Chapter 4: Life Insurance, Types of Policies Flashcards
Industrial Life:
Premiums paid?
How often and collected by whom?
Designed for?
Premiums Paid: $1000/$2000
Paid weekly and collected by Debit Agents
Designed for burial coverage
Group Life
Insurance written for memebers of a group.
One master contract.
Usually no evidence of insurability required
Ordinary Life (2)
Term life and whole life insurance policies
Term LIfe
Pure death protection- only pays death benefit if the insured dies during the policy term
Renewable and convertible
Termination date
Convertible to whole
Level Term
AKA Premium Level Term
Level face amount and level premiums.
Premiums are higher than annual renewable term, however prices can rise at each renewal.
Low premium
Decreasing Term
Annual decreasing face amount over time with level premiums.
Used for mortgage protections.
Credit Policies
Purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.
Renewable Term
Term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.
Annual Renewable Term
Level face amount
Renews annually
Doesnt need proof of insurability
Term-Rider
Covers children under their parent’s policy.
Lvel term.
Whole life
Insurance that provides death benefits for the entire life.
Living benefits in form of cash value/policy loans
Matures at age 100
Level premium
Types of Whole Life Insurance (5)
- Straight Whole Life
- Limited Pay Whole Life
- Single-premium Whole Life
- Modified Whole Life
- Graded Whole Life
Straight Life
Basic who life insurance
Level face amount
Fixed premiums over lifetime
Death or age 100
Limited Pay Whole Life
Premiums paid for limited time
Cash value increase faster
Fixed premiums are higher
Single Premium Whole Life
One lump sum coverage for whole life
Nonforfeiture value is created
Immediate cash value is created
Premium > policy’s reserve
Modified Whole Life
Low premiums upfront, high premiums later.
Only one premium increase.
Graded Whole Life
Premium increases yearly, then remains level.
Family Plan Policy
Family Head (whole life) + family term riders
Family Income Policies
Whole life + decreasing term
Family Maintenance Policy
Whole Life + Level Term
Joint Life Policy
A policy that covers 2 or more people.
Permanent Insurance
Survivorship Life Policy
AKA Second to Die Policy
Covers 2 lives but benefit is paid upon the death of the last surviving insured.
Interest Sensitive Whole Life
AKA Current Assumption Whole Life Insurance
Whole Life
Cash value can increase beyond the state guaranteed if economic conditions warrant
Adjustable Life Policies
Combined term and whole life into a single plan
Policy owner determines how much face amount is needed and how much premium to pay
May vary coverage without needing proof of insurability
Level premium
Cash Value
Universal Life
Flexible Premiums
Gains go towards cash value
Policyowner determines amount and frequency of premium payments.
No minimum death benefit.
Cash value withdrawals.
Cash value accumulation minimum interest guaranteed.
Equity Index Universal Life Insurance
Ties permanent life to stock market indexes.
Minimum guaranteed fixed interest + indexed account option.
Modified Endowment Contracts (MEC)
Overfunded according to IRS
7 pay test: if withdrawn prior to 59.5 there is a 10% penalty.
Taxation occurs when cash is distributed.
Funds withdrawn are subject to LIFO- taxes as ordinary income
Penalty taxes apply to premature policy loans
Variable Insurance Products
Transfers the investment risk from the insurer to the policy owner
Variable Whole Life
Policy values invested in the insurer’s separate accounts which house common stock, bond, money market and other securities investment options.
Riskier, higher yielding (potenttially)
Fixed premiums
Guaranteed minimum death benefits
Cash values
Variable Universal Life
Builds cash value
Invested in several accounts and into the stock market or bond market
Flexible premium payments
Adjustable death benefits (but if it increases, then the insured must requalify)
Re-entry Feature
AKA. Revertible term life insurance
Insured has the option of taking the standard renewal rate without proving insurability. However, to ensure the lowest rate, they may need to requalify.
