Flashcards in Chapter 3 Types of policy and riders Deck (72)
The maturity date or time at which the policy's cash value equals the face amount and the proceeds are paid to the policyowner. whole life is only one that endows
The death benefit amount payable on a life insurance policy. in other words, the amount of coverage the policy provides. This is sometimes referred to as the limit of liability. max liability
Money accumulated in a permanent policy which the policyowner may borrow as a policy loan or receive if the policy is surrendered before it matures. whole life and universal
an added benefit attached to the policy that modifies existing coverage. A rider is usually added at the time of application and typically requires an incrase in premium.
term insurance is considered
pure insurance and provides a pure death benefit. does not any cash value or living benefits. Premiums are lowest and are for highest death benefit. Can be for a specified amount of time or till someone reaches an attained age. The low initial premium outlay can increase at renewal or upon conversion. as the insured's age advances the policy can become expensive. Rates charged are based upon underwriting class, the age and gender of the insured and upon the length of time protection. rates are higher for 10years than they are for 5.
Types of policy
the death benefit remains level and premiums remain level during the policy term. Most group life insurance is written with a level term death benefit.
death benefit decrease but premiums remain level for the policy, often utilized to pay off outstanding mortgage balances. decreases as the mortgage balance decreases.
Credit life insurance
is a special form of decreasing term. automatically names the creditor as the beneficiary. There is no option. The policy cannot be written for more than the outstanding debt, since that is the limit of the creditors insurable interest. usually sold on a group basis to a creditor such as a bank. The policy pays the outstanding balance of the debt at the time of the borrower's death, subject to policy maximums. Debts covered way include
loans to cover the purchase of appliances, motor vehicles
bank credit and revolving check loans
the death benefit increases over the life of the policy while the premium remains level. This type of loan is normally a rider for the return of premium on a permanent policy over a set number of years
Annually renewable term
the simplest form of term life insurance is for a term of one year. The death befit remains level and the premiums increase yearly as the policy renews. while its very inexpensive initially compared to the other types of life insurance, over time it can become cost prohibitive. The death benefit is paid by the insurer if the insured dies only while the policy was in force
Re-Entry term option
term policies with this option will allow the insured, upon the end of the original term, to renew based on attained age and may qualify at a discounted rate by providing evidence of insurability. The re-entry term will allow the insured to renew at a lower rate than renewable term as long as the insured meets the qualifications of insurability.
a benefit that will renew the contract on the renewal date without evidence of insurability. The policy may be a one (annual), five, ten, 20 year renewable contract with premiums increasing at the beginning of each renewal period. premium is based on attained age and no evidence of insurability is required.
The right to convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified in the contract. The premium can be based upon attained age or issue age. The premiums will be higher than the original policy since the permanent policy will provide a cash value and coverage can last to age 100 or beyond. if the conversion is based on the original age, back premiums plus interest will be required to be paid at the time of conversion. term is only one
Permanent or whole life insurance is deigned to
provide coverage for an entire lifetime. Whole life is permanent protection that matures at the insured age 100. At that point the cash value equals the face amount and is paid. The insurer pays the face amount to owner if insured lives to age 100.
net amount at risk is the face value minus the cash value. As cash value grows, the amount of risk to the insurance company decreases.
These policies have a
level premium and level face amount. To keep the premium rate level, the premium at the younger ages exceeds the actual cost of protection. This extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium.
Unlike term insurance, whole life policy cannot be
convertible or renewable
Ordinary whole life
some traditional life policies require premiums to be paid for a set number of years such as 10 or to a specified age. Under other policies, premiums are paid throughout the policyholder's lifetime.
The shorter the premium paying period, the higher the premium.
straight life or continuous premium
The premium is level and payable to age 100 or death of the insured. The face amount remains level throughout the life of the policy has the highest total premium outlay
premium payments are for a specified time or to a specified age. however the face amount remains level to age 100. The annual outlay is higher than straight life.
the entire cost of the policy is paid at the time of purchase and the face amount remains level to age 100. The cash value builds more quickly because the amount of premium paid in upfront is higher.
premium, period of protection, change the length of premium payment period, and death benefit can be adjusted. adjustable time period of coverage. Combo of term and whole, all the common features of level premium cash value life insurance are present.
These policies provide cash value, although reducing the premium could stop the cash value from increasing therefore adjusting the coverage to term insurance.
These changes can be exercised
annually and are not retroactive. Changes can only be made on a policy anniversary date as approved by the insurer. Adjustable life is most appropriate for those whose income is expected to fluctuate from year to year or those persons who may have a fluctuation in needs.
interest/market- sensitive whole life products (nontraditional whole life)
Current assumption or interest sensitive whole life
A form of whole life in which the insurance company can change the premiums or interest rate being credited to the account based on current money market rates. guarantee death benefits. premiums may fluctuate. usually higher interest rate.
Universal life (flexible premium adjustable life insurance)
like ordinary whole life, it features insurance protection and a savings element that grows on tax deferred basis. unlike whole life, UL is an unbundled policy. this means the individual elements of the policy and premium- mortality risk and policy expenses and cash value are both transparent to the policy owner.
they have built in guarantees regarding the cost of insurance and the interest rates applied to cash values. Unlike whole life, the premium is not merely adjustable, it is totally flexible. if there is sufficient cash value to pay the cost the premium can be skipped. on the other hand, the policy owner may also make unscheduled lump sum payments (within limits) to take advantage of current interest rates or personal tax flow. The level of flexibility is described in the features below
The features of a UL policy include
An adjustable face amount: any increase in face amount will require evidence of insurability
A flexible premium: The premium is a benchmark and may or may not be adopted by the policyholder. Because of the flexibility the cash value may never equal death benefit. current credit interest rates, mortality charges, and expense factor
Monthly mortality charges: are deducted from the policy's cash value. The mortality charge is determine annually based on age. The insurance protection is calculated like annual renewable term. Since the charges are deducted monthly this could be refereed to as monthly renewable term. max established with plan
Expense charges: from the policy are deducted monthly. This is the insurance company's cost of maintaining the policy and does not change with age but can be impacted by the overall administrative costs associated with the plan. max established with plan
Interest: is also credited to the cash value on a monthly basis. The interest is credited at the current interest rate with a guaranteed minimum rate established.
Equity indexed universal live
Most of the premium 80-90% is invested in a traditional fixed income securities. The remained of the premium is invested in contracts tied to a stipulated stock index. Where there is an increase in the market, a given % of the gain is used to determine the interest credited to the policy. When the market declines, the policy is credited with the minimum guaranteed interest rate or zero interest. The policy's values can never be impaired due to negative index performance.
a portion of the premium is invested by the insurance company and held in their general account. The current return on the investments is credited to the UL policy. A guaranteed min interest rate is applied to the policy means that no matter how the investments perform, the insurance company guarantees a certain minimum return on the cash value. This policy has a general account, so the producer only needs a life insurance license to sell it. Premiums are paid into and interest is credited into the general cash value. expenses, loans or withdrawals, and mortality charges are deducted from the cash value account.
Loan and partial withdrawals
individual elements of a UL policy are individually viewable, subject to change, and accessible. the policyowner not only have the option to take out a policy loan, they may also take a partial withdrawal from the cash value without terminating the contract. Loan can be paid with interest. Partial withdrawal is irreversible decrease in cash value.
Death benefit options
universal life allows you to choose from two death benefit options A or B.