chapter 4 life insurance policies
what are the two features the whole life insurance is distinguished by?
1. it provides guaranteed death benefits protection for the insurance whole life. no matter when the insured dies, the policy pays the face amount stated in the policy. under most Whole Life policies, the covered lifespan extends to age a hundred . insures mortality tables assume 100% mortality at age 100 which means the maximum premium payment. Ends at a hundred 2. it includes a guaranteed cash value that gradually builds inside the policy. The cash value forms part of the death benefit but it is also a accessible by the insured is alive. The Whole Life policies are designed so that the premiums I pay to age a hundred and therefore the cash value is designed to accumulate and equal the policies face at a hundred. we say that the policy endow at age 100. At this point there is no longer any Pure Insurance protection and the policy terminates in the cash accumulation is paid out to the owner
what are the three basic forms of term life insurance?
1. level term 2. decreasing term 3. increasing term
while UL policyowners have considerable leeway in deciding the premium they will pay, ensures provide guidance to help them make sure they do not under fund or over fund the policy. In most cases, Insurance let's three different premium levels, a low-end, high-end, and just right amount explain each of these levels
1. the minimum premium is the least amount estimated to cover the cost of pure UL insurance and the policy expenses. Funding aul policy at its minimum level risk the policy of long-term integrity and affords no flexibility to the owner. if premiums are not increase in the future the policy is likely to lapse 2. the Target Premium is the premium level at which insurers typically pay for first-year commissions to their producers . this is the only relevance of the Target Premium , though it represents a sound middle ground for policyowners to follow 3. the maximum premium, also called the guideline premium, is the highest amount that can be paid for that level of death benefit and still permit the policy to meet the guideline premium test as being life insurance. The guideline premium is guaranteed to keep the policy in force until it stated end date.
limited payment life insurance premiums can be paid for how many years & or to a specified age of what?
10 , 15 it 20 years & age 65
a policy with a 10-year premium. Would be called a ______ one that requires premiums to age 65 would be called a life ________ . at the end of the selected payment period , the policy is paid up. no more _________ are necessary or possible. however, the insurance remains in force and the _______continues to grow (albeit @ a slower rate ), until endowment _______.
10 pay life policy / paid up at 65 policy / premium payments necessary/ cash value/ @ age 100
what is the maximum age of coverage on a term life insurance policy?
75 after which the insurer will not offer term coverage or renew
explain Employers in Group Insurance
Aquarius make up the largest segment of Group insurance plan sponsors. Employers that may either sponsor a group plan themself or serve as a trustee of a group plan established for the benefit of the employees. All employee meetings eligibility requirements must be allowed to participate. Individual discrimination by the employer is prohibited
name the two interest rates in a universal life policy. Which one will you receive?
Guarantee & Current
what does level term insurance provide? and what happens during that term?
a level death benefit and charges a level premium for the duration of the coverage term. during the term of coverage neither the death benefit or the premium change. whatever the length of the term, at the end of that time the coverage expires in the protection ends.
what type of insurance contains both term and whole life in the same contract?
adjustable life insurance
what is the first of the new generation of flexible permanent life?
adjustable life insurance.
why did the insurance industry introduce universal life? what is the other name for UL?
because it is featuring greater flexibility universal life it is also known as by the generic name for the for premium adjustable life....
what are the regulations of a variable life policy? why are they considered securities?
because of their investment nature and the inherent risk to the principal, there are considered Securities as well as life insurance. a Securities they regulated by • the Securities and Exchange Commission (SEC) • the financial industry regulatory agency (FINRA) • State Securities agencies
why doesn't term life have cash value?
because the policy owner pays only for the cost of pure protection drama term insurance premiums are smaller than premiums for permanent insurance for the same insurance at the same issue age. the older a term insurance policy insured gets, the higher his or her term insurance premiums become
what does variable universal life do?
combines features of variable life and universal life.
what is the name for the most basic type of whole life insurance?
continuous pay or straight life
what is the most basic type of whole life insurance called ?
continuous pay or straight life often simply called whole life
when the policy owner pays premiums for a universal life insurance policy the premiums are _____ to the policy's cash value. These values, in turn, are credited with a _______. from the cash value the insuruers deduct and amount to cover the _____ and operational expenses associated with the policy. As long as the policy's cash value is enough to cover the monthly ________ , the UL policy remains in force. However, if premiums are ______, the cash value may be depleted and the policy will lapse
credited / rate of interest / mortality / monthly deductions / reduced or terminated
a withdrawal reduces the UL policy's cash value as well as the ______ by the withdrawal amount. If the policy is under a death benefit option A, the withdrawal May _______ to an _____ it was at policy issue. under death benefit option b, the withdrawal _____ the current death benefit, for the _______ that is, the amount of the death benefit at policy issue will never _____ than it was a policy issue.
