Classes of insurance
Whole Life, Endowment, Term
Term life insurance
NOT permanent insurance--in order to be covered, you must die in the term
The cheapest life insurance in the short run
The older you get, the more expensive it becomes
Term means time
"Pure" protection as there is no cash value to offset the insurance com
Level term: Annual Renewable Term
1 year term policy
Face amount stays level, each year premium goes up
No physical exam required to renew
Renewal amount stated in policy
Level term: Level Premium Term
Term period is longer than 1 year
When the policy renews, that's when the premium goes up
Re-entry option
An option that gives the insured the opportunity to pass a physical exam at the end of the term and qualify to renew the policy at a lower premium rate
Decreasing Term
Premium stays the same each year
The amount of coverage or death benefit decreases
Indirectly protects the lender, they are usually the beneficiary
Also called credit life or mortgage protection insurance
They expire at the end of the policy period with n
Convertible Term
Most Level and Decreasing Term policies are convertible at any time to Whole Life insurance without a physical exam
Can only convert to maximum amount of coverage on old policy
Conversions are done at client's attained age
Attained age
Insured's age at a particular point in time
Upon term life conversion, the premium usually rises substantially to reflect the insured's current age and diminished life expectancy, compared to the age when policy was originally written
Whole Life
Permanent life insurance
The least-expensive permanent type of life insurance
A Whole Life policy can never be canceled or changed by the insurance company
Cash value policy
If the insured dies anytime in the policy period, the death will trigger death be
Whole Life:
Continuous Premium (Straight Life)
Premium is level--never changes--premium payments are based upon client's age at issue and can never be changed
If the insured lives to age 100, the insurance company guarantees their cash value will equal their amount of protection (face value or policy
Surrender the policy
Cancel the policy for take the cash value at that time
Cost basis
The total amount you have paid into the product
Whole Life:
Limited Payment
These policies are exactly like Ordinary or Straight Life policies, except, the premium is paid over a shorter period of time
Whole Life:
Single Premium
A single premium policy requires the client to pay his/her entire premium (to age 100) up front
It has an immediate cash value, but the policy does not mature until age 100
Life Paid Up at 65 (LP65)
This policy required the client to pay all their premiums by age 65
Premiums are much higher than an ordinary whole life policy
LP65 does not reach maturity until age 100
Whenever the premium-paying period is shortened, the insured has to pay the same amo
20-Pay Life/30-Pay Life
Types of policies where the client would have to pay all premiums in 20 or 30 years
Premium is much higher
A variation of Whole Life--the policy does not mature until age 100, although the cash value does build very rapidly
Modified Premium Whole Life policy
Created to get a person into whole life at a discounted premium
Starts out with a low (or discounted) level premium for the first 5 years, which increases at the end of the 5 year period to a much higher level premium for the duration of the policy
Face a
Graded Premium Whole Life
A graded premium whole life policy also starts out with a low premium that gradually increases each year for 5 years, after which it remains level
Face amount remains level throughout
Endowment Policies
Most expensive type of life insurance
Not permanent
Does have a cash value
Insured can borrow against it or take cash surrender
Exactly the same as a Whole Life policy, except the policy matures at a predetermined age by the person buying the policy
Level
Enhanced Ordinary Life (Economatic)
This is a type of whole life with a term insurance rider which uses dividends to buy additional paid-up insurance
Hybrid product
Created to get a person into a certain dollar amount of coverage
Flexible Premium Policies:
Adjustable Whole Life Insurance
What's adjustable? the amount of coverage and the amount of premium you pay
Designed to meet the insured's changing needs and ability to pay premiums in an uncertain economic climate
An insured may adjust the face amount of the policy, the amount and/or f
Universal Life
A type of whole life
Commonly called "Interest Sensitive" Whole Life, since the current interest paid will fluctuate periodically with changes in the economy
An adjustable benefit life insurance contract that
1) accumulates cash values
2) has a flexible p
The Minimum Guaranteed Interest Rate
Usually around 4%
Current rate
Consists of two parts:
1) The Minimum Guaranteed Interest Rate: Usually around 4%
2) Excess Interest - the interest earned that exceeds the interest rate guaranteed
Once a year, the insurer projects its current interest rate, which combines the minimum gu
Universal Life: Option A (level death benefit)
The death benefit is the policy's stated face amount, which is actually made up of the sum of the accumulated cash value, plus the amount of risk (insurance protection)
To qualify as life insurance and continue to exclude the death benefit from federal in
Universal Life: Option B
The policy provides for an increasing death benefit that is made up of the policy face amount plus the cash value account
The featured benefit most preferred by Universal life policyholders is
The flexibility of premium payments
Don't have to make premium payments each year as long as there is sufficient cash value
Interest Sensitive" Whole Life
Universal Life policies where the current interest paid fluctuates periodically with changes in the economy
Bundled vs transparent benefits
Benefits provided by traditional whole Life policies are bundled or packaged together--they cannot be viewed separately
Universal Life is unbundled--or transparent
Unique in that you can view or consider the benefits (such as the cash value and the death
Joint Life (First-to-Die) Policies:
These are Whole Life contracts written with two or more persons as the named insured
Pays out when first person dies
Last Survivor policy
The last insured to die triggers death benefits
Commonly used to help pay real estsate taxes due upon death of surviving spouse
Juvenile Life Policies
Any form written on the life of a minor
Cash value policy
Jumping Juvenile
Automatically increases the face amount of a policy at a given age, usually 21, but the premiums remain level
Juvenile Endowments
Written on children at a very young age
Often used for college expenses
Characteristics of Group Life plans
1) True group plans usually require a minimum of at least 10 persons to be covered under one master contract
2) Coverage written without requiring a physical examination
3) Master policy issued to an employer, trust, association or union:
Contract is betw
Group Eligibility--groups authorized for Group Life Insurance
Employees, Debtors, & Multiple Employer Trusts
1) Employees: The amount of insurance must be based upon some plan, such as a job description or salary, that precludes individual selection by the employer
2) Debtors: Groups may be established if the amount
Non-forfeiture provisions
The purpose of non-forfeiture provisions is to provide you with a mechanism whereby all policy values or benefits won't be forfeited, should you elect to stop paying premiums on the policy
The non-forfeiture clause may involve returning some portion of th
Group Life Standard Provisions
1) Coverage for a dependent spouse or child may be offered, at the discretion of the employer
2) Dependent's coverage has the same rights of conversion as the insurance on the life of the insured person (31 days)
3) If a Group Life policy is other than Te
Incontestable
A typical incontestability clause specifies that a contract will not be voidable after two or three years due to a misstatement
Incontestability clauses help protect insured people from firms who may try to avoid paying benefits in the event of a claim
Wh
Credit life insurance
A type of Decreasing Term insurance written on the life of the debtor
The maximum policy period cannot exceed the life of loan
The policy limit cannot exceed the amount owed
6 month suicide exclusion
Primary beneficiary is the lender
If there is any exces
Coersion
An unfair trade practice where a lender requires credit life to obtain a loan, but they require you to purchase it from them