Types of Life Insurance Policies Flashcards
The amount of the death benefit is called the ______ ______
Face amount
Simplest type of life insurance
Term life
Term life insurance policies only offer
A death benefit and remain in force for a specified period of time. No death benefit is payable if the insured dies after the term expires
The death benefit of a level term policy equals
The face amount throughout the term of coverage. Premiums also remain level and term of coverage may be expressed in number of years or specified age
The death benefit of a decreasing term policy..
Declines over the coverage period until it reaches zero at the end of term
The death benefit of an increasing term policy…
Begins near zero and grows over term of coverage
Return of premium term policies
Will return all or a part of the premium paid for the policy if the insured is still alive at the end of the term. Premium will be higher and dependent on percentage returned
Renewability feature (term)
Guarantees that the policy will renew (extend) at the end of its term. Insured does not have to re-apply or qualify medically and new renewal period will be for the same term originally purchased
Convertibility feature (term)
Allows a policy owner to convert a term insurance policy to a permanent type of policy without evidence of insurability and without having to submit an application
The premium for a converted term policy will be based on one of two options:
-attained age (at time of conversion)
-original age (at time policy written)
Initially the least expensive form of life insurance
Term policy
_____ ______ is a permanent insurance policy which is guaranteed to remain in force for the insured’s entire lifetime provided the required premiums are paid, or to the policy maturity date
Whole life
Whole life insurance is designed to
Remain in force for the whole life of the insured and the premiums will never increase
The purpose of a level premium with whole life policies is to
Make lifetime coverage affordable at older ages
The level premium system results in
Overpaying for the risk of dying at younger ages and underpaying in later years toward the end of life expectancy
Whole life mode of payment for the policy’s level premium is on a _____ _______
Fixed schedule
Like its premium, the death benefit of a whole life policy is ____ and _____
Fixed; level
Cash values reflect
The reserves necessary to assure payment of the guaranteed death benefit
The “cash surrender” value of the whole life policy arises from…
….the policyholder’s rights to quit the contract and reclaim a share of the reserve fund attributable to the policy
By cashing in a whole life policy, the policy owner gives up….
….the death benefit
Allow the policyholder to borrow up to the cash value of the policy
Loan provisions on life insurance policies with a cash surrender value
The whole life death benefit consists of two components:
- The cash value (savings element)
- An insurance protection element that must be paid in addition to the cash value so the death benefit equals the policy’s face amount (net amount of risk)
A whole life policy usually endows at age ____ or _____
100; 120
Continuous premium whole life
The premiums are the same each year for the duration of the contract. If the policy owner discontinues making payments, they will receive the cash value of the policy
Limited-payment whole life policies
Allow for a lifetime of premiums to be paid in a shorter period of time. Annual premiums will be higher than continuous policies.
Common forms of limited payment whole life
-10-pay or 20-pay whole life; premiums are payable in 10 or 20 level annual installments
-Life paid-up at age 65; premiums are payable in level annual installments from the date of purchase to the year insured turns 65
A ______ _______ whole life policy has one payment made at the time of purchase and creates immediate cash value
Single premium
Modified premium whole life policies
Have lower premiums during the first 3-5 years. After initial period, premiums increase to a certain amount and then are level for the life of the policy
Graded premium whole life policies
-have an even lower initial premium than modified whole life
-the graded premium starts out lower than other whole life policies and increases every year for 5-10 years until leveling off for as long as policy is in force
Indeterminate premium whole life policy
-provides for adjustable premiums
-company will charge a current premium based on its current estimate of investment earnings, mortality and expense costs
-premiums never go above max guaranteed premium stated in policy
A type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant
Interest-sensitive whole life
The interest sensitive whole life policy has:
-a fixed, level death benefit
-a premium schedule fixed in regard to the timing of payments
With interest sensitive whole life, the insurer will make investments with…
…a percentage of each premium payment. Excess or current interest from those investments may be credited to the policy to make the cash value rise
Cash values in whole life insurance policies accumulate ____ _____
Tax deferred
