Objective 2 : Types of Life Insurance Flashcards
Term Life
provides coverage for a specified period, such as ten or twenty years, with no cash value
temporary protection
useful to someone whose current need for life insurance will diminish after a number of years.
Because mortality rates increase with age, term insurance premiums also increase.
level term has a fixed annual premium for a fixed number of years.
Insureds with level term pay a higher rate in the early years in exchange for a flat, affordable rate in the later years of the term.
Most term policies carry some guarantee of renewability
Many policies are also convertible, so that the insured may exchange the term policy for a whole life policy without meeting any new insurability requirements such as a physical examination.
Whole life
hybrid combination of life insurance and an investment vehicle.
develops a cash value as time passes. In the early years of a whole life policy, insureds pay an annual premium that covers more than the projected mortality costs for insureds at that age. In effect, the extra money is used to build the cash value.
suitable for someone who wants permanent protection and who needs the discipline of paying insurance premiums to enforce savings.
premiums that remain unchanged throughout the insured’s lifetime.
Universal life
permanent product that combines life insurance protection with an investment or a savings aspect
Distinction with whole life insurance
- Policyholders receive an annual disclosure
- two interest rates are stipulated in the policy
guaranteed minimum rate + current market interest
rate
- insured’s premium payments are flexible ( the insured
can pay higher premiums in order to grow the cash
value ) . growth in cash value is tax-deferred.
- the insured has options to increase the death
benefit, borrow against the cash value, withdraw
from the cash value, or add insureds to the policy.
Variable life
provides cash value over time and permanent insurance protection, but it enables policyholders to choose among investment accounts
appropriate for persons who want the benefit of using competitive investment strategies and some protection against inflation over the life of their insurance program
investment performance of stocks and bonds can vary considerably, and the policy should be held for several years to take full advantage of the flexible investment benefit
the policyholder can move the policy cash value amount among investments without incurring any current income tax liability for capital gains
premium are generaaly level
Variable universal life
The cash values in variable universal life insurance are not guaranteed, nor is any minimum interest rate
The cash value of the policy is determined by the investment experience of a separate account that is maintained by the insurer. However, the policyholder can select the separate account in which the flexible premiums are invested.
insurers impose significant initial expense charges. The latter charges decline after the policy ages ten to fifteen years and usually reach zero.
insurers charge for the mortality cost of insurance protection provided by the policy
Current Assumption Whole Life /interest-sensitive life insurance
the premium and the cash value can be periodically recalculated by the insurer, based on new actuarial assumptions
The insurer guarantees a minimum interest rate, and some insurers offer maximum mortality and expense charges.
Second-to-Die (Survivorship) Life Insurance
two lives are insured in a single policy, with death benefits payable to the beneficiary when both insureds have died.
Premiums for such policies are typically lower than those of a comparable policy on an individual life because benefits are not payable until both lives have ended.
First-to-Die (Joint) Life Insurance
cover two individuals.
the death benefit is payable upon the first death.
Although premiums are typically higher than for second-to-die policies, this option is less costly than taking separate policies on each life.
