Types Of Individual Life Insurance
Whole Life
1. Type of Protection- permanent until age 100 2.Premium-level always 3.Death Benefit-level always 4. Living Benefits- Cash Values, Policy loans and Nonforfeiture values
Term Life
1. type of protection- temporary 2. Premium-level always 3.Death Benefit- level, increasing, or decreasing 4. Living Benefits- not available
Universal life 2 type of components?
1.Insurance Component-always annually renewable term 2. Cash Account
permanent life insurance
A general term used to refer to various forms of whole life insurance policies that remain in effect to age 100 so long as the premium is paid. -Most common type of permanent insurance is whole life insurance
Adjustable Life
Key Features-Can be term or whole life; can convert from one to the other Premium- can be increased or decreased by the policy owners Face Amount-flexible; set by policy owner with proof of insurability Cash Value-fixed rate of return; general account Policy Loans-can borrow cash value
Variable Life
Key Features-Permanent Insurance Premiums-Fixed(if whole life) Flexible(if universal life) Face Amount-can increase or decrease to stated minimum Cash Value-not guaranteed; separate account Policy Loans-can borrow cash value
Universal Life
Key Features-permanent insurance with renewable term protection component Premium-flexible; minimum or target Face Amount-flexible; set by the policy owner with proof on insurability Cash Value-Guaranteed at a minimum level; general account Policy Loans-Can borrow cash value
Limited Benefit Policies
Restrict benefits to specified accidents or diseases, such as travel policies, dread disease policies, ticket policies, and so forth.
Term Riders
allow for an additional amount of temporary insurance to be provided on the insured without the need to issue another policy. they are usually attached to a whole life policy to provide greater protection at a reduced cost.
In all term policies what always remain level?
premium
regarding the length of coverage, all life insurance policies fall into what 2 categories?
temporary & permanent protection
Annually Renewable Term
the purest form of term insurance. -The death benefit remains level ( in that sense its a level term policy) - the policy may be guaranteed to be renewable each year without proof of insurability -premium increases annually according to the attained age, as the probability of death increases.
Renewable provision of term insurance
-Allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability. -The premium for the new term insurance will be based on the insured's current age.
Variable Universal Life
*flexible premium that can be increased, decreased, or skipped as long as there is enough value in the policy to fund the death benefit -*increasing and decreasing the amount of insurance -*cash withdrawals or policy loans -does not guarantee return
Survivorship Life
-A life insurance contract which pays policy proceeds only upon the death of the last of two or more insureds -also know as second to die or last survivor -premium is based on a joint age -pays on the last death -this policy is often used offset the liability of estate tax upon death of last insured
Joint Life
-A single policy that is designed to insure two or more lives. -The premium for joint life would be less than for the same type of coverage on the same individuals -more commonly found as joint whole life -Premium is based on joint average age that is between the ages of the inured -death benefit paid upon the first death only -joint life can be used for a married couple buying a house -joint life can be used for business partners in the funding of a buy sell agreement -premium rates on a joint life policy are determined by averaging by averaging ages of both insureds -first to die
Regulation of Variable Products
-Agents selling Variable life insurance products must: 1. Be registered with FINRA 2.Be licensed by the state to sell life insurance 3. Received a securities licenses
Straight Whole Life
-Also called Continuous Premium Whole Life - straight whole life is a basic whole life policy, where the policy owner pays a fixed premium for the time the policy is issued until the insured's death or age 100. -Also called Ordinary life -of the common whole life policies straight life will have the lowest annual premium.
Universal Life Insurance
-Also known as flexible premium adjustable life -policy owner has flexibility to increase amount of premium paid into policy and to later decrease it again. -Policy owner may even skip paying a premium without a lapse of policy if there is sufficient cash value to cover the monthly deductions for cost of insurance. If cash value to small policy will expire - Universal life policies are offered as unbundled products, which means all the pricing elements are disclosed separately by insurer -flexible premium policy -guarantees a contract interest rate -allows partial withdrawal of the policy cash value -interest earned on withdrawn cash is subject to taxation -death benefit will be reduced by the amount withdrawn -policy owner can select the level of premium, cash value, death benefit and premium paying period that is desired.
Return of Premium
-An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. -The Return of Premium is paid if the death occurs is within a specified period of time or if the insured outlives the policy. Return of Premium policies are structured to consider the lo risk factor of a term policy but at a significantly increase in premium.
