Types of Life Policies Flashcards
Interest Sensitive WL (aka current assumption WL)
It’s a type of WL policy with level FV and guaranteed CV. Generally level premiums, however, the insured may be allowed to dump in additional money to take advantage of high-interest rates.
A guaranteed interest is credited to the CV typically 4% unless a more favorable rate is obtainable. The insurer invests premiums into fixed instruments (money markets) in order to obtain higher rates (therefore, interest-sensitive)
If a higher interest rate is credited to the CV, the policy will have a higher CV and FV.
Universal Life (UL) “unbundled life insurance”
Basic Elements: Investment earnings, cost of protection (mortality expense), and company expenses.
UL policies offer: Annual reports, flexible premiums, and guarantee interest.
premiums establish CV, the insurer withdrawals an amount to pay for annual renewable term insurance and company fees.
Universal Life Death Benefit Option A
Level death benefit. The scheduled FV is level. The FV consists of the insurance risk and cash value
High-interest rates may cause the CV to increase more rapidly than the guaranteed rate, creating a possibility of an early endowment. Since the FV must always exceed the CV until maturity (under IRS rules) a “corridor of insurance protection” is applied to add more risk, until maturity. Naturally, this will not occur with the current interest rates
Universal Life Death Benefit Option B
Increasing death benefit. This policy pays a level insurance amount plus an amount equal to the CV at the time of death. This typically eliminates the early endowment of the policy. This policy has a higher mortality expense than option A due to the increasing benefit.
Indexed Life Insurance (IL) Also known as Indexed Universal Life Insurance
CV is tied to a securities index. Return on CV is dependent on the market.
The policy owner may be able to select the index on which the CV will be based.
Contracts have a minimum interest rate or floor. If the index gain on CV is higher than the minimum, the index gain is credited, otherwise, the minimum is credited. Having that minimum separates IUL from variable life in that there is no risk of loss with IUL.
Variable (whole) Life
Is a securities-based whole life insurance product with fixed premiums.
The insurance company must maintain these CV funds in an account separate from its general investment account. This is called a separate account.
Variable policies were developed to outpace inflation based on investment market increases over time.
Variable policies are the highest risk WL insurance.
Variable Universal Life
Similar to variable life insurance but with flexible premiums. No guaranteed face amount, no guaranteed interest or CV, insured accepts the investment risk of loss. Highest risk policy to the consumer. Although it’s considered ‘permanent insurance’ these products may not mature like traditional WL.
Because its securities-based producers are thus governed by the insurance laws as well as securities regulations under the Financial Industry Regulatory Authority (FINRA)
Joint Life or First to Die
The policy may be term or WL, the policy insures the lives of two or more persons. Pays the FV upon the first death of the persons covered. The second insured is no longer covered after the death of the first insured. Premiums will be less than if both individuals are covered separately. Joint policy on both parties. Pays on the first to die and then the policy terminates.
Survivorship Life or Second to Die
The policy may be term or WL. Commonly used for estate protection.
The policy insures the lives of two or more insureds and pays for the death of the last survivor.
Premiums will be less than if both individuals are covered separately
Joint policy on both parties: first-party dies, no benefit is paid, the policy continues. Second-party dies (both parties die), pay to the insured’s estate (beneficiaries)
Juvenile Life Insurance
Life insurance policy is written on a minor.
Starts with a low FV until the stated age, usually 18 or 21. then the FV jumps to typically five times the original FV, but the original premium remains the same (no increase)
A payer-provision is typically added as a rider to this policy. This provides a continuation of coverage should the adult paying the premium die or become permanently disabled. it states that the company will waive the premium until the child reaches the stated age in the policy. Upon attainment of the stated age, the child will pay the same premium as if there had been no interruption in payments.
Credit Life
Insures the lives of debtors for the benefit of a creditor. In the event that the insured dies, it pays the outstanding balance of the loan. Credit life may be written on an individual or group basis.
