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.
