Categories of Life Insurance
Many companies offer all; some specialize in one or another. Distinguished by types of customers, amounts written, underwriting standards and marketing practices.
1. Ordinary Life
2. Industrial Insurance
3. Group Insurance
Ordinary Life
Individual life insurance that can be temporary (term) or permanent (whole life, endowment, universal life, variable life, etc) with premiums paid monthly, quarterly, semi-annually, or annually. This is the principal type of life insurance purchased in th
Industrial Insurance
Defined by comparatively small amounts (such as $1k) with premiums collected on a weekly or monthly basis. Often marketed and purchased as burial insurance; today this has to declined to less than 1% of market share.
Group Insurance
Benefits that may insure many people under one contract. Underwriting is based on the group, not the individual. Ex- employer-employee, associations, creditors, and unions
Term Life Insurance
Simplest type of life insurance plan; provides insurance for a specified period of time (aka "term") and pays a benefit only if the insured dies during that period and does not accumulate cash value or provide a cash value (if the insured cancels the poli
Level Term
One of the three basic forms of life insurance; offers a fixed face amount which stays the same during the benefit period
Decreasing Term
One of the three basic forms of life insurance; offers a fixed face amount that reduces in value each year, eventually to zero at policy expiration. (Often purchased by creditors or by means of satisfying a mortgage contact in the event of the breadwinner
Increasing Term
One of the three basic forms of life insurance; offers little or no face amount in the beginning but grows over time
Guaranteed Renewable Policy
Allows the policyowner to renew the term policy before its termination date, without having to provide evidence of insurability (i.e. not having to prove good health). The premiums for the renewal period will be higher than the initial premium, reflecting
Features of Term Life
1. Option to renew
2. Option to convert
Options to Renew
1. Guaranteed Renewable Policy
2. ART (Annually Renewable Term), also known as YRT (Yearly Renewable Term)
3. Re-entry option
ART
The most basic form of life insurance; provided coverage for one year and allows the policyowner to renew coverage each year, without evidence of insurability but typically limit the number of times or a specified age that the policy though it is not unco
Re-entry Option
Offered by some renewable term plans; policyowner is guaranteed to be able to renew coverage at the end of the term at the rate specified but also allows for periodic admissions of evidence of insurability that may qualify them for rates lower than what t
Option to Convert
Gives the insured the right to convert or exchange a term life insurance policy for a whole life (permanent) plan without evidence of insurability.
Attained Age Method
Option to convert a policy from term to whole life that bases premium rates at the time of the exchange.
Original Age Method
Option to convert a policy from term to whole life that bases premium rates at the time when the original term policy was taken out. Naturally, this will make the premium lower but the policyowner might have to pay an additional amount to make up the diff
Term Life Premiums
Based on the risk involved; the more likely that death may occur the higher the premium. The cost of insurance increases as we get older, therefore, premiums may increase each year or may be level for a fixed period such as 10 years or until age 60, etc
Features of Whole Life
1. Cash Value
2. Maturity at age 100
3. Living benefits
Whole Life
Provides permanent protection for the whole of life- from the date of issue to the date of death, provided premiums are paid. The benefit payable is the face amount of the policy which, along with the premium, remains constant throughout the policy's life
Cash Value
The accumulation or savings element of a whole life policy that builds over the life of the policy because there is a certain guaranteed amount of interest which is credited to the policy on a regular basis. It depends on a variety of factors including th
Cash Surrender Value
The amount that the policyowner will receive if a whole life policy is ever cancelled.
Maturity at age 100
The point at which a whole life contract has been completed; from an actuarial standpoint, everyone is assumed to be dead by then and those who do live longer and are considered statistically insignificant.
Living Benefits
A ready source of funds that may be borrowed at a reasonable interest rate that is built up through the cash value accumulation of a whole life policy
Straight Whole Life
Provides permanent level protection with level premiums from the time the policy is issued until age 100.
Limited Pay Whole Life
Policies with level premiums that are limited to a certain period (less than life) and can be of any duration. Ex- A "20-pay life policy" is one in which premiums must be paid for 20 years from inception, after which no more policies are owed but protecti
Single Premium Whole Life
Most extreme form of limited pay policy; involves a large one-time-only premium at inception, from which point the policy is completely paid for.
Modified Whole Life
Distinguished by premiums that are lower than typical whole life premiums during the first few years of the policy (typically 5) to make the initial purchase of permanent insurance more attractive, though actuarially they are exactly the same.
Graded Premium Whole Life
Distinguished by premiums that are lower than typical whole life premiums during a preliminary period (typically 5-10 years) and increase each year until leveling off, though actuarially they are exactly the same.
Minimum Deposit
Whole life insurance that begins building cash value immediately upon payment of the first premium. From that point, the policyowner systematically borrows from the cash value to pay for some or all of the premium
Indeterminate Premium
Whole life policies in which the premium rate can be adjusted based on the insurer's projected expenses and mortality. The maximum premium is stated in the contract though it usually fixed at a lower rate for a specified period (typically 2-3 years) and a
Indexed Whole Life
Policy in which the face amount automatically increases as the Consumer Protection Index (CPI) rises.
