Life insurers issue three basic kinds
1. Ordinary
2. Group
3. Industrial
Ordinary Insurance
Ordinary Insurance includes all types of temporary or term insurance and also numerous variations of permanent insurance protection plans.
Industrial Insurance
Industrial Insurance is marketed today in rather small face amounts because of the nature of the target market. Many "Home Service" companies operate in this market.
Group Insurance
Group provides insurance for a number of individuals under one contract. The master contract is between the insurance company and the policy owner for the benefit of either the employees or members.
Term insurance premium is based on only two factors:
1. cost of mortality or the cost of dying.
2. loading (expense factor); the company's cost of doing business.
Term Policies are defined by
Duration and its face value being either level, decreasing, or increasing.
Level Term Insurance
Each time that a term ends or the lease is up on the insurance benefit that you have rented, the cost of the insurance is going to rise.
Step Rate
Each time the term ends and the insurance is renewed, the insured has moved into a Higher Risk Pool. The face value remains the same at renewal but the price steps up.
Mortgage Insurance is an example of what type of term insurance?
Decreasing term. These policies normally have a level premium.
Increasing Term Insurance
It is used by those with an increasing need or an increasing responsibility.
The advantage of Increasing Term
The advantage is no medical underwriting at renewal.
Guaranteed Renewability
The insured does not have to undergo health underwriting @ the end of a term. The policy is guaranteed to renew without proof of good health. The cost of this feature is built into the premium.
Re-entry Option
Option to re-enter a new pool healthy people at a lower premium by proving they are healthy enough to qualify.
Option to Convert
switching from a term policy to another type of policy with no medical underwriting.
what must be protected by insurance?
Income Stream
Whole Life Level Premium
Premium is level for as long as the payor elects to pay premiums or until the insured dies.
Cash Value
Belongs to the owner and is integrated into the death benefit. AKA Non-Forfeiture Value.
Actuaries
Insurance policy designers
Actuary Determining Factors
1. Morality Charges
2. Loading
3. Guaranteed Interest Rate
4. Premium Intake
There are no regulations regarding maturity or endowment at age 100.
An insurer can set the endowment at any age they wish.
At what age is a whole life policy said to have matured?
100
Equity types of policies, such as whole life, that build cash value and may mature have the advantage of developing...
Living Benefits
Whole Life Insurance is described by
method or duration of premium input.
Whole Life Pay Methods
1. Straight
2. Limited Pay
3. Single Premium
4. Modified Whole Life
Straight Whole Life
Premiums paid periodically all during one's lifetime or all the way up to the endowment period.
Limited Pay Whole Life
Paid over a defined period if time. The shorter the pay period selected, the larger the incremental payments, but the less the total premium required to make the policy endow at age 100.
Single Premium Whole Life
One Premium Paid at the beginning of the policy that endows @ 100.
Indexed Whole Life
The face value is indexed to the CPI. The additional increased face value cost may be borne by the policy owner (most common), or the insurer depending upon the contract.
TAMRA, Modified Endowment, &
Seven Years
The Family Plan
combination of whole life insurance and term insurance. Normally sold in units
The joint life policy
Covers two insureds on a single contract, neither one of which is covered by a term rider.
Universal Life Characteristics
1. Unbundled
2. Interest Sensitive
3. Direct Recognition
4. Flexible Premium
5. Target Premium
6. Adjustable Face
7. Death Benefit Option
8. Withdraw Cash w/o affecting death benefit
9.Retention of the traditional tax-free cash value buildup
Variable Life
Does not have a flexible premium. Balance is used to purchase units of open-ended mutual funds (separate accounts) selected by the policy owner.
Variable Universal Life / Flexible Premium
has two death benefits like Option I and Option II. The options are: I. A level benefit, or II. A benefit that uses the cash value to enhance the death benefit (The face value plus the cash value).