Chapter 2 - Types of Life Insurance Policies
Ajustable life
Can assume the form of either term insurance or permanent insurance (flexible). The policyowner may adjust: the premium or premium-payment period, the face amount, the coverage period. Suitable for insureds whose incomes are unpredictable (people who work on commission).
Group Life
Group is formed for a reason other than buying group insurance (Employer and employee group) Group sponsor (usually employer) receives the master policy Insureds receive certificates of insurance Group underwriting it is very liberal Eligible groups (e.g., employer/employee, debtor/ creditor group, labor union, association)
Universal Life - Option B
Increasing death benefit (insurance amount plus cash account)
Joint Life
Insured 2 or more Premium based on joint average age Death benefit upon first death
Universal Life - Options A
Level death benefit
Graded Premium Whole Life
Lower premiums for the designated timeframe (typically 5-10 years); payments rise annually until leveling off Premium will start low then gradually increase till it levels out.
Uses for Term Insurance
Maximum protection for least amount initially Lowest cost Increasing term for riders Decreasing term for debt
Single Premium
One time premium payment, immediate cash value
Term VS Permanet
Term Life - temporary, specific period of time, no cash value. Whole Life - permanent, to age 100 lifetime protection, has cash value.
Who bears the investment risk on variable life?
The insured.
Who bears the investment risk on whole life?
The insurer
Variable Universal Life
Dually regulated by state (insurance Dept.) and federal (SEC/FINRA) entities because it is considered a securities product, regulated by the SEC and FINRA Agent must: be registered with FINRA, have a securities license, be licensed by the state to sell life insurance. Many features of whole life Investment component Flexible premium Combination of Universal Life and Variable Life
Modified Life
During the first few years, the premium is set for a lower amount, after that the premium adjusted.
Whole Life
Guaranteed death benefit and living benefits Cash value with a guaranteed interest rate Cash value in general account,
Variable Life Insurance
Have to have Life Insurance License and Securities Series 6 and Series 63. Separate Account Cash of second account varies every day Cash value death benefit no guarantees
Types of Term Insurance
Increasing Level Decreasing - used to payoff a debt
Survivorship Life
Insured 2 or more Premium based on joint average age Death benefit upon last death
Universal Life or Interest Sensitive
Interests rates are changed according to previews year interest rates Cash values, can take out loans and withdrawals
Limited Pay
Pay a set number of years or to a specified age. For retirements.
Straight Life
Pay until death or age 100
Features on Term Insurance
Renewable - can renew when term ends Convertible - in the future can convert the insurance to something else
Decreasing Term
The death benefit decreases, but premiums usually remain level for the policy term; often utilized as "Mortgage Redemption" or "Credit Life Insurance".
Increasing Term
The death benefit increases and the premium remains level throughout the term
Variable Life
Investment-based product Cash value in separate accounts Cash value fluctuates with performance of portfolio in which insurer has invested premiums.
Whole Life Insurance
Premium level, cash value increases Made to last for the whole life
Level Term
Premiums and death benefits stay the same (level) for the life of the policy
Term Insurance
Term = temporary coverage, it gets too expensive over time Least expensive initially NO cash value (pure protection) NO loans matures at death - payout to beneficiary when insured dies.
Universal Life
Flexible premium adjustable life, Insured may skip a payment as long as the cash value exceeds the premium.
Term Insurance
Life insurance coverage for a specified period of time, less expensive than whole life
Family policy
One family member has whole life insurance, while the rest of the family has term adjustable life, that they can later change to whole life
Family Income Policy
Same as Whole Life but with Decreasing Term rider; upon death, pays monthly income for REMAINING term AFTER which pays full death benefit.
Types of payment
Single Premium - one time payment Limited Pay - pay till a certain time Straight Life - pay till death or age 100
Group Conversion
Without proof of insurability within 31 days specified period Convert to whole life At least 5 years under the group plan Premium will go up
annually renewable term
renews each year, premium increases each year death benefit stays the same premium increases
Adjustable Life
Life insurance which permits changes in the face amount, premium amount, period of protection, and the duration of the premium payment period.