Juvenile Life
-Any life insurance written on the life of a minor. -Common juvenile policy is known as jumping juvenile because the face amount increases at a predetermined age usually 21 face amount jumps but premium remains level -Payor benefit rider is usually used with juvenile policies otherwise it functions like a waiver of premium rider -if payor(benefit or guardian) becomes disabled for at least 6 months or dies the insurer will waive the premium until minor reaches age 21
Family Income Policy
-Combines Whole Life insurance with a Decreasing Term Rider also written on the breadwinner of family -The policy is designed to provide an income period which begins from the effective date and commonly runs for 20 years, or 10 years and sometimes even to age 65 -Income period is funded by decreasing term period -if insured should die during income period the family will receive the income for remainder of income period. -at end of income period the face amount of the whole life coverage is paid to the beneficiary For example-if one purchases a 20 year family income policy and dies 5 years after the policy is issued, the decreasing term portion of the plan would provide monthly income to the family for 15 years. At end of the 15 year period the whole life death benefit would then be paid to the family.
Variable Products
-Fixed life insurance or annuities are contract that offer guaranteed minimum or fixed benefits that are stated in the contract. -Variable life insurance or annuities are contracts in which the cash values accumulate based on a specific portfolio of stocks without guarantees of performance. -Variable annuities keep place with inflation, and re determined by the value securities backing it. -Also known as variable whole life insurance -is a level, fixed premium, investment-based product -guaranteed minimum death benefit -cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. -policy owner bears the investment risk -assets are kept in separate accounts -separate account acts a mutual fund
2 premium rates of indeterminate premium whole life?
-Guaranteed: level premium stated in the contract (max premium) -Non-guaranteed: lower premium rate that the policy owner actually pays for a set period of Time.
Option B
-Increasing death benefit option; -the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases -the death benefit will always be the equal to the face amount plus the current amount of cash value - pure insurance with the insurer remains level for life, so the expenses of this option are much greater than those for Option A, thereby causing the cash value to be lower in older years (all else being equal)
the 3 basic types of term coverage?
-Level -Increasing -decreasing
Decreasing Term
-Level premium -Death benefit decreases each year of the duration of policy. -Commonly purchased to insure the payment of a mortgage or other debts if insured dies prematurely. Amount of coverage thereby decreases as the outstanding loan balance decreases each year. -Usually is convertible -Usually not renewable since the death benefit at the end of policy is 0$
Modified Whole Life
-Low premiums in the early years (usually 3-5 years) and then jumps to a higher premium in the later years for the remainder of the insureds life. -These policies were developed to make the purchase of whole life insurance more attractive for individuals who, for example, just started out and have limited financial resources, but will be able to pay higher premiums in future when income grows.
Graded Premium Whole Life
-Lower premiums for designated timeframe an then premiums begin to increase (for about 5-10 years) until becoming level thereafter.
Level Term Insurance
-Most common type of temporary protection -The word level refers to the death benefit that does not change throughout life of policy - Beneficiaries will receive same death benefit no matter if you die in 2nd year of policy or 23rd year of your 30 year policy
Most term insurance policies are??
-Renewable, Convertible or Renewable and Convertible (R&C)
term insurance
-Temporary protection because it only provides coverage for a specific period of time. -Also known as pure life insurance -Term policies provide the greatest amount of coverage for the lowest premium -Provides pure death protection -If the insured dies during the term the policy pays death benefit to beneficiary -If insured dies after the term the policy pays nothing -There is no cash value or living benefits
Indexed Whole Life
-also know as equity index whole life -cash value is dependent on performance of equity index, such as S&P 500 -There is a guaranteed minimum interest rate -Policies face amount increases annually to keep pace with inflation (as the consumer price index increases) without requiring evidence of insurability. - If policy owner assumes the risk of inflation the policy premium increase with the increases in the face amount If the insurer assumes risk of inflation the premiums remain level.
interest-sensitive whole life
-also known as current assumption whole life -provides guaranteed death benefit until 100 -insurer sets the initial premium based on current assumptions about risk, interest and expense. If actual values change, the company will lower or raise the premium at designated intervals. -policy provides minimum guaranteed interest rate
Adjustable life
-can assume the form of either permanent or term insurance -the insured typically determines how much coverage is needed and the affordable amount of premium -The insurer will determine the appropriate type of insurance to meet the insureds needs -increases in the death benefit or changing to a lower premium require proof of insurability -cash value only develops when the premium paid are more than cost of the policy.
