Types of Life Insurance Policies

Survivorship Life

(Second to die, Last Survivor) It pays on the last death rather than upon the first. The joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life. Often used to offset the liability of the estate tax

Annuities

A contract that provides income for a specified period of years or for life. they use mortality tables (indicate the number of individuals within a specified group) Basic function is that of liquidating a principal sum, regardless of how it was accumulated

Variable Life Insurance

A level, fixed premium, investment based product. These policies have fixed premiums and a guaranteed minimum death benefit. The cash value of the policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The assets must be held in a separate account which invests in stocks and other securities investment options

Joint Life

A single policy that is designed to insure two or more lives. Can be term or permanent. The premium would be less and is based on a joint average age that is between the ages of the insureds. The death benefit is paid upon the first death only

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. Unlike universal life, most of the investment vehicles do not guarantee return. Regulated by the SEC and the FIRA. Agents selling these products must: be registered with FINRA, have a securities license, be licensed by the state to sell life insurance

Interest-Sensitive Whole Life (Current Assumption Life)

A whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest, and expense. Credit the cash value with the current interest rate that is usually comparable to money market rates and can be higher than the guaranteed levels. Provides for a minimum guaranteed rate of interest, which may allow for either greater cash value accumulation or a shorter premium paying period

Renewable Provision

Allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability. The premium for the new term policy will be based on the insured's current age.

Return of Premium (ROP)

An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. It offers the pure protection of a term policy, but if the insured remains healthy and is still alive once the term limit expires, the insurance company guarantees a return of premium.

Structured Settlements

Annuities are used to provide these, would take on the form of a court settlement arising from a civil law suit or it may take on the form of the income that is provided to the winner of a state lottery

Adjustable Life

Can assume the form of either term insurance or permanent insurance. The insured typically determines how much coverage is needed and the affordable amount of premium. The insurer will then determine the appropriate type of insurance to meet the insured's needs. Can also convert from term to whole life or vice versa. The cash value only develops when the premiums paid are more than the cost of the policy.

Limited Pay Whole Life

Designed so that the premiums for coverage will be completely paid up well before age 100. This type of policy has a shorter premium paying period so the annual premiums are higher.Cash value builds up faster.

Single Premium Whole Life

Designed to provide a level death benefit to the insured's age 100 for a one-time, lump sum payment. Completely paid up after one premium and generates immediate cash

Decreasing Term

Feature a level premium and a death benefit that decreases each year over the duration of the policy term. It is primarily used when the amount of needed protection is time sensitive or decreases over time. Most commonly purchased for the payment of a mortgage if the insured dies prematurely. Usually convertible, not renewable

Indexed (Equity Indexed) Annuities

Fixed annuities that invest on a relatively aggressive basis to aim for higher returns, has a guaranteed minimum interest rate. Less risky than a variable annuity or mutual fund but are expected to earn a higher interest rate than a fixed annuity

Universal Life (Flexible Premium Adjustable Life)

Gives the policyholder the flexibility to increase the amount of premium paid into the policy and to later decrease it again. They can even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance. Minimum Premium - the amount to keep the policy in force for the current year Target Premium - a 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 Has two components: Insurance and cash account Allow the partial withdrawal of the policy cash value. The death benefit will be reduced by the amount of any partial surrender

Convertible Provision

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

Fixed Annuities

Guaranteed minimum rate of interest to be credited to the purchase payments, income payments that do not vary from one payment to the next, guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant

Pure Death Protection

If the insured dies during this term, the policy pays the death benefit to the beneficiary, if the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term, there is no cash value or other living benefits

Level Term Insurance

Most common type of temporary protection purchased, the death benefit does not change throughout the life of the policy

Whole Life Insurance

Provides lifetime protection and includes a savings element (or cash value) Endow at the insured's age 100. They have a level premium that is based on the insured's issue age, the death benefit is guaranteed and remains level, the cash value is scheduled to equal the face amount of the policy when the insured reaches age 100, the policy owner can borrow against the cash value while the policy is in effect or can receive the cash value when the policy is surrendered.

Variable Annuities

Serves as a hedge against inflation, Underlying investment - the payments that the annuitant makes into the var. annuity are invested in the insurer's separate account, not their general account Interest Rate - issuing insurance company does not guarantee a minimum interest rate License Requirements - considered a security and is regulated by the SEC Variable premiums purchase accumulation units in the fund, which is similar to buying shares in a mutual fund. represent ownership interest in the separate account

Indexed Life

The cash value is dependent upon the performance of the equity index such as S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation without requiring evidence of insurability

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.

Option A (level death benefit option)

The death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years

Permanent life insurance

The 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 the premium is paid.

Accumulation Period (Pay in period)

The period of time over which the owner makes payments (premiums) into an annuity. Payments earn interest on a tax deferred basis

Beneficiary

The person who receives annuity assets if the annuitant dies during the accumulation period or to whom the balance of annuity benefits is paid out

Annuitant

The person who receives benefits or payments from the annuity, whose life expectancy s taken into consideration and for whom the annuity is written. Must be a natural person

Straight Life (Ordinary Life, continuous premium whole life)

The policy owner pays the premium from the time the policy is issued until the insured's death or age 100. Has the lowest annual premium out of all the whole life policies

Owner

The purchaser of the annuity contract, but not necessarily the one who receives the benefits. The owner of the annuity has all of the rights.

Annually Renewable Term

The purest form of term insurance. The death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases

Annuity Period (annuitization period, liquidation period, payout period)

The time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant

Term Life

a temporary protection because it only provides coverage for a specific period of time. Known as "pure life insurance." It provides for the greatest amount of coverage for the lowest premium as compared to any other form of protection. Usually a maximum age above which coverage will not be offered or at which coverage cannot be renewed