current death benefits/ reduce death benefit / amount less than / reduces / specified amount / be less
and straight whole life death benefits do what in level premiums are paid until when? do premiums increase?
death benefits remain level in level premiums are paid until the insured dies or until he or she reaches age of hundred, whichever comes first they never increase for length of the policy & and also had the lowest annual premiums of all various types of whole life
name the least expensive type of term life
decreasing term insurance
what is decreasing term life insurance used to cover? what's a good example?
financial needs that decline over time. mortgage protection is a good example. But decreasing Term Policy that matches the declining mortgage balance, a homeowner is the shirt that funds will be able to pay off the mortgage should the homeowner die prematurely the amount of coverage is tied to the loan amount and remaining balance each year
and whole life insurance when does the policy's cash value generally accumulate?
generally it does not accumulate until the third policy year as the insurer typically takes its expenses of establishing the policy in the first few years
what is credit life insurance offered as? explain can a lender require Insurance on a loan?
group or individual insurance. Typically the Creditor offers group credit life insurance. And this scenario, the Creditor is the policy owner in the bar is the ensure. State law prohibits covers more than the amount borrowed so the lender has no incentive for the death of the insured. Although A lender can require insurance on the loan, it cannot force borrowers to buy credit life insurance in The Lending Institution
since there is immediate cash and single premium life policy what has to happen ?
in order to compensate the company that the policy is surrendered early oh, there is a surrender charge was last for usually the first 7 to 10 years if the owner decided to surrender the policy early
what is the most common use of group life insurance? whar form is it provided in ?
in the business Arena. Employers by group life coverage for the benefit of their employees. group life insurance is most often provided in the form of annually renewable term insurance
where is joint life insurance most popular & relevant?
in the business insurance Market especially when it involves Business Partnership. Particularly relevant and Business Partnership and is often used to fund a cross purchase buy-sell agreement. Families with no children often purchased this policy as funds at the second death are not a concern and buying a joint life policy would be less expensive than buying two separate policies
where is survivorship life more popular? explain how can it be used??
in the estate planning Market. Married couples use these policies to create a sum of money that will be needed when the second spouse dies which is when a state taxes and other estate settlement costs are due. Generally spouses can inherit all estate assets without any estate taxes due. However at the second death the entire state will now be subject to the estate tax hit. This allows the survivors to pay the estate taxes due without having to sell the family business or Family Farm to pay these taxes. Aside from this used, second-to-die policies can be used in both the personal and business Market Place anytime the death benefit is most needed when the second insured dies
how does variable life insurance differ from traditional whole life insurance? explain securities
in the way it's values are invested. VLI policy values are invested in investment account, known as sub accounts which are managed in a separate account that keeps them apart from the insurers general account. Sub accounts consists of a variety of stocks, bonds, mutual funds and related Securities. And This Way VLI owner can participate and growth of the contract underlying securities like all securities, separate account investments are not guaranteed , which means VLI cash values are subject to declines as well as increases , VLI policyowners fully assume the investment risk of policy values allocated to separate subaccounts
what is the joint life insurance? (First to die)
is a permanent covers that insures two persons under one policy. The policy pays the death benefit when the first insured dies. The main appeal of this policy approaches to cost. Specifically, the premium is less than it would be for two separate policies provide the same death benefit
explain renewability in level term insurance what is the premium for the renewal coverage based on?
it allow the coverage to be renewed for another period Or another term without the insured having to provide proof of insurability, meaning that even Those Who Have Become uninsurable are guaranteed the right to renew the policy. it is based on the insureds At at the time of the renewal, called attained age which means that the premiums generally increase with each renewal.
what does group life insurance do?
it covers a group of people, unrelated except for their common association with the group, under a single contract. To qualify for any type of group Insurance, the group must be a "natural group" created for some other reason then to obtain Group Insurance. It is typically provided by an employer to cover all eligible employees
explain adjustable life insurance
it gives the policy owner freedom to change the premiums, face amount, even the basic type of insurance.
what is the corrider requirement?
it is a legal definition of life insurance that requires all life insurance contracts to maintain a minimal level appear Insurance protection net amount at risk to be considered life insurance. A contract that fails this requirement loses the favorable income tax treatment enjoyed by life insurance
what is final expense/ pre-need insurance?
