Types Of Life Insurance Policies Flashcards
Term insurance characteristics
Only offer a death benefit and remain in force for a specialized period of time, or term. No death benefit after the insured dies
Level term policy
Equals the face amount throughout the term of coverage. Remains level during term
Decreasing term policy
Declines over the coverage period until it reaches zero at end of term
Increasing term policy
Begins near zero and grows over term of coverage
Return of premium term policies
Return all or part of the premium paid for the policy if the insured is still alive at the end of the term
Renewability
With term life insurance guarantees the policy will renew at the end of its term. Insured doesn’t need to reapply
Convertibility
Allows a policy owner to convert a term insurance policy to a permanent type of policy without evidence of insurability and with out having to submit an application
Advantages of term life insurance
Because it only provides a death benefit it’s premiums are lower. Initially least expensive
Disadvantages to term life insurance
Only lasts for the term of the policy. Like renting the policy not owning
Term premiums increase as the insured gets older
Renewability expires before age of life expectancy
Whole life insurance
Permanent policy guaranteed to remain in force for the insureds entire lifetime provided the required premiums are paid
Fixed premium
Fixed death benefit
Cash values (guaranteed to gain interest, maybe surrendered or borrowed, endows at age 100)
Death benefit (amount of risk to company, plus cash values)
Level premium
Purpose with whole life policies is to make coverage affordable at older ages
Overpay for risk of dying early. Underpay for risk of dying late
Death benefit of whole life policy is
Fixed and level. Like premium
Policy loan
Policies with a cash surrender value normally have loan provisions that allow policy holder to borrow up to the cash value of the policy
Limited Payment Whole Life Policies
Same as whole life but start later
Stops at 65
Single premium whole life policy
One payment made at the time of purchase. Creates immediate cash value
Modified premium whole life policy
Lower payment at the start but then increase to certain amount and are level for length of policy
Graded premium whole life policies
Even lower initial premium than modified whole life policies. Premium increases every year for 5-10 years until leveling off for remainder
Indeterminate premium whole life policy
Whole life policy but with adjusting premiums. Company will charge a current premium based on its current estimates, but could adjust later if things change. Never over maximum guaranteed premium stated in policy
Interest sensitive whole life policy
Cash value can increase above stated guarantee if conditions warrant. Has a current interest rate and guaranteed interest rate
Advantages to whole life insurance
Permanent coverage
Guaranteed level premiums
Lifetime coverages
Disadvantages to whole life insurance
Premium is not flexible
Higher initial premium
Flexible policy
Give policy owner numerous options in terms of premium, face amounts, length of coverage and investment objectives
Universal life policy
Designed for people who want flexible premiums and flexible coverage over the course of their lifetime
Equity indexed universal life
Current interest on cash account
-up and down based upon stock market index
-account still guaranteed by the company
Advantages to flexible premium policies
Flexible premiums, death benefits options, and cash value
Disadvantages to flexible premium policies
More complex
Variable policies
Permanent insurance policies designed to provide a lifetime of coverage for the insured and have cash value and a death benefit
Contains an investment element in separate account
Separate account
Fund held by insurance company and maintains separately from insureds assets
Types of variable policies
Variable Life
- Death Benefit can increase
- has guaranteed death benefit
Variable Universal Life
- No Guaranteed Death Benefit
Advantages of variable policies
Potential higher returns than guaranteed rates paid on traditional life insurance products.
Have potential to keep up with inflation
Could cause good tax breaks for higher income brackets
Disadvantages to variable policies
No guaranteed rate of return
Complicated
Highly regulated
Joint life policies
Covers 2 or more lives with benefit being paid when first insured dies. Less than cost of 2 individual policies
Survivor ship life policy
Insures 2 individuals and will pay death benefit when the last spouse dies
Juvenile life insurance
Coverage on life of a minor. Death benefit may increase on future age (18-21 also called jumping juvenile policy)
