Life Insurance Policies Flashcards
Annually renewable term (ART)
Death benefit remains level, but the premium increases annually as the probability of death increases. Considered the purest form of term insurance.
Level premium term
Both benefit and premium remain level throughout the entirety of the term
Re-entry option
Some policies contain a discounted rate for those insureds who qualify for a renewable term
Decreasing term
Level premium with death benefit that decreases over the length of the term
Primarily used when the amount of needed is time-sensitive or decreases over time, such as covering a mortgage
Policy is usually convertible
Renewable
Allows the policyowner to renew their coverage at the end of the experation date without evidence of insurability
Convertible
Provides the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability
Permanent life insurances
Remain in effect until death or age 100 (as long as premium is paid)
Build cash value
Cash value
Created by accumulation of premium and is scheduled out to equal the face amount of the policy when gne imsuted reaches age 100 (the policy mature date), and us paid out to the policyowner
Regulaly credited to the policy and have a guaranteed interest rate
Usually begins accumulating the third policy year when it grows tax deferred, and it can be borrowed against. The policyowner is entitled to the cash value in the event the policy is surrendered.
Called nonforfeiture value
Level premium
Based on issuance age
Living benefits
Policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surendered
Continuous premium
Continuous premium is the basic whole life policy: lowest annual premium with ascending cash value
Also called straight life, ordinary life, continuous premium whole life
Limited payment
Designed so the payment will be paid-up well before 100. Common is 20-pay life (20 years) and paid-up at 65. Cash value builds up faster than other policies. Higher premiums because of the shorter time frame.
Whole life
Single premium
One-time lump-sum payment at the beginning and generates immediate cash value
Whole life
Adjustable life insurance
Key features: can assume the form of either term or whole life insurance
Premium and/or premium-paying period: can be increased or decreased by policyowners
Face Amount: flexible; set by policyowners with proof of insurability
Cash Value: fixed rate of return; general account
Policy Loans: can borrow cash value
Basically, as insurer’s needs change, the policyowner can make adjustments
Universal life
Key Features: permanent insurance with renewable term protection component
Premium: flexible; minimum or target
Face Amount: set by policyowner with proof of insurability
Cash Value: guaranteed at a minimum level; general account
Policy Loans: can borrow cash value
- If an insured skips a premium payment, the missing premium can be deducted from the policy’s cash value. The policy will not lapse.
- Interest-sensitive policy where the insurer guarantees a contract interest rate (usually 3 to 6%), but there is potential for the policyowner to get a concurrent interest rate
- Also known as flexible premium adjustable life
Variable universal
Key features: permanent insurance
Premium: fixed (if whole life); flexible (if variable life)
Face Amount: can increase or decrease to a stated minimum
Cash value: not guaranteed; separate account
Policy loans: can borrow cash value
- Combination between universal life and variable life. Flexible premiums and adjustable death benefits.
- The policyowner decides where the cash value will be invested. Cash values are not guaranteed and death benefits are not fixed, but death benefit cannot generally decrease below the initial face value of the policy.
- A producer must be licensed to sell in both securities and life insurances to sell variable universal life insurance
Comparison of flexible insurances: adjustable life
Can be term or whole — can convert from one to the other
Premium: can be increased or decreased by policy owner
Face amount: flexible; set by policyowners with proof of insurability
Cash value: fixed rated of return; general amount
Policy loans: can borrow cash value
Comparison of flexible life insurance: universal life
Permanent insurance with renewable term protection component
Premium: flexible; minimum or target
Face amount: flexible; set by policyowner with proof of insurability
Cash value; guaranteed at minimum level; general account
Policy loans: can borrow cash value
Comparison of flexible life insurance: variable life
Permanent insurance
Premium: fixed (if whole life); flexible (if universal life)
Face amount: can increase, or decrease to a stated minumum
Cash value: not guaranteed; separate account
Policy loans: can borrow cash value
Joint-life
First-to-die
Can be term or perm
Survivorshipship life
Second-to-die
Cheaper premium since extended time for second death
Juvenile life
Also called jumping juvenile
Premium stays the same, but the death benefit increases at a predetermined age (usually 21)
Group life insurance
Like a workplace of organization formed for some other purpse other than to get insurance
Evidence of inusurability usually not required
Participants do not receive a policy since they do not own or control the policy, but they are issued a certificate of insurance evidencing they have coverage. The master policy/contract is issued to the sponsor, who is the policyholder and exercies control over the policy
If an employee terminates membership in the insured group, he/she has the the option to, within 31 days of terminating, convert to an individual policy without proving insurability
If the employee dies during the conversion period, a death benefit will be issued by the group policy equal to what the individual policy would be, whether or not the individual completed an application
Attained age
The insured’s age at the time a policy is renewed or replaced
Cash value
A policy’s savings element or living benefit
Endow
To have the cash value of the whole life policy reach the contractual face amount
Nonforfeiture values
Benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Policy maturity
In life policies, the time when the face value is paid out
Securities
Financial instruments that may trade for value, such as stocks, bonds, or options
Term insurance
Also known as pure life insurance
Usually a max age
No cash value or other living benefits
Attained age
The insured’s age at the time the policy is renewed or replaced
Endow
To have the cash value of a whole life policy reach its contractual face amount