it is a specialized type of insurance which funds a pre-need funeral contract defined by South Carolina law. a licensed funeral director maybe license to sell life insurance only in connection with the sale of this type of insurance. The face amount of the policy must be equal to the size of the pre-need funeral contract. The funeral home will be the beneficiary of this contract
explain credit life insurance what is the borrower dies ? what type of insurance plan is usually used?
it is designed to specifically cover the life of a borrower in the amount of his or her outstanding loan. If the borrower dies, then the policy pays the policy death benefit to the Creditor. The type of insurance plan used for this purpose is usually decreasing term insurance the coverage is matched to the declining balance on the loan. And as the insurance loan balance decreases, so does the coverage
explain premium flexibility
it is one of the main features of universal life. Traditional life insurance policies lapsed if the policy owner fails to pay a premium when do in contrast UL policy owner can decrease or even skip premium payments. As long as a UL policy's cash value Converse the monthly deductions, the policy remains in Force at the cash value is not enough to cover the cost of the policy , the plan will terminate
explain term life insurance
it is the most basic form of life insurance. It provides temporary protection for a specified, limited term of years specified in the policy. if the insured dies during the term of coverage, then the policies death benefit is paid. if the insured is alive at the end of that term, then the coverage ends, and the policy terminates without value unless it is renewed or converted into permanent coverage
what does limited payment whole life provide?
it provides a level death benefit protection for the insurance whole life. Also like straight life, limited payment life has level premiums.
what does decreasing term insurance provide? what's the difference between level and decreasing term? what happens if death occurs during the policy's term? which premium is less decreasing term or level term?
it provides temporary protection for a set period. the difference is the amount of death benefit payable. The death benefit under a level Term Policy is set and remains level over the policies term. by contrast, with decreasing term insurance the death benefits deadly decreases until it eventually reaches zero at the end of the term is death the curse of the benefit equals the face amount of coverage stated in the contract for the point in the term pause cover decreases over time, decreasing term premiums are less than level term premiums ( assuming both policies that start with the same face amount)
what is survivorship (second-to-die) life insurance?
it's another form of dual insured life insurance because these policies pay the death benefit only when the second is your dies. as a joint life, survivorship life premiums are lower than they would be for two comparable Single Life policies
what type of premium does a VLI policies require? what about death benefits
just like traditional life the require a fixed premium on a scheduled basis . guarantees a minimum death benefits . the death benefit will fluctuate up & down but will never be less than the guaranteed face amount .
explain variable universal life & how it's like both universal & variable
like variable life, VUL policies invest their premiums and separate non guaranteed investment accounts. That means the girth of the contracts cash value is based on the performance of underlying investment. like universal life, VUL fallacies feature premium flexibility. how's the owners can increase or decrease the premium payments they make in even stop payments. As long as the policy's cash value covers the monthly deductions for the cost of insurance and expenses, the policy stays in Force. If the cash value is not sufficient to cover the monthly deductions the policy lapses.
and universal life insurance policies what are the three components that are Central to policy premium? how are they treated?
mortality interest expenses which are treated as separate policy elements. In other words this unbundled this unbundling is the key to the flexibility enjoyed up by UL
the monthly _______ charge deducted from a universal life policy cash value reflects the ______ for that point in the insured's life. consequently , overtime the mortality cost ________, which reflects the insurance increasing age. in addition, deductions from the cash value may also ______. In many ways, universal life is like a plan of term insurance with the cash value side fund. as the insured gets older, the per ______ cost of the insurance protection provided by the policy increases, but since the owner is purchasing fewer dollars of insurance coverage as the cash accumulate, the total cost of insurance ______.
mortality / cost of insurance / increases / increase / side fun / thousand dollar / grows at a slower rate
when was universal life introduced?
not long after adjustable life
what is the third option that aul policy offers with access to cash value? explain...
partial withdrawals also called partial surrenders from the policy's cash value. With a partial withdrawal, the owner takes a portion of the cash value account in cash. With the withdrawals are taken first in first out meaning the premiums paid or withdrawn first
traditional Whole Life policies provide access to cash value through only two means, what are those means? what happens?
policy loans or a full surrender of a contract, in which all accumulated values are paid out to the owner and the policy terminates
explain group life insurance's premiums
premium rights average for the entire group. Because people consistently move in and out of the group new hires coming into the group and retirees leaving it, the premium rates for life insurance are fairly constant
regardless of which type of term insurance is purchased what does the premiums do?
premiums always remain level for the term of coverage
in adjustable life insurance what can the owner change? what if the change puts the insurer at risk? what will the company require proof of .??
