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Life Insurance: Types of Policies Flashcards

1
Q

What are the 2 Types of Life Insurance?

A
  1. Term Life
  2. Whole Life
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2
Q

What are the 4 Types of Insurance Policies?

A
  1. Whole Life Policies
  2. Flexible Policies
  3. Variable Policies
  4. Specialized Policies
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3
Q

What is Term Life Insurance?

2 Parts

Types of Life Insurance

A

A Temporary Insurance Policy
* Guaranteed for the policy’s stated “Term”

Only offers a Death Benefit
* If Insured dies after the Term has ended, no benefit is paid

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4
Q

Characteristics of Term Insurance:
Level Term

3 Parts

Term Life Insurance

A

1. Level Death Benefit
2. Level Premium
3. Term of Coverage
Expressed as Specific Age or Number of Years

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5
Q

Characteristics of Term Insurance:
Decreasing Term

3 Parts

Term Life Insurance

A

1. Decreasing Death Benefit
2. Level Premium
3. Term of Coverage
Expressed as Specific Age or Number of Years

Example:
* Financial obligations that decrease steadily over time (Mortgage, Bank Loans, etc.)

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6
Q

Characteristics of Term Insurance:
Increasing Term

3 Parts

Term Life Insurance

A

1. Increasing Death Benefit
2. Increasing Premium
3. Term of Coverage
Expressed as Specific Age or Number of Years

Examples:
* Financial obligations that increase steadily over time
* Death Benefits stay current with inflation
* Keeps pace with rising cost of living expenses

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7
Q

Definition:
Return of Premium Term

Term Life Insurance

A

The Policy will return all (or part) of the premium paid, if the insured is still alive at the end of the term

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8
Q

Definition:
Renewability

4 Sub-Parts

Term Life Insurance

A

Guarantees that the policy will renew/extend once the term ends
* No need to re-apply/re-qualify medically
* Death Benefit remains the same
* “Renewed Term” (Same length as original policy)
* “Step-Rate Premium” (Adjusted based on attained age)

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9
Q

Definition:
Convertibility

2 Sub-Parts

Term Life Insurance

A

Allows a policyowner to convert a term policy to a permanent policy
* Without evidence of insurability
and
* Without submitting an application

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10
Q

Key Points:
Convertibility

2 Parts

Term Life Insurance

A

Conversion must be made before the term policy expires

Premium for the new policy will be based on:
* Attained Age: Age at time of conversion
or
* Original Age: Age at the time original policy was written

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11
Q

Advantages:
Term Life Insurance

1 Part

Term Life Insurance

A

It is the least expensive form of Life Insurance

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12
Q

Disadvantages:
Term Life Insurance

3 Parts

Term Life Insurance

A
  1. Length of Coverage is limited to the policies “Term”
  2. Premiums increase as the insured gets older
  3. Renewability features expire before age of average life expectancy
    (Individuals may not be able to obtain/afford coverage at older ages when the risk is greater)
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13
Q

What is Whole Life Insurance?

4 Parts

Types of Life Insurance

A
  1. A Permanent Insurance Policy
    (Guaranteed for insured’s lifetime or Policy’s maturity date)
  2. Fixed/Level Premium
  3. Fixed/Level Death Benefit
  4. Cash Value
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14
Q

What are the 7 Types of
Whole Life Policies

Whole Life Insurance

A
  1. Continuous/Level Premium
  2. Limited Payment
  3. Single Premium
  4. Modified Premium
  5. Graded Premium
  6. Indeterminate Premium
  7. Interest-Sensitive
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15
Q

Definition:
Level Premium

2 Sub-Parts

Whole Life Policies

A

Makes lifetime coverage affordable at older ages
* Overpaying for the risk of dying at younger ages
* Underpaying towards the end of life expectancy

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16
Q

What happens if the Policyholder stops making the Premium payments?

2 Parts

Whole Life Policies

A
  1. The Policy will lapse
  2. The Policyholder will received the current Cash Value of the policy
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17
Q

Definition:
Fixed Premium Schedule

Whole Life Policies

A

Fixed Payment Schedule for when Premium is Due

(If Premium is not received by Payment Date, the policy will lapse)

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18
Q

Definition:
Fixed/Level Death Benefit

Whole Life Policies

A

Does not change throughout the life of the policy
(Cannot Be Increased)

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19
Q

Definition:
Cash Value

Whole Life Policies

A

Reserves/Balance set aside to pay the “Guaranteed Death Benefit”

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20
Q

Definition:
Guaranteed Interest Crediting

Whole Life Policies

A

The “Cash Value” balance will steadily increase over the contracts life
* Due to regular credits: “Guaranteed Rate of Interest”
* This rate is level for the contract’s life

(The scheduled increases are stated in the policy illustration)

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21
Q

Definition:
Policy Surrender

Whole Life Policies

A

The policyholder’s right to end the contract and reclaim a portion of the policy’s “Reserve Fund” (i .e. Cash Value)
* Surrendering the Policy will forfeit the Death Benefit

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22
Q

Definition:
Policy Loan

5 Parts

Whole Life Policies

A
  1. Allow the Policyholder to borrow (up to) the cash value
  2. Only for Policies with a “Cash Surrender Value”
  3. Interest due for the amount borrowed
  4. Policy and Death Benefit remain active during load period
  5. If Loan is not fully paid when the Insured dies, the amount remaining (plus interest) are deducted from the Death Benefit
23
Q

What are the 2 Components for the Death Benefit?

