Types of Life Insurance Policies Flashcards
Death Benefit
All life insurance polices pay a benefit upon the death of the insured. Also called the “face amount.”
Living Benefit
Financial benefits that are available while the insured is still alive. Only available on certain types of insurance policies.
Term Life Insurance
Only offer a death benefit and remain in force for a specified period of time, or term. No death benefit is paid if the insured dies after the term expires. Least expensive form of life insurance.
Level Term Policy
Death benefit equals the face amount throughout the term of the coverage. Premium also remains level during the term. Term can either be a length of years (ex. 5 or 10) or a certain age (ex. 65).
Decreasing Term Policy
Death benefit declines over the coverage period until it reaches zero. Appropriate coverage for expenses that decline over time (ex. mortgage). Premium remains level.
Increasing Term Policy
Death benefit begins near zero and increases over time. Appropriate coverage for expenses that increase over time and rising cost of living. Premium increases.
Return of Premium Term Policy
Premium will be paid back by to the insured if they are still alive at the end of the term. Premium is higher than a regular term, and is dependent on the percentage that will be paid back to insured.
Renewability
Guarantees that the policy will renew (extend) at the end of the term. Guarantees same about of death benefit when renewed, however premium will increase.
Convertibility
Allows policyowner to convert term policy into permanent policy without submitting new application. Must be made before the term expires. Premium can be based on either the original age (when policy went into affect) or attained age (when conversion happened)
Whole Life Insurance
Permanent insurance policy guaranteed to remain in affect for insureds entire lifetime. Premiums will never increase. Death benefit will remain the same. Cash value accumulate tax deferred.
Cash Value
Integral part of whole life policy. Reflects the reserves necessary to assure payment of guaranteed death benefit.
Level Premium
Purpose is to make policies affordable in at older ages. Premium will never increase. Payments made on a fixed schedule. If not paid policy will lapse.
Cash Surrender
Policyholder’s rights to quit the contract and reclaim a share of the reserve fund attributable to the policy. Policy owner gives up death benefit.
Policy Loan
Allows policyholder the ability to borrow a portion of the cash value. Interest must be paid on borrowed amount. If loan has not been paid back when insured dies, amount borrowed + interest are deducted from death benefit.
Endowment
Whole life policy matures/endows usually at age 100 or 120. If insured is still alive cash value is paid to policyowner. Owner pays income tax on any taxable gain.
Continuous Premium Whole Life
AKA Straight or Ordinary Life. Premiums are the same every year fort the policy. If payments are discontinued policyowner will receive cash value.
Limited Payment Whole Life
Allow for a lifetime of premiums to be paid in a short time frame. Payments will be higher and cash value will increase quicker.
Single Premium Whole Life
One payment made at time of purchase. Will cover all future costs of policy and creates immediate cash value.
Modified Premium Whole Life
Allows for lower premium payments during the first 3 to 5 years. Then payments will increase and remain level.
Graded Premium Whole Life
Premium Payments begin low, and will increase every 5 to 10 years until leveling off for as long as policy remains in force.
Interdeterminate Premium Whole Life
Provides adjustable premiums. Company bases premium off current investment earnings, mortality, and expense costs. Premium will never go above agreed max in contract.
Interest Sensitive Whole Life
AKA Current Assumption Whole Life
Cash value can increase beyond stated guarantee. A portion of the premium is invested. Interest is not guaranteed and can fluctuate with current economic conditions.
Adjustable Life Insurance
Policyowner has ability to adjust death benefit, premium, and length of coverage. Offers ability to have term and whole life in one policy.
Universal Life Insurance
Flexible Premiums and Flexible Coverage
Premiums paid accumulate as interest in the policy’s cash value. Can choose either a level or flexible death benefit. Allows for loans and withdrawals (partial and full).
Equity Indexed Universal Life
Ties accumulation values to a stock market index. Typically contains a minimum guaranteed interest rate along with the indexed account option.
Variable Life Insurance
AKA Variable Whole Life
Separate account instead of guaranteed cash value. Death Benefit can be level or fluctuating based on performance in separate account. Will never fall below guaranteed minimum death benefit.
Variable Universal Life Insurance
Universal life with a separate account. Does not have a guaranteed minimum death benefit. VUL policy can lapse if cash value falls below amount needed to cover monthly insurance premiums. Death benefit can be level or fluctuate based on performance in separate account.
Joint Life Policy
AKA First to Die Policies
Covers two or more lives with the death benefit being paid when the first insured dies. Once the death benefit is paid out the policy ends.
Survivorship Life Policy
AKA Second to Die or Last to Die
Insures two individuals and will pay the death benefit when the last insured dies. Policy can be used to pay estate settlement costs.
Juvenile Life Insurance
Coverage written on the life of a child or minor. Provides benefit of locking in lower premium over course of child’s life. Death benefit can potentially jump when child reaches 18 or 21.