premiums, the payment., or the amount of coverage as needs change if the change puts the insurer at greater risk, such as increasing the face amount or reducing the premiums, the insurer will require proof of insurability as a company is now taking on additional risk
what is term life? Does it have cash value and what is the other name for cash value?
referred to as Pure Insurance, it has no cash value in cash value is also called savings element
explain level premium term how long are the terms?
regardless of their term of coverage, I'll level term life insurance policies feature a level premium for the turn of coverage. Accordingly, they are sometimes called level premium term life insurance policies. Level premium term refers to term policies with a term longer than a year typically level premium term policies are 5-year terms, 10-year term, 20 year term
most level term insurance contracts are what two things?
renewable and convertible
explain death benefit option A : Level death benefits
resembles a death benefit of a traditional whole life policy the premium remains level, and the policy's cash value is paid as a part of the policy's specified amount. As with traditional whole life, increases in the cash value reduce the net amount I risk to the company but do not increase the death benefit paid at the insured's death.
what is the most extreme example of limited pay life? how is it paid up? what about the cash value ?
single premium life insurance policy with one premium payment at the time the policy is bought. the policy is paid up immediately and as in all Whole Life policies to cash continues to grow until age 100 when it endows.
wow the death benefit in life insurance policies referred to as the policies face amount what is it referred to in UL policies? why is the distinction important?
specified amount play some out implies a benefit amount that is contractually guaranteed. With its flexible policy terms, the UL contract cannot guarantee a face amount. Instead, with UL it is the amount specified by the applicant as the target death benefit. Only if the policy properly funded with the death benefit equal (if not exceed) the specified amount
how Is permanent life insurance different from term life?
term life provides temporary protection for a specified, limited term of years specified in the policy & can only get death benefits if the person dies during the term permanent life (whole life) guarantees death Benefits the persons whole light
what do universal life insurance policies guarantee? how will the insurer credit the rates ?
that the monthly interest credited will not be less than certain guaranteed minimum. This amount is stated in the policy contract. At the same time the insurer may also credit right tire the the guaranteed minimum if Market conditions warrant
what do UL policies provide?
that's guaranteed and current rates.
explain death benefit option B :increase in death benefit
the benefit equals the policy specified amount plus its cash value. The policy has a level net amount at risk that is always equal to the initial specified amount, and as the cash value increases, the death benefit increases by the same amount. If the cash value decreases, the death benefit decreases by the same amount
an adjustable life insurance the owner typically determines what? what does the company determine?
the death benefit in the premium he wishes to pay and the company then determines the proportion of term and whole
in UL death benefit option b does a death benefit payable decrease or increase?
the death benefit payable never decreases to less than the specified amount stated in the policy. Because the net amount at risk for example the Pure Insurance protection remains level, the cost of insurance under option b is higher than in an otherwise identical universal life insurance policy with an option a death benefit
what does whole life insurance guarantee the owner? are premiums & premium payment guaranteed?
the death benefit, premiums and cash accumulation, there is no flexibility . they are guaranteed but cannot be changed once the policy purchased.
what does group underwriting focus on? what does the success of a group Rely on & explain ?
the group as a whole, not the individual participant on a mix of healthy and shirts and those who might otherwise be uninsurable. Which explains why group plans have minimum participation requirements. The larger the group, the easier it is to predict future loss. however, with small groups, losses are more unpredictable
explain annually renewable term what do the premiums do?
the oldest form of renewable term insurance the policy provides coverage for one year, at the end of which the policy owner May renew the contract for another year without having to provide evidence of continued insurer ability why the face amount Remains the Same, premiums increase with each renewal
explain universal life premiums & death benefit
the policy owner can within certain limits, increase premiums, reduce premiums, or pay no premiums . as long as there is enough cash in the policy to cover the monthly cost of the policy, the policy will remain in force without additional premiums. Similarly, the policy owner can increase the death benefit subject to evidence of insurability or decreasing either with or without any change in premium
in traditional whole life policy what does the insurer invest?
the premiums in safe, secure, and call servative Investments that are managed in the insurance general account. This in turn lets the insurer credit safe, secure, and conservative rates of return to the cash value
in group Life policies what is the sponsor of the group? And what are the members of the group? what does the group sponsor receive & explain what does it do ?
the sponsor is the policy owner and premium payer the individual members are the insureds a master policy & it indicates the sponsor as policy owner and premium payer. To indicate their coverage under the policy, the insured's are given a Certificate of Insurance. Each individual insurance names his or her beneficiary or beneficiaries
what's the difference between straight life and limited payment life?