Advantages of Whole Life Insurance
-permanent coverage
-guaranteed level premiums
-lifetime coverages
Disadvantages of whole life insurance
-premium not flexible
-higher initial premium
Types of whole life policies
-continuous payment
-limited payment
-single premium
-modified premium
-graded premium
-indeterminate premium
-interest sensitive
An adjustable life policy gives the policy owner the options to adjust…
….the face value/benefit, the premium, and the length of coverage without having to change policies
Offers the ability to have term and whole life coverage in one policy
Adjustable life insurance
Designed for people who want flexible premiums and flexible coverage over the course of their lifetime
Universal life
Premiums paid into a universal life policy accumulate as…
….interest in the policy’s cash value
In universal life, monthly interest credited to the cash value is either…
…the guaranteed rate or current rate, whichever is higher
Universal life Option A (Option 1)
Provides for a level death benefit equal to the policy’s face value. As a result, more of the premiums is placed in the cash account, making the cash value rise more quickly
Universal life Option B (Option 2)
Provides for an increasing death benefit equal to the face value of the policy plus the cash account. Cash value does not increase as quickly because more of the premium is applied to the higher cost of the increasing death benefit over the life of the policy
Both whole life and universal life allow _____ ______ from the cash value
Policy loans
Only universal life allows ________ from the cash value
Withdrawals (partial surrenders)
A universal life withdrawal is federal income tax-free up to the ______ ______
Cost basis (i.e. premiums paid)
Equity-indexed universal life
A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index such as the S&P 500
Indexed universal life typically contains a minimum _____ _____ ____ component along with the indexed account option
Guaranteed interest rate
Indexed universal life policies give policyholders the security of..
…fixed universal life with the growth potential of the underlying market index
The ______ protection of equity-indexed universal life policies guaranteed that the interest credited to the cash value will never be below zero
Downside
Types of flexible policies
-adjustable life
-universal life
-equity indexed universal life
Universal life’s ______ _____ means that policy owners can skip premiums without losing their coverage, as long as there is enough cash value to cover the policy’s monthly expenses
Flexible premium
Advantages of flexible policies
-flexible premiums, death benefit options, and cash value
Disadvantages of flexible policies
More complex
Permanent insurance policies designed to provide coverage for the insured, have cash value and a death benefit, and allow the policy owner to participate in various types of options while not being taxed on the earnings until the policy is surrendered
Variable policies
The _______ _______ is a fund held by the life insurance company and maintained separately from the insurer’s general assets
Separate account
Separate account investment options usually include a mixture of…
Stocks, bonds, mutual funds, money market instruments, and even commodities
Variable insurance is an insurance product that contains an _______ element
Investment
Both the securities industry and state insurance commissioners regulate these policies
Variable life insurance policies
Variable life insurance has a _______ _____ instead of guaranteed cash value
Separate account
Variable universal life policy option A
Remains level regardless of increases or decreases in the cash value
Variable universal life option B
Varies with the fluctuating cash values
The death benefit of a variable life policy will increase with…
…positive investment results, however in the event of negative performance it cannot decrease below the original face amount
The original face amount of a variable life policy is the _____ _______ death benefit
Guaranteed minimum
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 for high returns
-keep pace with inflation
-tax advantages
Disadvantages of variable policies
-no guaranteed rate of return
-complicated
-highly regulated
Usually covers two or more lives with the death benefit being paid when the first insured dies
Joint life policy
A joint life (or first to die) policy may be the right product for married people who want a surviving spouse to be able to maintain a certain lifestyle but want…
…to pay less than the cost of two individual policies
Insures two individuals and will pay the death benefit when the last insured dies
Survivorship life policy
Coverage written on the life of a child or minor
Juvenile life insurance
In addition to the death benefit juvenile life insurance provides the benefit of…
….locking in the low premium for the child’s entire life, and guarantees the child has life insurance in case their health changes in the future
Jumping juvenile policies
Face amount of policy increases when the child reaches 18 or 21, with no corresponding increase in premium. Jumps to five times its original amount
