CH 2 Life Insurance Policies

Business Uses of Life Insurance

*buy sell funding (cross purchase, entity purchase) *key person *executive bonus *deferred compensation

interest-sensitive whole life

Whole life policy whose premiums vary depending upon the insurer's underlying death, investment and expense assumptions.

endowment insurance

a ife insurance contract designed to pay a lump sum after a specific term or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit.

joint life

a joint life policy would be the least expensive because the premiums are based on the average age, and the death benefit would be paid out at the first death. "first to die"

re-entry option

the insured, upon the end of a term policy may qualify for a discounted premium rate with proof of insurability

juvenile life

"jumping juvenile" premium remains level, face amount increases at predetermined age, often 21

straight life

"ordinary life" or "continuous premium whole life" policyowner pays the premium from the time the policy is issued until death or age 100. lowest annual premium out of the whole life policies

minimum premium

the amount needed to keep the policy in force for the current year

Variable Universal Life Insurance

a type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance

primary difference between endowment and a whole life policy

an endowment matures at an earlier age

pure endowments

contracts that promise to pay a specific amount only if the contract holder survives the endowment period

limited-pay whole life

designed so that premiums for coverage will be completely paid-up well before age 100. shorter premium-paying period so annual premium is higher

Single Premium Whole Life

designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment

adjustable life policy

developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage)

decreasing term

features a level premium and a death benefit that decreases each year over the duration of the policy term. usually used when amount of needed protection is time sensitive or decreases over time

increasing term

features level premiums and a death benefit that increases each year over the duration of the policy term

permanent life insurance

general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as premium is paid

survivorship life

insures two or more lives for a premium that is based on a joint age; pays on the last death. *used to offset the liability of the estate tax

equity indexed whole life

is that the cash value is dependent upon the performance of the equity index although minimum cash value is guaranteed. premiums are fixed and death benefits are guaranteed

group life insurance

issued to the sponsoring organization, and covers the lives of more than one individual member of that group *usually written as annually renewable term insurance

Variable life insurance

life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder

level term insurance

most common type of temporary protection purchased. death benefit does not change

modified whole life

policy charges a a lower premium in the first few policy years (3-5) then a higher level premium for the remainder of the insured's life. *attractive to individuals who are just starting out and have limited financial resources, but will be able to afford higher premiums in the future

universal life

policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again

graded-premium whole life

premiums start out relatively slow and then level off in the future

level premium term

provides a level death benefit and a level premium during the policy term

whole life insurance

provides lifetime protection and includes a savings element (cash value)

convertible provision

provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability

renewable provision

provides the policyowner with the right to renew the coverage at the expiration date without evidence of insurability. however policyowner has to pay premium that is based off their attained age

annually renewable term

purest form of term insurance, death benefit remains level and the policy is renewable each year without proof of insurability. premium increases annually due to the age increasing

Target Premium

recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime

contributory plan

retirement plan funded by contributions from the employer and employee

noncontributory plan

retirement plan funded entirely by contributions from the employer

term insurance

temporary protection because it only provides coverage for a specific period of time. also know as pure life insurance. greatest amount of coverage for the lowest premium