Whole Life Policies

A
  1. Cash Value/”Savings Element” - Increases each year
  2. Insurance Protection Element - Decreases each year
24
Q

Definition:
Endowment

2 Parts

Whole Life Policies

A
  • The policy’s maturity date
    (Typically at age 100 or 120)
  • At Endowment, the Policy holder will pay Income Tax on Taxable Gain amount
25
What are the 2 other names for **Whole Life Policies**? | 2 Parts ## Footnote Whole Life Policies
1. Straight Life 2. Ordinary Life
26
Definition: **Limited-Payment** ## Footnote Whole Life Policies
Policies that allow for the lifetime of Premiums to be paid in a shorter time period
27
Key Points: **Limited-Payment** | 5 Parts ## Footnote Whole Life Policies
1. Premiums are higher since the payment period is shorter 2. Coverage is still for the Insured entire life 3. Cash Value accumulates faster 4. Cash Value still receives "Guaranteed Rate of Interest" 5. Endowment remains at age 100 or 120
28
What are the 3 (common) Forms of **Limited-Payment** ## Footnote Whole Life Policies
1. 10-Pay Whole Life *(Premiums paid in 10 level annual installments)* 2. 20-Pay Whole Life *(Premiums paid in 20 level annual installments)* 3. Life Paid-Up (at Age 65) *(Premiums paid in level annual installments until the insured turns 65)*
29
Definition: **Single Premium** | 3 Parts ## Footnote Whole Life Policies
1. One Premium Payment *(paid at the start of the policy)* 2. Policy has an immediate Cash Value 3. Premium and Interest earned) will cover all maintenance costs for the policy
30
Definition: **Modified Premium** | 2 Parts / 2 Sub-Parts ## Footnote Whole Life Policies
Lower (level) Premium for the early years *(Typically 3 Years or 5 Years)* Once Period ends: * Premiums Increase (and then) * Remain level for remainder of policy
31
Definition: **Graded Premium** | 3 Parts ## Footnote Whole Life Policies
1. Lowest Premium in "Year 1" 2. Premium increases each year *(for 5 -10 Years)* 3. Once Period ends, Premium remains level *(for remainder of policy)*
32
Definition: **Indeterminate Premium** | 2 Parts / 3 Sub-Parts ## Footnote Whole Life Policies
* Adjustable Premiums - based on: 1. Investment Earnings 2. Mortality 3. Expense Costs * If estimates change - the Premium will be adjusted *(Never above "Max. Guaranteed Premium")*
33
Definition: **Interest-Sensitive** | 4 Parts ## Footnote Whole Life Policies
**1. Cash Value can increase above "Stated Guarantee"** *(if economic conditions warrant) **2. Interest Rate can fluctuate** *(depending on economic conditions)* **3. Death Benefits can grow** *(depending on economic conditions)* **4. The Policyowner is protected from drop in value** *(to a stated minimum)* (a.k.a. "Current Assumption")
34
Advantages: **Whole Life Policies** | 3 Parts ## Footnote Whole Life Policies
1. Permanent Policy's 2. Level Premium's 3. Lifetime Coverage
35
Disadvantages: **Whole Life Policies** | 4 Parts ## Footnote Whole Life Policies
1. Premium's are not flexible 2. Premium's cannot be decreased 3. Death Benefit cannot be increased 4. Policyowner has no control over how the Cash Value is invested
36
What are **Flexible Life Policies**? | 3 Parts / 3 Sub-Parts ## Footnote Types of Life Insurance Policies
**Considered Permanent Insurance** The Policyowner has options regarding the: * Premiums * Face Amount * Investment Objectives Policy components can be adjusted as needs or circumstances change
37
Definition: **Adjustable Life** | 2 Parts / 3 Sub-Parts ## Footnote Flexible Life Policies
Allows for "Term" and "Whole" coverage in one policy Policyowner can adjust features without changing policies: * Face Value/Death Benefit * Premium * Length of Coverage
38
Definition: **Universal Life** | 2 Parts ## Footnote Flexible Life Policies
The Policyowner has 1. Flexible Premiums 2. Flexible Coverage *(throughout their lifetime)*
39
Universal Life: **Death Benefit Options** | 3 Parts ## Footnote Flexible Life Policies
**Policyowner may Increase/Decrease Death Benefit** *(subject to any insurability requirements)* **Option A:** * (Level) Death Benefit = Face Value * Most of Premium goes to Cash Account * *(Cash Value rises faster)* **Option B:** * (Increasing) Death Benefit = Face Value (+ Cash Account) * Most of Premium goes to Death Benefit * *(Cash Value rises slower)*
40
