Types of Life Policies Flashcards
Term Insurance
Temporary protection for specified amount of time
Greatest coverage, lowest premium
Pure Death Protection
- If insured dies, beneficiary is paid
- If policy is cancelled/ expired prior to death nothing is paid
- No cash value or other living benefits
Level Term Insurance
Most common
Death benefit does not change
Annually Renewable Term
Death benefit remains level
Premium increases yearly, with age
Decreasing Term
Level premium
Decreasing death benefit
* When it’s time sensitive or decreases over time, payments of mortgages or other debts
Increasing Term
Level premium
Increasing death benefit (specified amount or %)
Return of Premium (ROP)
Increasing term
Pays additional benefit to beneficiary equal to amount of premiums paid
Return of premiums if death occurs within a specific period or insured outlives term
Renewable Provision
Policyowner can renew coverage at expiration date without evidence of insurability. Premium based on the current age of when renewed.
Convertible Provision
Policyowner can convert policy to a permanent policy without evidence of insurability.
Based on current age.
Permanent whole Life Insurance
Builds cash value - can borrow against but any outstanding loans/ interest is deducted at death
Defer payment
In effect entire life (or 100)
Whole Life Insurance
Value of the accumulated premium scheduled to equal the face amount of the policy by age 100.
Ordinary (Straight) Life
Continuous premium for whole life
Lowest annual premium
Limited Pay Life
Premiums completely paid by age 65
Higher premium
Single Premium Whole Life
Level death benefit until death
Single, lump-sum payment
Adjustable Life
Term or permanent insurance - can convert
- Higher benefit or lower premium require proof of insurability
Insured determines the coverage and premium
Changes as needed
Cash value when premiums are more than the cost of the policy
Interest-Sensitive Whole Life
Also known as Current Assumption Life Fixed premium for whole life Credits cash value with current (nonguaranteed) interest rate Comparable to money market rates Minimum interest
Variable Whole Life
Fixed premium
After dump loads, policyowner allocates premiums into separate acct
Death benefit and cash value aren’t guaranteed, fluctuates with sub acct
Universal Life
Also known as flexible Premium Adjustable Life
Policyowner can increase premium and then decrease
Can skip paying as long as there is sufficient cash value at the time of payment
Universal Life: Option A, Level Death Benefit
Level death benefit
Gradual increase in cash
Universal Life: Option B: Increasing Death Benefit
Annual increase in cash, subject to inflation
Pure insurance remains level for life
Variable Universal Life
Flexible Premiums Adjustable death benefit Policyowner decides where net premiums are invested Cash values aren't guaranteed Death benefit isn't fixed
Equity Indexed Life
Cash value dependent on performance of equity index
Minimum cash value guaranteed
Fixed premium
Guaranteed death benefit
Joint Life
One policy, two or more lives
Joint average age
Death benefit paid on FIRST death ONLY
No longer insured after first death
Survivorship Life
Pays on last death
Premium on joint age
* to offset liability of estate tax upon death
Nonforfeiture value (Accumulation value): Annuities
Can be withdrawn prior to annuitization date
If within the first 10 years:
- withdrawal/ surrender charge that decreases every year
Fixed Annuity
Guaranteed minimum interest Steady income payments Specified payment amount Specified payment period Could be affected by inflation
Level Benefit payment amount
Can be affected by inflation
Variable Benefit payment amount
Placed in a separate acct
- accumulation units are purchased in the fund
- upon annuitization converted to annuity units
Return varies as accts vary
No minimum interest rate
Indexed (equity) annuities
Fixed
Aggressive investment for high returns
Guaranteed minimum interest
Insurance companies keep the initial returns
