Permanent Insurance - Traditional Whole Life Flashcards
Characteristics of permanent insurance
A whole life policy is permanent protection that matures (endows) at the insured’s age 100 (or to age 121 if the policy is based on the 2001 Mortality Table), when the face amount equals the cash value. If the insured is still living at age 100, the insurer will pay the face amount to the owner.
build cash value
fixed level premium and face amount.
Types of premium payments
Straight Life or Continuous Premium
The premium is level and payable to age 100 or the death of the insured, whichever comes first.
Types of premium payments
Limited Payment
Premium payments are for a specified time, such as 20-Pay Life or 30-Pay Life, or to a specified age, like Life Paid up at 65. The face amount, or death benefit, remains level and cash value continues to earn interest and mature at age 100. While the annual premium is higher than Straight Life, it is paid for a shorter period of time and will have a lower total premium outlay.
Limited Payment
Types of premium payments
Single Premium
The entire premium is paid in a lump sum at the time of purchase and creates immediate cash value.
This policy has the lowest total premium outlay for the life of the policy.
Indeterminate Premium
An indeterminate premium whole life policy is like a non-participating whole life plan of insurance, except that it provides for adjustable premiums. The company will charge a “current” premium based on its current estimate of investment earnings, mortality, and expense costs. If these estimates change in later years, the company will adjust the premium accordingly, but never above the maximum guaranteed premium stated in the policy.
Modified Premium Whole Life
Modified premium whole life insurance provides a level death benefit and requires that premiums be paid for the life of the policy, to age 100. The premiums payable however do not remain level. A modified premium policy begins with a premium lower than ordinary whole life for the initial 5 years. After the first 5 years, the premium will increase and remain level throughout the balance of the life of the policy.
Because the premiums are lower in the first few years, the cash value will take longer to accumulate. This policy does not offer immediate cash value.
Adjustable Life
Adjustable Life is a type of permanent life insurance that combines features of term and whole life coverage, giving policyowners the option to change the characteristics of their policies as their needs change over time.
These policies allows policyowners to manipulate the period of protection (to age 100 or shorter), increase (with evidence of insurability) or decrease the face amount with insurability, raise or lower the premium amount, and change the length of the premium payment period. These policies also provide cash value, although reducing the premium could stop the cash value from increasing, therefore adjusting the coverage to term insurance.
These changes can be exercised annually and are not retroactive. For example, a policyowner is not allowed to decrease the premium starting on a previous date. Changes can only be made on a policy anniversary date as approved by the insurer.