Universal Life: **Loans** vs. **Withdrawals** | Loans (1Part) / Withdrawals (4 Parts) ## Footnote Flexible Life Policies
**Loans:** * Must be repaid (plus interest) **Withdrawals/Partial Surrenders:** * Don't have to be repaid * Reduce the Cash Value * Reduce the Death Benefit * Gains taxable at Ordinary Income Rate
41
Definition: **Equity-Indexed Life** | 2 Parts ## Footnote Flexible Life Policies
1. Account Value linked to Stock Market Performance *(Policy may lose value)* 2. Minimum Guaranteed Interest Rate for Cash Value
42
Advantages: **Flexible Life** | 3 Parts ## Footnote Flexible Life Policies
**More Flexibility** Policyowner has more control over their policy: 1. Flexible Premiums 2. Death Benefit Options 3. Access to Cash Value
43
Disadvantages: **Flexible Life** | 4 Parts ## Footnote Flexible Life Policies
**More Complex** Long-term benefits can be significantly impacted due to changes in: 1. Premium Payments 2. Interest Rates 3. Loans/Withdrawals 4. Death Benefit
44
What are **Variable Life Policies**? | 3 Parts ## Footnote Types of Life Insurance Policies
**Considered Permanent Insurance** Provide Lifetime Coverage for the Insured Benefits include a Death Benefit and Investment Options
45
Definition: **Separate Account** | 3 Parts ## Footnote Variable Life Policies
**No Guaranteed Rate of Return** **Subject to Market Risk/Loss in Value** 1. Held by the Life Insurance Company 2. Policyowner allowed to invest Premiums in certain (approved) securities 3. Typically a mixture of: Stocks, Bonds, Mutual Funds, Money Markets, and Commodities
46
Variable Life: **Death Benefit Options** | 3 Parts ## Footnote Variable Life Policies
**Policyholder will always receive the "Guaranteed Min. Death Benefit"** *(Guaranteed Min. Death Benefit = Original Face Value)* **Option A:** * Death Benefit - Remains Level *(Regardless of increases/decreases of the Cash Value)* **Option B:** * Death Benefit - Varies *(Based on the fluctuation of the Cash Value)* | **Option A and B apply to "Variable Universal Life"**
47
What are the Differences?: **Variable Life vs. Variable Universal Life** ## Footnote Variable Life Policies
**Variable Life** * Whole Life with a *("Separate Account")* * Guaranteed Min. Death Benefit **Variable Universal Life** * Universal Life *(with a "Separate Account")* * No "Guaranteed Min. Death Benefit"
48
Advantages: **Variable Life Policies** | 3 Parts ## Footnote Variable Life Policies
1. Potential for high returns 2. Keeps pace with inflation 3. Tax Advantages
49
Disadvantages: **Variable Life Policies** | 3 Parts ## Footnote Variable Life Policies
1. No guaranteed Rate of Return 2. More Complex 3. Highly Regulated
50
Regulation & Registration: **Variable Life Policies** | Regulation (1 Part) / Registration (3 Parts) ## Footnote Variable Life Policies
**Regulation:** * Regulated by the Securities Industry and State Insurance Commissioners **Registration (Licensing):** * Agents must have a valid Life Insurance license * (A Variable Products license is may be required in some states) * Agents must register with the SEC and FINRA
51
Definition: **Joint Life Policies** | 3 Parts ## Footnote Specialized Policies
(a.k.a. "First-to-Die" Policy) * Covers 2 or more Individuals * The Death benefit is paid once the **first insured dies** * Typically cost less than 2 separate policies
52
Definition: **Survivorship Policies** | 3 Parts ## Footnote Specialized Policies
(a.k.a. "Second-to-Die" or "Last-to-Die" Policy) * Covers 2 or more Individuals * The Death benefit is paid once the **last insured dies** * Typically cost less than 2 separate policies
53
Definition: **Juvenile Policies** | 4 Parts ## Footnote Specialized Policies
* Coverage on the life of a child/minor * Typically Permanent Life Insurance * Locks in the low premium for the child's entire life * Death Benefit may be increased as they get older
54
What are the Differences?: **Juvenile vs. Jumping Juvenile** ## Footnote Specialized Policies
**Juvenile** * Death Benefit may be changed later on **Jumping Juvenile** * Death Benefit automatically increases at age 18 or 21 * Premium does not change

Life & Health Insurance (MA) (11 decks)

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