the time. Over which premiums are paid. As the name suggests, the premiums for limited payment life insurance policies are payable for a shorter time. The trade-off to the shorter premium. Is the fact that the premiums are higher than they would be with a straight life policy
who are Group insurance plans funded by?
they may be entirely funded by the plant sponsor or premium may be split between the sponsor and the plan participants. at the premium is paid entirely by the employer, the plan is known as a non-contributory group. if some portion of the premium is paid by the employee, the plan is known as a contributory group .
with whole life what do benefits and premium remain as?
they remain level, straight through the insureds whole life
explain the convertibility in level term
this provision lets policyowners exchange their term coverage for a permanent life insurance policy without having to provide evidence of insurability. while the face amount Remains the Same, premiums increase with each renewal
what are the two reasons term life is purchased?
to cover a temporary need or to provide a large amount of coverage at a relatively low cost or both
what is the corridor requirement designed to do?
to prevent policyowners from over funding the contract. Since by paying a higher premium the necessary to fund the policy it may cause the cash to increase to the face amount and therefore Indo, the face amount automatically increases by certain amount so that the insurer will always have money at risk and therefore not terminate. as shown in the chart, even with the level death benefit (Option 1) if the cash value increases to rapidly (from paying High a premium), the death benefit will increase to maintain the minimum corridor of protection
is the cash value in a variable life policy guaranteed? Explain please
unlike the VLI death benefit, the cash value is not guaranteed. If values declined due to poor investment results, the cash value will decrease. A variable Life policy's cash value at any time is equal to the value of the policy shares and its chosen sub accounts plus the value of funds allocated to the guaranteed fixed account
explain variable life
unlike traditional whole life, variable life insurance includes an investment feature with the funds at Market risk, because of this feature, variable Life policies are considered a security like stocks, bonds, and mutual funds.
when does the group term life insurance coverage end? what do group life plans include? what is the maximum conversion amount? how many days does the conversion have to be requested Within? during the days of the requested conversion is the group life insurance still in effect? what happens if they die within that conversion period ? what does the conversion of provision give the right to do? how many years do you have to be on the planned to be able to convert?
when a person leaves the group include a conversion privilege that gives participants the right to convert their group life coverage to an individual life insurance policy of equal face amount without providing evidence of insurability. the maximum conversion amount is generally equal to the amount of coverage the person had under the group Plan. Conversion must be requested within 31 days following termination or retirement from the group. During this 31 day period Group life coverage continues in effect for the terminated employee. if the terminated participant dies within the 31-day conversion., the group life death benefit is payable even if not applied for the provision only gives the right to buy a permanent life policy and is written out a standard rate. When the group plan itself is being terminated, all participants who have been on the plan for at least five years will be allowed to convert less than 5 years you are out of luck
in adjustable life insurance when does the cash accumulate?
when the expenses of the contract are less than the premiums paid
explain both guarantee bright and current rate and Universal Life policies
which generally reflects prevailing rates, can change it every year or more frequently these rights may be and often are higher than in traditional life insurance products the owner will always receive whichever of the two rights is greater at that time but never less than the Guaranteed Rate Guaranteed Rate in UL is also referred to as the contract rate
what is the oldest and most traditional form of permanent life insurance? and what does it feature?
whole life insurance, more guarantees that any other form of permanent life insurance available today
list the three most common eligible groups that are natural groups
• employer/employee groups • Association groups • labor union groups
a minimum participation requirement in group life insurance that varies on whether the plant is contributory Or non-contributory List these reasons
• if the plan is contributory, at least 75% of eligible employees must elect to participate • if the plan is not contributory, meaning the employer pays all the premium, then 100% of eligible employees must be covered under the plan. contributory plans are common with group health insurance plans, group life insurance plans however, are often non. contributory
group Underwriters set requirements to offset the risk of loss based on the group. For example the underwriter generally does what? what can the underwriter not do and what can the group not do?
• require a minimum group size- obviously larger is better • make sure that the group is eligible and is a group the insurer does cover • that the required percentage of group members has enrolled for the insurance • cover and financially strong group • assigned rates based on the average age of the group members in the ratio of men to women the underwriter cannot discriminate against an individual member. In turn, the group cannot exclude one member from coverage based on that person's risk potential neither can the group reward one group member with greater benefits
what are the two standard death benefit options at Universal Life policies offer? can the policy owner switch death benefit options with few if any restrictions?
•option 1 (option A) level death benefit • option 2 (option B ) increasing death benefit with it it's flexible character. Yes