Term Life Insurance

Question 1

Question 2

List 4 characteristics of Term Life Insurance

List 3 types of term life policies.

Answer 2

Term life insurance is the most basic form of life insurance.

• Term life insurance provides temporary protection for a specified, limited time that can be defined in years or by the age of the insured.
• If the insured is alive at the end of that term, then the coverage ends, and the policy terminates without value.
• Term life is pure insurance, with no cash value (or “savings element”) associated with it.
• Because the policyowner pays only for the cost of pure protection, term insurance premiums are smaller

Because it only offers protection for a limited time, term life is best used for temporary needs or as a stop-gap measure until the policyowner can afford permanent life insurance.

While insurers add their own features, term life is available in three basic forms:

• level term insurance
• decreasing term insurance
• increasing term insurance

Question 3

2 characteristics of Level Term Insurance

Answer 3

The most popular form of term life insurance is level term.

Level term insurance provides a

• level death benefit and charges a
• level premium for the duration of the coverage term.

Question 4

2 features of Renewable Term Insurance

Answer 4

Two optional features common to level term insurance contracts are

• renewability (without proof of insurability)
• convertibility

Generally charge slightly higher premiums than nonrenewable term policies to account for the fact that some renewals will involve insureds who have become uninsurable.

• Premiums generally increase with each renewal based on age.
• Most insurers set upper age limits on renewal of their term policies. For instance, most policies cannot be renewed past the age of 65 or 70.

Question 5

What are Annually Renewable Term Insurance policies?

Answer 5

The oldest form of renewable term insurance is annually renewable term (ART), sometimes called yearly renewable term (YRT).

• Provides coverage for one year, at the end of which the policyowner may renew the contract for another year without having to provide evidence of continued insurability.
• Face amount remains the same, premiums increase with each renewal.

Question 6

What does the Re-Entry Option provide?

Answer 6

• Some insurers offer a “re-entry” renewal option that lets the owner renew the policy at rates lower than the attained age rate if insurability at the time of renewal.
• If uninsurable, he or she can renew at the guaranteed attained age rates used with standard policy renewals.

Question 7

3 characteristics of Convertible Term Provision

Answer 7

The convertibility provision lets policyowners

• To exchange term coverage for a permanent life insurance policy without having to provide evidence of insurability.
• The new policy’s face amount cannot exceed the term policy’s face amount.
• Must be exercised no later than a certain date, such as two or three years before the policy expires.

Question 8

Attained Age vs. Original Age Conversion

Answer 8

Converting a term policy to a permanent policy takes place on either an attained age or an original age basis.

• attained age method, the premiums for the converted policy are based on the insured’s age at the time of the conversion. This means rates will be higher than they were at the original issue age.
• original age (or date) basis, the premiums for the new policy are based on the insured’s age when the term policy was originally issued. Premiums will be lower.

Question 9

5 characteristics of Decreasing Term Insurance

What is a good use for decreasing term insurance?

Answer 9

Decreasing term life insurance provides temporary protection for a set period.

• The death benefit under a level term policy is set and remains level over the policy’s term.
• With decreasing term insurance the death benefit steadily decreases until it eventually reaches zero at the end of the term.
• premiums remain level for the full coverage term.
• Because coverage decreases over time, decreasing term premiums are less than level term premiums.
• While decreasing term life insurance can be converted to a permanent plan for most of the term period, it cannot be renewed

Decreasing term life insurance is most commonly used to cover financial needs that decline over time. Mortgage protection is a good example. .

Question 10

3 characteristics of Increasing Term Insurance

Answer 10

Increasing term life insurance is the opposite of decreasing term. With this type of insurance, the

• death benefit increases over the term to a preset amount or at a preset rate.
• The premium normally remains level, though at a higher level than either level term or decreasing.
• Increasing term insurance is most commonly used as a “cost-of-living increase” rider on a permanent life insurance policy.

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