Chapter 4: Types Of Insurance Flashcards
Ordinary life insurance
- Many types if temporary or permanent insurance
- Premiums paid monthly, quarterly, semiannually or annually
Industrial insurance
- Small amounts
- Premiums paid weekly
- “burial insurance”
Group insurance
- Provides coverage for many people under one contract (unions, employee groups, creditors…)
What is term-life insurance?
- Coverage for a specific period of time
- Greatest coverage for lowest premiums
- Benefits paid only if person dies within period of time
- no cash value or living benefits
Re-entry Term Insurance
Renewable term insurance if the insured passes a medical examination
Whole Life Insurance
- Permanent protection for entire life
- Premiums do not change
- Cash values: Savings element of policy if surrendered
- Maturity at age 100
- Living benefits
Name the three whole life insurance plans
Straight: Permanent level protection with level premiums
Limited Pay: Premiums due only for a period of time
Single-Premium: Large one time only premium
Premium Periods
The shorter the premium pay period the quicker the cash values will grow
Modified Whole Life
Has premiums that are lower than typical whole life premiums for the first few years then higher premiums after
Equity Index Whole Life
80% to 90% of the premium invested in traditional fixed income securities and the remainder of the premium is invested in contracts or tied to stocks
Graded Premium Whole Life
- Premiums are lower than typical
- Gradual increase over the first five to ten years
- Level premiums after this period
Endowments
- Cash values that grow at a rapid pace
- Paid to beneficiary if the insured dies within a specific period of time
- Endowment policies have high premiums
Modified Endowment Contracts
- Amount to be paid after endowment period is greater than face value of policy
- Taxable by IRS
Family Plan Policies
- Insure all family members under one policy
Family Income Policies
- Contains both whole life and decreasing term insurance
- Provides monthly income
Family Maintenance Policy
- Both whole and level term
- Provides income for a specific period of time
Joint Life Policies
- Covers two or more people
- Pays benefits when first insured dies
- The survivor can then purchase a single individual policy
Joint Life and Survivor Policies
- Second to die policy
- Normally covers two lives
- Useful in estate to provide money to pay taxes on assets
Juvenile Insurance
- Insures life of a minor
- Adult is the premium payor until the child reaches a certain age
- Usually contains a payor benefit rider (waives premiums if person dies before juvenile reaches certain age)
Credit Life Insurance
Covers the life of a debater and pay the amount due on a loan if they die before the loan is paid off
Non-Traditional : Interest Sensitive Whole Life
- Premiums vary based on the insurers changing expense factors
Non-Traditional: Adjustable Life Insurance
- Insured Determines how much face protection is needed and how much premium they want to pay
- Insurance company selects a plan to meet those needs
Non-Traditional : Universal Life
- Flexible premiums and an adjustable death benefit
- Subject to interest rates
- Policy specifies the percentage of each premium that goes to the insurance protection and what percentage goes to build cash value
Entire Contract Provision
- Found at the beginning of the policy that states the policy document, applications attached and riders attached constitute the entire contract
Insuring clause
Describes the company’s basic promise to pay benefits upon the insureds death
Owners Rights Provision
Defines the person who may name and change beneficiaries, select options available under the policy and receive any financial benefits
Free- Look Provision
Required by most states, gives policy owners the right to return the policy for s full premium refund within a limited period of time
Consideration Clause
States that the policyowners Consideration consists of completing the application and paying the initial premium
Policy Loan Provision
Policyowners may borrow money from the cash values of their policies
Incontestable Clause
- Allows an insurance company to contest a claim during the contestable period but after two years they cannot deny coverage
Absolute Assignment
- Transfer is complete and irrevocable and the assignee receives full control over the policy and full rights to its benefits
Collateral Assignment
Policyowner temporally gives up ownership of policy
The policy is assigned to a creditor as collateral for debt
Suicide Provision
Protects the insurer against the purchase of a policy when the insured plans to commit suicide
They will not pay death benefit within two years only premiums paid
Automatic Premium Loan Provision
Authorizes the insurer to withdraw from the policy’s cash value the amount of overdue premium if the premium has not been paid by the end if the grace period
Discretionary Provisions
Some states have enacted against this type of provision because they protect only the insurance company
Types of exclusions (to protect insurance companies reserves)
War Aviation Hazardous job/hobbies Commission of a felony Suicide
Nonforfeiture
An insured party can receive full or partial benefits or refunds of premiums paid after a lapse due to non-payments
Nonforfeiture Options (switches from whole to term)
Cash Surrender: Cash surrender for ordinary whole life insurance after the first three years
Reduced Paid-Up Option: Take a Paid-up policy for a reduced face amount of insurance
Extended Term: Use the policies cash value to purchase a level term insurance policy
Describe/name three times of term insurance coverage
Level: Death benefits and premiums do not change
Decreasing: level Premiums and decreasing death benefits each year to $0. (Mortgage payments)
Increasing: Level premiums and a death benefit that increases each year
Grace Period Provision
Usually 30 days
- protects the policyowner against an unintentional lapse of policy
Reinstatement Provision
Allows lapsed policy to be put back in place
- Provide evidence of insurability
- pay back all premiums
- may be required to pay outstanding loans
Dividends options
- Take in cash
- Apply to premium payments
- Allow to accumulate interest
- Buy paid up additions (which is a whole life policy)
- Purchase one year term insurance
Policy riders
- Added to an insurance policy
- Customizations that come at an additional cost in premiums
Guaranteed Insurability Rider
- Allows insured to purchase additional coverage at specific future dates
- without evidence of insurability
- the new premiums will be calculated on the persons attained age
Waiver of premium rider
- Waives premium if the insured becomes permanently disabled
- six month waiting period
- waived until the person returns to work
- permanently waived if person never returns to work
Cost of living rider
- Addresses inflation by automatically increasing the amount of insurance
Double Indemnity Clause
Provision that requires insurer to pay twice the face value of the policy
Reduction of premium dividend option
Uses dividend to pay all or part of the next premium due
