fixed and level throughout the contract.

Disability Riders

*Waiver of premium *Payor Benefit (waiver of payors premium) *Disability Income Benefit *Waiver of Cost of Insurance

Increasing Term

- The death benefit increases over the life of the policy while the premiums remain level - Commonly used as a hedge against inflation. - Used to ward of decreased purchasing power. - Depends on CPI

Renewables

A benefit that will renew the contract on the renewal date without evidence of insurability. The renewable premium is based upon attained age. Renewability is important because the risk is that the insured's health may deteriorate and the insured may be unable to obtain a policy at the same rates or even at all, leaving the insured without coverage. Level term policies may offer the option of being renewable for an additional premium (Level Term Policy)

Accidental Death and Dismemberment Rider

A death benefit rider which pays a multiple of the face amount upon accidental death, loss of sight or loss of 2 limbs. Principal sum is 100% Only 1 limb or 1 eye 50%

Accidental Death Benefit (Double or Triple Indemnity)

A death benefit rider which pays double (double indemnity) the face amount if death was the result of an accident

Variable Life Insurance

A fixed-premium Whole Life policy under the death benefit and /or cash value fluctuates reflecting the investment performance of the underlying separate account

Universal Life Insurance

A flexible premium and face amount and face amount policy with the cost of insurance protection deducted from the policy cash value Cash value is credited a current interest rate

Interest-Sensitive (Whole Life)

A form of whole life in which the insurance company can change the premium or interest rate being credited to the account based on current money market rates Interest rate changes affect the policy premiums

Adjustable Life

A level premium and death benefit policy that can assume the form of term or whole life within a single policy based on death benefit and/or premium adjustments.

Joint Survivorship Life (Last to Die)

A permanent policy written on 2 or more lives Benefit paid after last insured dies (last to die)

VUL - Variable universal life

A policy owner may take a policy loan or a partial withdrawal from the cash value without terminating the contract. A partial withdrawal is paid from the separate account. Policy loans are available based on the amount in the separate account.

General Account

A portion of the premium is invested by the insurance company and held in the General Account

Interest

A sum credited to the cash value on a monthly basis at the current interest rate, but will never be less than the guaranteed minimum rate established at the time the policy was issued (credited monthly)

Flexible Premium

A target premium is established by the insurer, which is the minimum amount that must be deducted from the cash value to maintain the policy to age 100, based on current interest rates, mortality and expense charges. Because mortality and expense charges are deducted from the cash value monthly, the policyowner has more flexibility with the universal life premium payments

Variable Whole Life

A whole life policy with certain benefits that will vary based on market conditions A variable whole life premium is determined by the insurer and remains fixed and level throughout the contract

Limited Payment Life Insurance

A whole life policy with level face amount and premiums limited to a specific period of time (ex 20-pay to age 65)

Straight Life or Continuous Premium

A whole life policy with premiums and face amount remaining level to age 100 or death of the insured, whichever comes first

SEC Regulation

All variables products are subject to ti SEC regulation. Variable Universal Life is considered a security and can only be sold by producers registered with FINRA and holding either a Series 6 or 7 registration. This securities registration is required to a life insurance license.

Living Needs Rider

Allows the early payment of a portion of the face amount before death should the insured become terminally ill usually 12-24 months life expectancy

Rider

An added benefit attached to the policy that supplements existing coverage. Usually at the purchase of the policy and may increase the premium

Term Rider

An attachment to an existing permanent or interest-sensitive policy providing temporary extra insurance protection

Indexed Life Policies

Are Recent evolution from traditional life insurance policies and base interest crediting on one or more "strategies" linked to the performance of a known stock or similar index which is not under the control of the insurance company. There is no direct investment in any stocks or indexes

Policy Loans

Available from either the general account or the separate account in a variable whole life policy. Typically 75-90% of the cash value can be borrowed. Partial surrenders are not allowed from a variable whole life policy

Coverage

Can be written separately or with other types of insurance, in the form of a rider, to suit individual needs

Rates

Charged are based upon underwriting class, the age, and gender of the insured, and the length of time protection is provided

Term Insurance

Considered pure insurance and provides a pure death benefit. Term insurance doesn't offer any cash value or living benefit

Mortality Charges

Deducted monthly from the policy's cash value The mortality charge is the cost of pure insurance and although it is deducted monthly. It's determined annually based on the insured's age

Permanent Insurance

Designated to provide coverage for an entire lifetime. Whole life is permanent protection that matures or endows at the insured's age of 100 when the cash value is scheduled to equal the face amount of the policy. if the insured is still living at age 100, the insurer will pay the face amount to the owner

Partial Withdrawal

Different from loans. A loan is taken against the cash value remaining in the policy. The cash value secures the loan and cannot be used for other purchase, but it remains in the policy

Universal Life Insurance (UL)

Features insurance protection and a savings element (cash value) that grows on a tax-deferred basis. UL is an "unbundled policy" This means the individual elements of the policy and premium - which includes the mortality risk, policy expenses, and the cash value - are credited to the account separately after the premium is paid

UL Policies

Give the policy owner the option to take a policy loan, but also to take a partial withdrawal from the cash value without terminating the contract

Investor Originated Life Insurance (IOLI)

Investors, producers, or brokers with absolutely no personal or business connection with a person, who induce a purchase of a life insurance policy with the sole intent of selling that policy to institutional investors

Joint Life (First to Die)

Joint Life is a whole life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die and the policy terminates.

