Life Insurance Policy Options

Settlement options

� all life insurance policies use this to determine how the proceeds will be distributed to the beneficiaries

Lump sum

o may designate a specific settlement option to be paid upon his or her death.

Interest income (only) settlement option

o the insurer retains the death benefit and pays a stated amount of interest on the money. The interest is payed at regular intervals. Good choice for those who do not need the life insurance proceeds until a later date, perhaps to be used for a child's e

Fixed period option

o will pay both an amount of principal and interest to the beneficiary over a certain stated period of time. Should the policy's primary beneficiary die before all the proceeds are paid out, the remainder of the money will be paid to the contingent benefi

Fixed amount option

o the proceeds will be paid out in a fixed amount over time until both the principal and interest have been completely paid to the beneficiary. The recipient can increase or decrease the payments. Three factors are used to determine the minimum length of

Life income option

o is similar to an annuity; the policy beneficiary will be guaranteed to receive an income for the rest of their life, regardless of how long that may be. The amount of income depends on the policy death benefit and the life expectancy of the beneficiary;

Life only option

o will pay the largest amount to the beneficiary for as long as they live, regardless of how long that may be.

Life with period certain

o also pays and income for as long as the beneficiary is alive. However, the beneficiary selects a payment period, typically 5, 10, or 20 years can be chosen, and payments are guaranteed to be made for at least that number of years. If the person dies bef

Life with refund

o - pays an income for as long as the beneficiary is alive, but also guarantees total payments will be at least the amount of the death benefit. Pays someone else the balance of the death benefit if the beneficiary doesn't live long enough

Joint-and-survivor life

o continues paying a benefit for as long as either beneficiary lives. The option is often used when a married couple will be receiving the payments. After the death of the first beneficiary, the same or a reduced payment amount is paid to the survivor. Se

Policy loan provision

� if a policyowner needs cash but does not want to surrender their policy, they can access the cash value that is available using this
o Advantages: no credit check, the interest rate is much lower, the policyholder can pay back the loan according to virt

Automatic premium loan provision

� if the insured fails to pay the policy premium by the end of the grace period, the insurer will pay the premium with a policy loan and will continue to do so until the cash value of the policy falls below the premium amount, in which the policy would la

Withdrawals and partial surrenders

� - are allowed on universal life insurance policies but not whole life policies. Will result in a reduction of the cash value and the death benefit amount. Could be subject to pro-rata surrender charge and/or processing fee


� participating policies. Policies that do not pay dividends are considered nonparticipating policies

Policy dividends

� are a refund of a portion of the premium. Based on the difference between the gross premium charged and the actual experience of the insurer. Are not taxable. Are not guaranteed.

Dividend options (CAPPO)

o Cash
o Accumulation at interest - left with the insurer to earn interest in a savings account. The div is not taxable but the interest is.
o Reduced premium - div applied to next premium
o Paid up additions - uses the dividend to purchase an additional

Nonforfeiture clause

an insurance policy allows for the insured to receive all or a portion of the benefits or a partial refund on the premiums paid if the insured misses premium payments, causing the policy to lapse.

Nonforfeiture clause 3 options

o Cash surrender - the policy is canceled and the policy owner receive the current cash value
o Reduced paid-up insurance - under this option, the policyowner obtains a reduced amount of paid-up whole life insurance based the insured's attained age and th