Chapter 15: Life Insurance Policy Flashcards
Life Insurance Policies help protect against
financial problems associated with premature death (before age 70)
Beneficiary
person designated to receive death proceeds
Face Amount
listing amount of death protection on face value
Owner
insured who is working and can buy for spouse or family
Group Life Insurance
Insurance for members who become part of group eligible for insurance but for reasons unrelated to life insurance and related to job/career
Credit Life Insurance and who offers
purchased by lender for its group of debtors. Banks unions offer this
Individual Life Insurance
life insurance purchased to fit individual need of individual protection, more than what is provided in group life
Term Life Policy
insurer promises to pay specific dollar amount of death protection if insured dies within specified term
Single Year term
1 year policy term (renewable)
Multi year term
5,10,15,20 year renewable
Decreasing Life term policy
insured pays same premium over time but beneficiary received decreases as the individual is older (death increases with age)
Level Term Life Insurance
Insured pays premium and receives same beneficiary at any point death occurs in period
Renewable Term
continue and renew coverage up to specific age but premiums increase
Convertible Term
insurer may convert term or renewable to a whole life coverage
Uses of Life Insurance
may of mortgage if parents die, college education fund if kid dies, aid kids till financially dependent
Whole Life Insurance and when paid and other name
pays beneficiary when death occurs. contract goes until advanced ages like 100. Pays if death, contract is maturity, cash value life insurance
Whole Life Insurance Main Difference
Insurer knows eventually they will pay a claim so must collect enough premiums to cover claim
Level Premium Concept
Insurers charge Higher premium over life of policy higher than cost needed to cover mortality and low to cover mortality at lower ages. Point is to invest premiums earn interest and revenue for when claim is to be paid
Whole Life Insurance uses _____ through level premium concept
Cash values and savings are generated on early payment and then when mortality costs increase and the level payment is not enough the savings from earlier years offset and cover it
Whole Life Insurance Types (3)
Single Premium
Continuous Premium
Limited Payment Insurance (between single and continuous)
Single Premium Insurance
insurer promises to pay claim when death occurs in exchange for large premium
Continuous
insured pays same premium as long as they live or up to maturity age
limited payment insurance
continuous until insured dies, specifies number of payments
Universal Life Insurance
provide permanent life insurance protection but more flexible in paying premiums
What is key difference in Universal Life insurance compared to other contracts
with flexible premiums, insured can pay more above minimum in the beginning to accumulate cash savings account. Can use the cash savings to pay off future premiums that cost more due to higher mortality and interest rates. Insured has more control
What is premium payment credited into and what is the equation
Cash value = accumulated premium deposits - expense - mortality charges
Two components of Universal Life Insurance
Premium and cash value savings
Guaranteed interest rate
produces a guaranteed minimum cash value, credit excess interest rate
Universal Life Plans (2)
Level or variable death benefit
Level death benefit
death benefit remains constant, when insured dies the insurer pays face amount and retains accumulated cash
Insurers net amount risk
reflects out of pocket payment by insurer, net death after retaining cash value
Variable death benefit
death benefit is initial face amount plus accumulated cash value
Uses of universal life (3)
Flexibility of premiums payments
Ability to earn greater returns when interest rises
Flexibility of death benefit
Variable Universal Life Insurance
Cash value life insurance designed to provide policy owners alternatives for investing cash value in whole life policies
When does cash value develop for variable universal life
exceeds mortality charges and expense
BTID
Buy term life insurance and invest the difference
