Life Insurance Lesson 3

Term Life Insurance

basic type of life insurance that is lower in cost to a policyowner, is only in force for a specified period of time and does not accumulate cash value, nor does it provide the policyowner with any policy loan value. A term life policy's death benefit is

Level Term

Both premium and death benefit remain constant for the term of the policy. The only aspect that changes, if renewed, is the increase in premium due to the increased age of the policyowner.

Renewable Term

- insured can renew their term policy without proof of insurability
- premium increases according to age at time of renewal

Step-Rate Premium

A Premium that increases over the term of the coverage

Re-entry Term

A term policy that allows an individual to reapply for, or 'reissue' his or her term life policy every few years (usually 5 years) and receive a premium lower than their guaranteed renewal rate. However, in order to receive this lower rate, evidence of in

Decreasing Term

The policy's face amount decreases over time, while premiums remain level. As an example, a decreasing term insurance policy with a face amount of $100,000 and a 10-year term will provide the full $100,000 of coverage if the insured dies within the 1st ye

Increasing Term

The policy's face amount increases over time, while premiums remain level. Although this type of policy is not often sold as a stand-alone insurance product, it is typically incorporated into a whole life policy as an added rider.

Convertible Term

A term life policy can also be 'convertible,' meaning that a policyowner can convert his or her term policy to a whole life or other cash value policy in the future without being required to provide evidence of insurability. The 'option to convert' is pro

Interim Term

A type of convertible term policy, referred to as an Interim Insuring Agreement, is commonly provided by insurers to ensure immediate temporary term life protection during the underwriting of a whole life policy.
Referred to as 'interim term' coverage, an

Return of Premium Term Life (ROP)

a more expensive type of term life insurance that provides an 'end benefit' to the policyowner at the expiration of his or her policy's term by returning 100% of the premiums paid into the policy when the insured survives the policy's term.
For example, i

Whole Life Insurance (Ordinary, Permanent, Straight-Life)

provides coverage for an individual's whole life, rather than a specified term (provided he or she continues to make premium payments). Over the life of a whole life policy, both the face amount and premium remain level and the death benefit is guaranteed

Cash Value

considered a 'living benefit' allowing the policyowner to take out a loan from the life insurer against the policy's accumulated cash value, or use it as collateral on a loan.

Nonforfeiture Value

Whole life insurance policies also include a 'cash surrender' value (nonforfeiture value) allowing the policyowner to recover part of the premium invested in the policy if he or she stops making premium payments and forfeits ownership of the policy

Continuous Premium (Straight Life)

Most common type of whole insurance sold
- a policyowner streches his or her premium installments over the life of the policy (to age 100 or death, whichever comes first).
-Premium levels do not change, they stay continuous

Limited Payment

Premiums are paid for limited period of time, while guaranteeing coverage for the life of the policyowner.
- Premiums are higher since they are fewer
- cash values build quicker
Limited-payment policies are based on a predetermined number of years such as

Single Premium

-Type of limited payment whole life policy
- single lump sum premium payment which is payable at the time the policy is issued
- large initial expense, overall it is less expensive than the accumulation of periodic installments over the life of the policy

Current Assumption (Interest-Sensitive) Whole Life

- premium payments are flexible and can increase or decrease by the insurer annually based on current interest rate trends that result in higher or lower mortality rates or investment returns to the insurer
- when insurer experiences high rates of return,

Economatic Policy (Enhanced Ordinary Life) (Extra Ordinary Life)

offered by some mutual companies
- allows policyowner to maintain a higher insurance death benefit at a lower premium through the combo of a whole life and term life policy
ex: Let's say that a policyowner wants to purchase a $250,000 whole life policy bu

Adjustable Life (Flexible Premium)

Consists of both term and permanent insurance
- policyowner can from time to time change carious aspects of the policy including increasing/decreasing the face amount, premium, or changing the period of coverage, to continue to be flexible for the policyo

Universal Life

Permanent insurance that offers more flexibility than many other forms
- more control over the cost of premiums as well as ability to invest and earn interest on the cash value that the policy builds.
- offers flexible premiums and flexible death benefit

Variable Life Policies

- Variable life policies are also considered to be 'securities contracts'
- to sell variable life insurance policies, one needs both a life insurance license, and also a Financial Industry Regulatory Authority (FINRA) license, such as a series 6.
With tra

Variable Universal Life

- combination of universal life and variable life policies, containing a varying degree of death benefits, cash values and premium payments.
- policyowner maintains a separate account for his or her investments (since it is variable insurance)

