Type of Insurance Policies Flashcards
Ordinary life
-made up of several types of individual life insurance, such as temporary (term),
permanent (whole)
Term life
-pure death protection
-only pays a death benefit if the
insured dies during the policy term
Term life characteristics
• does not accrue cash value.
•greatest amount of life insurance for a specified period of time/lowest premium
• The initial premium of term insurance is lower than for an equivalent amount of
whole life insurance
Whole life
-provides death benefits for the entire life of the insured.
-provides living benefits in the form of cash values
-matures at age 100 and normally has a
level premium.
What insurance type issues small face amounts and is paid weekly?
Industrial life
Group life
-for members of a group, ex. employment,
association, or a union
-one master contract.
- no evidence of insurability required.
What are the types of term life?
- Level term
- Decreasing term
- Increasing term
- Convertible term
- Renewable term
- Annual renewable term
Level term (premium level term)
- level face amount and level premiums.
- higher premiums than annual renewable term because they are level throughout the policy period.
- premiums increase at each renewal.
Decreasing term
- annually decreasing face amount over time with level premiums
- usually used for mortgage protection.
Which Term life insurance provides an increasing face amount over time based on specific amounts or a percentage of the original face amount?
Increasing term
Convertible term
-can concert insurance into permanent policies without showing proof of insurability.
Mike wants to be able to continue term coverage after the expiration of his initial policy period without having to prove insurability. Which term life insurance is best for him?
Renewable term
Annual renewable term
- provides a level face amount that renews annually.
- guaranteed renewable annually without proof of insurability.
What is Whole Life Insurance?
Insurance with:
- living and death benefits
- permanent life insurance
Advantages of whole life insurance
- Covers the entire life of the insured
- Living benefits - cash value and policy loans
- Fixed premiums
Drawbacks of whole life insurance
- Protection is more expensive because of living benefits
* Premium paying period may extend beyond the income-earning years
What are the types of Whole Life insurance?
- straight whole life
- limited pay whole life
- single-premium whole life
- modified whole life
- graded whole life
straight whole life
-basic whole life insurance
-level face amount
-fixed premiums
-Premium payments made until death of insured or age 100 (maturity
of policy)
limited pay life
- premiums are paid for a limited time
- As the premium payment period shortens, cash values increase faster and the fixed premiums are higher.
single-premium whole life
-pay the entire premium in one lump-sum and have
coverage for the insured’s entire life.
• An immediate nonforfeiture value is created
• An immediate cash value is created
• A large part of the premium is used to set up the policy’s reserve
What begins with low premiums than jumps(once) to higher premium in later years?
Modified Whole Life Insurance
Graded whole life
- typically the premium increases yearly
for a stated number of years, then remains level.
Special Use Policies
- combination or “packaging” of different policy types,
- designed to serve a variety of needs.
Family Plan Policies
Family Head-permanent(whole life) insurance
spouse/children- level term life riders (family term riders)
+term coverage usually convertible without evidence of insurability
+children covertible typically at 18 or 21
-premium remains same regardless of the number of children
Family income policy
whole life decreasing term insurance (begins date of purchase).
- monthly income to a beneficiary if death occurs during a specified period after date of purchase.
- If the insured dies after the specified period, only the face value is paid to the beneficiary since the decreasing term insurance expired.
Family Maintenance policy
Whole life and level term (begins date of death)
-Provides income to a beneficiary for a selected period of time if an insured dies during that period.
-At the end of the income paying
period, the beneficiary also receives the entire face amount of the policy.
-If an insured dies after the
end of the selected period, the beneficiary receives only the face value of the policy.
Multiple protection policies
-Pays a benefit of double or triple the face amount if death occurs during a
specified period.
-after the period has expired, only the policy face amount is paid
-period can be specified years or age
-combinations of permanent insurance and level term insurance.
Joint Life Policy
-covers two or more people.
-age of the insureds are “averaged” and
a single premium is charged
-uses permanent insurance
-pays a death benefit when one of the insureds dies
-survivors then have the option of purchasing an individual
policy without evidence of insurability.
-premium for a joint life policy < the premium for
separate, multiple policies
Juvenile Insurance
-written on the lives of a minor
-adult applicant is usually the premium payor until the child comes of age and is able to take
over the payments.
-payor provision typically attached It provides that
-in the event of death or disability of the adult premium payor, the premiums will be waived until the child
reaches a specified age
Credit life insurance
is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid -issued in an amount not to exceed the outstanding loan balance -paid entirely by the borrower. -A decreasing term policy is most often used.
Nontraditional Life Policies
1980s
-designed to keep up with
inflation and are interest-sensitive
- interest-sensitive whole life
- adjustable life
- universal life
- variable life
- variable universal life
Adjustable life policies
-flexibile
-combines term and whole
life insurance
• The policyowner determines how much face amount protection is needed and how much
premium the policyowner wants to pay
• allows you to vary your coverage as your needs change without requiring evidence of insurability
• no new policy needs to be issued when changes are desired
•has all the usual features of level premium cash value life insurance
Universal life
- variation of whole life insurance,
- considerable flexibility
- Changes may be made with relative ease
- allows its policyowners to determine the amount and frequency of premium payments which will adjust the policy face amount
- Cash value accumulations are subject to a minimum interest guarantee
- Any surrender charges of a universal policy must be disclosed
Equity Index Universal Life lnsurance (EIUL)
-permanent life insurance policy
-allows policyholders
to tie accumulation values to a stock market index
-typically contain a minimum guaranteed
-fixed interest rate component
account option
-security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns.
Modified Endowment Contracts (MEC)
-A policy that is overfunded
must meet 7-pay test(limit on how much you can pay on your policy the 1st 7 years)
MEC Taxation
• If withdrawn prior to age 59 ½, there is a 10% penalty.
• Taxation only occurs when cash is distributed
• Funds withdrawn are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract’s values is withdrawn first (making these funds fully taxable as ordinary income).
• Penalty taxes on premature distributions normally apply to
policy loans
Variable insurance products
-are considered securities contracts as well as insurance contracts
required to register with the National Association of Securities Dealers to sell variable products.
Variable whole life insurance
-created to help offset the effects of inflation on death benefits
- permanent life insurance
- policy values are invested in the insurer’s separate accts (common stock, bond, money market, and other securities investment)
Variable universal life (VUL)
combines all the characteristics of a
universal life and variable life
‘variable’ = ability to invest in separate accounts whose
values vary
‘universal’ = flexibility the owner has in making premium payments
Evidence of insurability can be required for an individual
covered by a variable universal life policy when the death benefit is increased.
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
Variable universal life (VUL)
T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this?
Renewable
What Insurance Polices are interest sensitive?
- interest-sensitive whole life
- adjustable life
- universal life
- variable life
- variable universal life
Name the 6 types of Term Life.
- Level
- Decreasing
- Increasing
- Convertible
- Renewable
- Annual Renewable
A 20-pay life policy, the insured only pays for 20 years and is in effect until the insured’s death or they reach age 100 is an example of what?
Limited Pay Life Insurance
What type of policy can start out low and increase a small amount every year up until the fifth year, then levels off for the remainder of the policy?
Graded Whole Life
graded like grad-ual{increase}
What policy has flexible premiums, flexible benefits, no minimum
death benefit, and cash value withdrawals?
Universal Life
Fixed premiums, a guaranteed minimum
death benefit which fluctuates over the minimum, and cash values which fluctuate and are not guaranteed are basic characteristics of …..
Variable whole life insurance
