whole life insurance
In contrast to term insurance, with its three basic forms, there are many different types of permanent life insurance. The oldest and most traditional form of permanent life insurance is whole life insurance. Whole life insurance features more guarantees
two features
It provides guaranteed death benefit protection for the insured's whole life. No matter when the insured dies, the policy pays the face amount stated in the policy. Under most whole life policies, the covered lifespan extends to age 120.
It includes a gua
various types differ
While all forms of whole life have these two guaranteed features, the various types of whole life differ in
the length of time over which premiums are paid and/or
how the policy's cash values are invested and grown.
ordinary (straight) life insurance
The most basic type of whole life insurance is called either ordinary whole life or straight whole life policy. With whole life, benefits and premiums remain level straight through the insured's whole life. Death benefits remain level, and level premiums
Guaranteed cash value
A crucial part of every permanent insurance policy is its cash value. With whole life insurance the cash value grows at a contractually guaranteed rate. This is necessary to support the guaranteed level death benefit and premiums.
The cash value is funded
Level premium concept
Ordinary whole life policy owners pay the same (level) premium over the life of the policy. The purpose for this level premium concept is simple. The older one gets, the greater the risk of death, which would normally mean higher premiums. If an insured w
limited payment life
Like ordinary whole life, limited payment whole life insurance provides level death benefit protection for the insured's whole life. Also like ordinary life, limited payment life has level premiums. The main difference between ordinary life and limited pa
single premium life
The most extreme example of limited pay life is the single premium life insurance policy, which is paid up with one premium payment at the time the policy is bought. Such a policy is often called a Modified Endowment Contract, or MEC. Tax law changes in 1
modified and graded premium whole life insurance
Two similar variations on the whole life theme are modified premium whole life insurance and graded premium whole life insurance. Both of these products feature a lower initial premium than straight whole life of the same face amount, but premiums increas
non-fixed whole life products
Straight, limited pay, modified, and graded premium whole life products all share a common trait: they offer fixed, "known in advance" premium amounts. That fixed amount may increase over time, as is the case with modified and graded premium policies, but
indeterminate premium whole life
Indeterminate premium whole life insurance is issued with two premium rates:
lower fixed rate
guaranteed maximum rate
The policyowner pays the lower fixed rate for a specified number of years (such as the first five or ten). At the end of that period, the
current assumption and interest sensitive whole life insurance
Current assumption whole life (CAWL) and the closely related interest-sensitive whole life are characterized by premium rates that can change over time in response to the insurer's actual mortality, interest, and expense experience. If the insurer's actua
Indexed whole life
Indexed whole life insurance is a fairly new product that ties its death benefit and premiums to a specified index, most commonly the consumer price index (CPI). Over time, the policy's face amount increases automatically with CPI increases.
Insurers offe
variable life
Consumer pressure on insurers to develop a product that truly reflects the investment performance of its underlying assets in the early 1980s led to the development of a new class of whole life insurance: variable life insurance. Unlike traditional whole
the nature of variable life insurance
With traditional whole life policies, insurers invest the premiums in safe, secure, and conservative investments that are managed in the insurer's general account. This, in turn, lets the insurer credit safe, secure, and conservative rates of return to th
Fixed premium and guaranteed death benefit
Like traditional whole life, standard VLI policies require a fixed premium on a scheduled basis. As a whole life product, variable life also guarantees a minimum death benefit. However, unlike traditional whole life, there is a real possibility that the d
non-guaranteed cash value
Unlike the VLI death benefit, the cash value is not guaranteed. If values decline due to poor investment results, the cash value will decrease. A variable life policy's cash value at any time is equal to the value of the policy's shares in its chosen suba
VLI contract charges and fees
Because of the additional administrative expenses and costs associated with separate account investing, VLI policies carry charges and fees that traditional whole life policies do not. In addition to the premium that covers the policy's death benefit, VLI
Regulation of VLI
Because of their investment nature and the inherent risk to principal, VLI policies are considered securities as well as life insurance. As securities, they are regulated by
the Securities and Exchange Commission (SEC),
the Financial Industry Regulatory A
What are variable life insurance policies considered?
securities
When is a whole life insurance policy designed to mature or endow?
when the policy's cash value equals its face amount
Bill owns an indeterminate premium whole life insurance policy. Which one of the following statements about his policy is most correct?
Bill's premium will never be higher than the maximum level that the insurer guaranteed when it issued his policy.
Bill will pay a lower fixed rate for a certain number of years (such as the first five or ten). At the end of that period, his premium rate w
Which one of the following statements about variable life insurance is correct?
Variable life's policy values can be invested in subaccounts, which are unsecured and nonguaranteed.