Cash Value

Money accumulated in a permanent policy that may be accessed through a policy loan or cancellation (surrender) of the policy. Cash value is considered a living benefit in a permanent policy causing the premiums to be higher than term insurance Whole Life Only

Variable Universal Life (VUL)

Offers the added attraction of the investment component seen in Variable Life policies through the insurer's separate account. Like Universal Life, the policy provides for flexible premiums and adjustable death benefits: Options A & B are available to policy owners. The entire cash value is held in the insurer's separate account and the investment return fluctuates based on the performance of the separate account. Since all premiums are credited to a separate account, there is no guaranteed minimum death benefit, the ower bears all ivestment risk.

Universal Life allows a policyowner to choose from two death benefit options

Option A and Option B

Universal Life Death Benefit Options A

Pays the face amount of the policy and provides a level death benefit. As the cash value increases. the company's risk decreases. If the cash value increases to the point where it equals the death benefit, the death benefit will automatically become the greater of the cash value and the death benefits is called the "risk Corridor" The corridor of insurance is automatic and does not require insurability. This prevents the policy from maturing too early Option A will benefit from larger cash value accumulations

Universal Life Death Benefit Options B

Pays the face amount stated in the contract which is the level term, plus any cash values accumulated over the years. This mortality charge for Option B is greater than Option A The option will benefit from greater death benefits

Whole Life Policy

Permanent - Provides benefits to a surviving spouse

Limited Payment

Premium payments are for a specified time, such as 20-pay, 30-pay. or to age 65. The face amount (death benefit) remains level and cash value continues to earn interest and mature at the age 100. The annual premium is higher than Straight Life, it's paid for a shorter period of time and will have a lower total premium outlay

Ordinary Whole Life Insurance

Provides insurance protection to age 100 cash value accumulation to age 100, and fixed level premium payments.

Long-Term Care Rider

Provides up to 100% of the policy benefits if the insured qualifies for long-term care benefits as defined in the rider. Any payout is an acceleration of the life insurance death benefit, meaning it will reduce the ultimate death benefit payable to the beneficiary. The amount of protection is determined at the time of policy purchase. Long-term care benefits are paid income tax-free after the insured meets the qualifying requirements.

The premium payments of an Ordinary Whole Life may be structured as:

Straight Life or Continuous Premium (monthly), Limited Payment (time frame), or Single Premium

Term Policy

Temporary life insurance protection for a specific time. Short-term goals Can also be purchased to provide coverage up to a specified age

Decreasing (Policy Type)

The death benefit decreases, but premiums remain level for the policy term

Decreasing

The death benefit decreases, but premiums remain level for the policy term. (can be used as Mortgage protection) The premium paid for decreasing terms is lower than the premium payable for level term since the benefit decreases throughout the term of the policy

Face amount

The death benefit payable on the policy if the insured dies before the policy ends. Also referred to as limit of liability or the policy proceeds (payout amount)

Level Term

The death benefits and the premiums remain level (the same/equal) during the policy term

Single-Premium Whole Life

The entire premium is paid in a lump sum at the time of purchase and creates an immediate cash value The face amount remains level and cash value continues to earn interest and mature at age 100 Has the lowest total premium outlay for the life of the policy

General Account (Guaranteed Values) for Variable Whole Life Policies

The general account is fixed and guaranteed and provides for a guaranteed minimum death benefit to age 100 Policy loans are available from the general account

Straight Life or Continuous Premium

The premium is level ad payable to age 100 or death of the insured, whichever come first. The face amount remains level throughout the life of the policy. This policy has the highest total premium outlay

Convertible Term

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

Convertible

The right to convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified in the contract. Premiums will be higher than the original policy since the permanent policy will provide a cash value and coverage can last to age 100 or beyond. If the conversion is based on the issue or original age, back premiums plus interest will be required to be paid at the time of conversion

Renewable Term Insurance

The right to renew for another policy term without evidence of insurability. Premium based upon attainaed age

Separate Account (Nonguaranteed Values) for Variable Whole Life Policies

The separate account is invested in equity securities as offered by the insurance company. The owner may select which subaccounts they want the premium to be invested in. Cash value in the separate account will fluctuate based on market conditions and performance of the subaccounts, which are similar to a mutual fund. The policy owner has an opportunity to achieve higher investment returns. This policy may act as a hedge against inflation but will decrease the guaranteed minimum death benefit by the loa plus unpaid interest

Annually Renewable Term

The simplest form of term life insurance is for a term of one year. The death benefit remains level and the premiums increase yearly as the policy renews. While it is very inexpensive initially compared to other types of life insurance, over time it can become cost-prohibitive. The death benefit is paid by the insurer if the insured dies only while the policy was in force.

General and Separate Account

The variable whole life policy cash accumulation is split between the insurer's general and separate account

Return of Premium Term

This policy is written as increasing term insurance and provides for an additional death benefit that equals a full refund of premiums if the insured is still living at the end of the term. These policies are very low-risk with respect to paying benefits - charge a much higher premium than level term insurance

Expense Charges

To cover administration cost are also deducted monthly from the cash value. This is the insurance company's cost of maintaining the policy and can be impacted by the overall increasing administration costs associated with a plan (increase annually)

Is Whole Life Policy convertible?

Unlike term insurance, whole life cannot be convertible or renewable

Corridor of Insurance

When the cash value increases too quickly, this could cause the policy to mature prior to age 100. To prevent this from happening, the insurer will increase the face value of the insurance protection to keep the policy from endowing

Joint Life

Whole life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die and the policy terminates Premiums are based upon a joint issue age, obtained by an average of both insureds' ages, resulting in a lower premium than 2 separate accounts. Designed to provide income protection for the surviving spouse

Nontraditional Whole Life (Interest/Market - Sensitive)

rates. Interest rate changes affect the policy premiums. The policy has a guaranteed minimum death benefit, but may increase based on the growth of the cash value