Two basic pricing methods are used:
1. The policyowner assumes the risk of future increases and must pay additional premium with each face amount increas
Endowment Policies
Characterized by cash values that grow at a rapid pace so that the policy matures on a specific date at which point it is paid out as a death benefit to a beneficiary if the insured has died or as a living benefit to the insured if they are still living.
Modified Endowment Contract
Policy in which the amount a policyowner pays in during the first 7 years exceeds of the net level premium that should have been paid to provide future benefits in that time (i.e. 7500 for 7 years for a $100k policy means that you CAN put 7 in one year, 8
Family Plan Policy
Special Use Policy. Designed to insure all family members under one policy; usually at a significantly higher rate for the breadwinner (usually a whole life plan) and then a lower amount for the spouse and lower still for the children (usually a level or
Multiple Protection Plan
Special Use Policy. Pays a benefit double or triple the face amount if death occurs in a specific time period; combinations of permanent insurance and, for the multiple protection period, level term insurance
Joint Life Policy
Special Use Policy. One policy that covers more than one person; uses some type of permanent insurance (as opposed to term) and pays the death benefit when one of the insureds' dies and the survivor(s) then have the option of purchasing an individual poli
Last Survivor Policy
Special Use Policy. A variation of a joint life policy that covers two lives and the benefit is paid upon the death of the second.
Juvenile Insurance
Insurance written on the lives of children where the application is granted to, owned and paid by, an adult such as a parent or guardian until the child comes of age and is able to take over the premium.
Payor Provision
Special Use Policy. Typically attached to juvenile policies; in the event of the death of the parent or guardian, the premium will be waived until the juvenile reaches a specified age (such as 25) or until the date of maturity of the policy, whichever com
Jumping Juvenile
Typically written on children aged 1-15 in units of $1k that automatically increase to five times the face value at age 21. Also known as junior estate builders (aka as things rich people buy). The face value increases automatically but the premium remain
Credit Life Insurance
Special Use Policy. Designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid. The beneficiary is usually the lender and the type of loan is usually decreasing term, with the term matched to the l
Non-Traditional Life Policies
The most notable of these are:
1. Interest-Sensitive Whole Life
2. Adjustable Life
3. Universal Life
4. Variable Life
5. Variable Universal Life
Interest- Sensitive Whole Life
Non-traditional Life Policy. Characterized by premiums that vary to reflect the insurer's changing assumptions with regard to its death, investment and expense factors. In some ways similar to indeterminate premium whole life, except that cash values may
Adjustable Life
Non-traditional Life Policy. Distinguished by their flexibility that comes with combining term and whole life insurance into a single plan that may change from one type of policy to another and/or back again, may contain limits to changes that may be made
Universal Life
Non-traditional Life Policy. A variation of whole life insurance that is characterized by its considerable flexibility that allow policyholders to determine the amount and frequency of premium payments and to adjust the face value of policies to reflect c
Partial Withdrawals
A fact that distinguishes universal life from whole life policies; can be made without a policy loan or complete surrender.
UL Death Benefit Options
Option One- a specified amount of insurance
Option Two- face amount plus the cash value
UL Option One
A specified amount of UL insurance; Cash value plus remaining pure insurance (decreasing term), federal law mandates that an additional amount of pure insurance (called a "corridor") is added to maintain the minimum death benefit
UL Option Two
Death benefit equals the face amount (pure insurance) plus the cash value (level term plus increasing cash values). to comply with Tax Code, the cash value cannot be disproportionately larger than the term portion.
Variable Insurance Products
Provide the opportunity for policyowners to achieve higher-than-usual investment returns on their policy cash values by accepting the risk of the policy's performance.
General Account
Where an insurer invests the premiums in a traditional whole life policy; an investment account that is composed of investments that are carefully selected to match the liabilities and and guarantees of the contracts they back and are usually quite conser
Securities Contracts
Variable insurance products are considered to be these because that transfer investment risk from the insurer to the policyowner and are regulated by both the state and the SEC.
Prospectus
Required to be furnished by the company, reviewed by the SEC, and must precede or accompany the sales presentation of any variable insurance sales presentation; it contains all pertinent information and is a significant source of information for the prosp
Variable Life Insurance
Permanent life insurance that is similar to traditional whole life; the main difference is how the policy's value are invested. In Variable Life the policy values are invested in the insurer's separate accounts in riskier, but potentially higher yielding,
Variable Universal Life Insurance
A policy that blends many of the features of whole life, universal life, and variable life; these offer premium flexibility, cash value investment control, and death benefit flexibility. After an initial premium establishes the plan, these policies offer
Loan
One of two ways a partial cash value distribution may be classified; withdrawn either with the presumption that it will be paid back (with accrued interest) or that the amount of future benefits will be reduced by the amount PLUS accrued interest.
Withdrawal
One of two ways a partial cash value distribution may be classified; no presumption of repayment and is treated as permanent, immediately reducing the future benefit and, of course, the cash value. It does not accrue interest interest against future polic
VUL Death Benefit Options
Level death benefit- provides for a fixed death benefit, (until policy values reach the corridor levels) and potential higher cash value accumulation
Variable Death Benefit- provides a death benefit fluctuates in response to the performance of investments
Corridor
In a VUL policy with a level death benefit, the death benefit amount is specified, remains constant, and does not fluctuate as the cash value increases or decreases. The cash values will build up until they reach this point, at which point the death benef