Family Policy
-combines whole life with term insurance to cover family members in a single policy, providing coverage on every member of a family -Family policy provides whole life insurance on the breadwinner and convertible term insurance on rest of family -Spouse has opportunity to convert term coverage to permanent coverage by age 65 -children are automatically covered after birth for about 30-31 days, to continue coverage on the new born the parents must inform the insurer of the birth within that time period of 30-31 days. -children may convert term to permanent at the age of 21 without evidence of insurability
Option A
-death benefit remains level while the cash value gradually increases -pure insurance is decreasing as time passes, lowering the expenses, and allowing of greater cash value in later years. -IRS has to due with Option A
Policy owner in Adjustable life is able to change?
-increase or decrease the premium or premium paying period -increase or decrease the face amount -change period of protection - policy owner also has the option of converting from term to whole life or vice versa.
Increasing Term
-level premiums -death benefit that increases each year throughout policy. -The amount of increase in the death benefit is usually expressed as a specific amount or a percentage of the original amount. -Often used by insurance companies to fund certain riders that provide a refund of premiums or a gradual increase in total coverage, such as the cost of living rider or return of premium riders -Ideal policy to handle inflation and the increasing cost of living
Limited-Pay Whole Life
-limited-pay whole life is designed so that the premiums for coverage will be completely paid-up well before age 100. Example: 20 pay whole life, life paid up at age 65 - shorter premium paying period than straight whole life, so annual premiums would be higher. -Cash value builds up faster for the limited-pay policies. -Example: an individual may need some protection after retirement, but does not want to be paying premiums at that time.
Single premium whole life
-one-time lump sum premium payment to provide a level death benefit to the maturity of the policy(age 100). -Single premium policies generate immediate cash value due to the size of the lump sum premium payment.
Indeterminate Premium Whole Life
-premium rate may vary year to year -After initial period (usually 2-3 years) the insurer establishes a new rate which could be raised, stay the same , or lowered based on the company's expected mortality, expense and investments - premium can never be higher than guaranteed maximum
Endowment
-provide a permanent, level death protection if the insured died prematurely, and they accumulate cash values. -Premiums can be paid up until the endowment date, for a limited period of time, or a one time lump sum payment. - policy matures at an age earlier than 100 cash value has to build up faster in endowment because funds are intended to be used while insured is alive -Premiums are higher than an ordinary straight life. Sooner policy endows higher the premium payment
Level Premium Term
-provides a level death benefit & level premium during the policy term -Example: a 100,000$ 10-year level term policy will provide a 100,000$ death benefit if the insured dies anytime during the 10 year period. The premium will remain level throughout whole 10 years. If the policy renews at the end of the 10 years the premium will be based on the attained age at time of renewal.
whole life insurance
-provides lifetime protection, and includes a savings element (or cash value) -Whole life policies endow at age 100, which means the cash value created by the accumulation of premium is schedule equal the face amount of the policy at age 100. -Premiums for whole life insurance are usually higher than term insurance
Convertible provision of term insurance
-provides the policy owner with the right to convert the policy to a permanent insurance policy without evidence of insurability. -The premium will be based on the insured's attained age at the time of conversion.
the following are key characteristics of whole life insurance
1-level premium-the premium for whole life policies is based on the issue age; therefore it remains the same throughout life of policy. 2-Death Benefit- the death benefit is guaranteed & also remains level for life 3- Cash Value- the cash value created by the accumulation of premium is schedule equal the face amount of the policy at age 100( the policy maturity date),and is paid out to the policy owner. 3a-The insured and policy owner do not have to be same person 3b- have guaranteed interest rate 4-Living Benefits-the policy owner can borrow against the cash value while the policy is in effect, or can receive the cash value when policy is surrendered. The cash value, also called nonforfeiture value, does not usually accumulate until the third policy and it grows tax deferred.
Universal life 2 type of premiums?
1. Minimum Premium- amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annual renewable term product. 2. Target Premium- recommended amount that should be paid on a policy in order to cover cost of insurance protection and to keep policy in force throughout its lifetime.
Universal Life 2 type of death benefit options?
1. Option A- the level death benefit option 2.Option B-increasing death benefit option