Type of Insurance Policies
Features of Whole Life Insurance
1. Cash Values 2. Maturity at age 100
Characteristics of Term Life Insurance
1. Do not build cash values 2. the initial premium is lower than for an equivalent amount of whole life insurance 3. provides the greatest amount of death benefit per dollar of initial cash outlay
MECs
1. Penalty taxes (10%) on premature distributions prior to age 59 1/2, from a modified endowment contract normally apply to policy loans 2. any gains received from a MEC is included in teh insured's gross income for the year and a 10% tax penalty is assessed on the gain if the insured is under the age of 59 1/2
Factors involved in determining amount of policy's cash value
1. the face amount of the policy(the larger the amount, the larger the cash values) 2. the duration and amount of the premium payments(the shorter the premium-payment period, the quicker the cash values grow) 3. how long the policy has been in force
Whole Life Premiums
1. the shorter the payment period, the higher the premium 2. level premiums 3. calculated in part on the basis of the number of years between the insured's age at issue and age 100
Premium Periods
1. the shorter the premium paying period, the quicker the cash values will grow 2. the longer the premium paying period, the slower the cash values grow
Equity Index Whole Life
80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index
Option to Renew Term Life Insurance
A guaranteed renewable policy allows the policyowner to renew the term policy before its expiration date, without having to provide evidence of insurability("good health"); the premiums for the renewal period will be higher than the initial period
Straight Whole LIfe
Basic Whole life
Joint Life Policies
Pays the death benefit at the first insured's death and the survivors then have the option of purchasing a single individual policy without evidence of insurability; premiums of joint life policies are calculated by averaging the ages of the policyowners
Decreasing Term Insurance
characterized by benefit amounts that decrease gradually over the term of protection and level premiums; commonly used to protect and insured's mortgage
Endowments
characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date(before age 100)
Industrial Insurance
characterized by comparatively small issue amounts, such as $1,000, with premiums collected on a weekly or monthly basis by the agent at the policyowner's home, Quite often it is marketed and purchased as burial insurance
Interest-Sensitive Whole Life
characterized by premiums that vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors
Adjustable Life
combine term and permanent insurance into a single plan
Family Income Policies
consists of both whole life and decreasing term insurance; will provide monthly income to a beneficiary if death occurs during a specified period beginning after date of purchase
Family Maintenance Policy
consists of both whole life and level term insurance, which provides income for a specific period beginning on the date of death of the insured
Face Amount Plus Cash Value
contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value
Credit Life Insurance
designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid; the beneficiary of such a policy is usually the lender
Family Plan Policies
designed to insure all family members under one policy; the coverage on the spouse and children is level term insurance in the form of a rider
Universal Life
essentially a term policy with cash value, characterized by flexible premiums and an adjustable death benefit; very flexible even after policy is signed
Option to Convert Term Life Insurance
gives the insured the right to convert or exchange the term policy for a whole life (or permanent) plan without evidence of insurability
Re-entry Term Insurance
has a low premium for a stated period of time, but is renewable only if the insured passes a medical examination at the re-entry option date. If the insured fails the medical exam, the premium will increase
Limited Pay Whole Life
have level premiums tat are limited to a specified number of years; would best suit a prospective insured who desires permanent insurance but does not want to pay premiums indefinitely; extends to death or age 100
Ordinary Life
individual life insurance that includes many types of temporary and permanent insurance protection plans written on individuals. Includes whole, term, universal, and variable life coverage as well as endowment policies
Juvenile Insurance
insures the life of a minor; does not require minor's consent; Payor provision -> death or disability of the adult payor will caused premium to be waived until the insured child reaches a specified age or until the maturity date of the contract, whichever comes first
Single-Premium Whole Life
involves a large one-time only premium payment at the beginning of the policy period; immediate nonforfeiture value and cash value is created; advantage -> policyowner will pay less for the policy than if the premiums were stretched over several years
Basic forms of term life
level term, decreasing term, and increasing term
Equity Index Universal Life Insurance
permanent life insurance that allows policyholder to link accumulation values to an outside equity index; minimum guaranteed fixed interest rate; if the return on the index exceeds the policy's guaranteed rate of return, the cash value will reflect that of the index
Graded Premium Whole Life
premiums are lower than typical whole life rates during the preliminary period after the policy is issued (usually lasting five to ten years); the premiums will initially increase yearly during the preliminary period then remain level afterwards
Modified Whole Life
premiums that are lower than typical whole life premiums during the first few years(usually five) and then higher than typical thereafter
Increasing Term Insurance
provides a death benefit that increases at periodic intervals over the policy's term; the amount of increase is usually stated as specific amounts or as a percentage of the original amount; may also be tied to a cost of living index, such as cpi
Level Term Insurance
provides a level amount of protection for a specified period, after which the policy expires; premiums are averaged over the term of the policy
Term Life Insurance
provides low-cost insurance protection for a specified period (or term) and pays a benefit only if the insured dies during that period
Whole Life Insurance
provides permanent protection for one's entire life-from the date of issue to the date of the insured's death; premiums and benefits remain same throughout life of policy
Cash Values
regarded as savings element to whole life insurance because it represents the amount of money the policyowner will receive if the policy is ever surrendered
1988 Technical and Miscellaneous Revenue Act
revised the tax law definition of a "life insurance contract", created modified endowment contracts (MECs)
Forms of Whole Life
straight, limited pay, single premium, modified, equity index, Interest-Sensitive,
Living Benefits of Whole Life Insurance
through the cash value accumulation build-up in the policy, a policyowner has a ready source of funds that may be borrowed at reasonable rates of interest; if a loan is outstanding at the time the insured dies, the amount of the loan plus any interest due will be subtracted from the death benefit before it is paid
Joint Life and Survivor Policies
variation of the joint life policy is the last survivor policy, also known as a "second to die" policy; also covers two live, but eh benefit is paid upon the death of the last surviving insured
Group Insurance
written for employer, employee groups, associations, unions, and creditors to provide coverage for a number of individuals under one contract.