Equity Indexed Life

Type of life insurance largely based on rate of return in the financial markets
- policyowner can transfer funds from a fixed account to an indexed account.
- cash value can only increase if the market is favorable, but cannot decrease when the market dec

Family Protection Policy (Family Plan)

this form of whole life insurance provides coverage on each family member with the breadwinner's amount of coverage being four times the spouse's and five times the children's coverage amounts. The children's coverage is usually written as term coverage e

Family Income Policy

Combines decreasing term insurance with whole life insurance to provide the insured's family with a monthly income upon the death of the insured, while maintaining permanent coverage until the end of the income payments
Ex:
Sarah has a policy that will pa

Family Maintenance Policy

A combination of whole life insurance and level term insurance to provide permanent coverage (lump sum payment to beneficiary when the insured dies) and a monthly family maintenance portion for a set period of time following the insured's death.
AKA: Fami

Decreasing Term policy

A term insurance policy that maintains a level premium throughout all periods of coverage, but the amount of protection decreases.

Joint Life Policy

A policy that covers two or more people under one policy. The premium is based on the average age of both applicants.
covers two individuals and is payable upon the first death; the other insured can opt for a single policy without evidence of insurabilit

Survivorship Life Policy (Second-to-Die) (Last Survivor)

Insure two or more lives (for a premium that is based on joint age, pay the death benefit on the last death, and can help offset the liability of the estate tax upon the death of the second spouse)

Juvenile Life Policy

Usually written on children under the age of 15 and vary in type (term, whole life, limited benefit) depending on the family's needs.
Jumping Juvenile
policies 'jump,' or increase four to five times in value once the child turns 21 without increased premi

Modified Premium Whole Life

Usually more affordable than straight whole life policies in the first few years (often around 5 years) then becomes slightly higher than straight whole life for the remainder of its coverage.
This type of plan is useful for college students just starting

Graded Premium Whole Life

Similar to modified whole life with more affordable premiums for the initial years, then gradually increases for the next few years until finally leveling off at a slightly higher rate than standard whole life.

Minimum Deposit Whole Life

This form of whole life insurance is based on an initial premium payment which allows for cash values to immediately build in the account. Subsequent premium payments are then paid by borrowing from the cash value for a portion of, or the entire premium a

Indexed Whole Life

- Face amount will move with Consumer Price Index (CPI)
- If index increases, policy's face amount and premium increases (up to usually 5% cap)
- It is decided at time of policy inception who will absorb the additional amounts in premium costs (insured or

Wholesale Insurance

Life insurance can be provided for employee groups that are considered too small to legally be considered a group, according to most states' group life insurance regulation. Generally, this type of insurance is marketed to the employees of a small busines

Industrial (Home Service) Life Insurance; Burial Insurance

provides minimal life insurance coverage (usually less than $2,000 and without requiring a medical exam) in the event the insured dies, providing the beneficiary with enough money to cover basic final expenses such as funeral costs
Also known as 'home ser

Facility of Payment Provision

Associated with industrial life and group life insurance
- policy provision that permits an insurer to appoint a new beneficiary in an attempt to facilitate the policy's death benefit due to an extenuating circumstance that warrants the need to designate

Credit Life Insurance

A credit life policy is designed as a decreasing term life policy and its purpose is to cover the amount of debt owed and diminishes in coverage as the amount of debt decreases, eventually to zero. The policyowner is the creditor and if the debtor dies be

Mortgage Redemption Insurance

A mortgage redemption policy is similar to credit life insurance in that it is a decreasing term life policy that is designed to pay off a policyowner's mortgage should he or she die while covered under the policy. As with a credit life policy, coverage d

Endowment

These policies couple term life insurance with a savings program. As the policyholder, you choose how much you want to save each month and when you want the policy to mature. Based on your monthly contributions, you're guaranteed a certain payout, called

Retirement Endowment

This type of endowment matures when the insured turns age 65. If the insured dies before age 65, the endowment's designated beneficiary receives the endowment; if the insured survives to age 65, the endowment matures and is paid out to the insured

Pure Endowment

This type of endowment does not include a death benefit and only pays out to the insured if he or she survives the endowment period, at which point the endowment has matured and is distributed to the insured

Endowment Life Insurance

This type of endowment is a combination of a pure endowment and a term life policy so that the endowment pays out at its maturity, while the term policy pays the beneficiary if the insured dies during the pure endowment period.
- pure endowment for insure

Juvenile Endowment

This type of endowment is used to help fund college expenses and usually mature when a child turns age 18.
Again, as a result of the Tax Reform Act of 1984, such policies have lost their popularity due to high premiums and the lack of tax benefits which a