chapter 5 summary Flashcards
life insurance
involves the transfer of the risk of premature death from one party to another party. contracts create an immediate estate and there are no standard life insurance policies.
term life
provides pure or temporary protection and is the simplist form of life insurance coverage.
provides max amount of life insurance for lowest initial premium, has temporary or limited protection, has no cash value or equity.
level term life insurance
provides a level amount of protection for a specified period, after which the policy expires.
increasing term life insurance
provides a death benefit that increases at periodic intervals over the policy’s term.
decreasing term life insurance
provides a death benefit amount that decreases gradually over the term of protection.
mortgage redemtion insurance
a type of decreasing term life insurance policy.
credit life insurance
term policy designated to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is paid. the max benefit for a credit life insurance policy is the value of the loan.
option to convert
gives insured the ability to convert or exchange the term policy for a whole life policy without evidence of insurability.
interim term life insurance
a type of convertible term insurance that’s written on a person who wants protection immediately, but not able to afford permanent at that time. the premium for the term protection is based on the original application age. the premium for permanent protection is based on the age when permanent protection begins.
option to renew
allows policyowners to renew the term before expiration date without being required to provide evidence of insurability.
step up premium
a steady increase in premium
annually renewable term (ART) or yearly renewable term (YRT)
provides coverage for one year and allows policy owner to renew coverage each year, without evidence of insurability.
advantages of term life
less expensive than permanent
may protect the insured’s insurability if the policy is renewable and or convertible
may be used in conjunction with debt, mortgage, or supplement to whole life
provides most substantial amount of protection for lowest cost
disadvantages of term life
protection terminates when the policy terminates.
if term is renewable or convertible, premium rates rise as the insured ages, which often leads to policy cancellation prior to the policy terminating.
due to temporary nature, few death claims are actually paid under term life policies.
don’t contain any cash savings or equity.
whole life insurance
provides for the payment of a death benefit or face amount coverage upon death of the insured, regardless when the death occured.
form of permanent insurance. level, fixed, or predetermined death benefit/premium.
shorter the payment period, higher the premium.
tax-deffered cash value
designated to reach the face amount (mature) at age 100
premiums are payable as long as the insured is alive.
most basic types of whole life
ordinary, straight life, continuous premium life
single premium whole life
the most expensive whole life policy initially. an immediate cash value is created, a large part of the premium is used to set up the policy’s reserve.
the advantage is that the policy owner will pay less for the policy than if the premiums were stretched over several years.
modified whole life
type of WL policy characterized by an initial premium that is lower than straight WL insurance for an introductory period. after that, premiums jump to a rate higher than a straight life policy would have cost if it were taken out originally.
graded premium WL plan
a contract that’s characterized, like modified life, by a lower premium than straight WL in the early years of the contract. however, premiums increase annually or every year for the initial period. thereafter, it jumps to an amount that’s higher than the whole life premium and remains fixed for life.
enhanced whole life
reffered to as economatic life or extraordinary lie, is a low premium based participating permanent insurance policy.
indexed whole life
offers a face amount (death benefit) that increases in line with rises in the consumer price index (CPI) without requiring evidence of insurability.
equity indexed whole life
includes contracts where the policyholder can share in a percentage of the growth of an indexed investment. minimum interest and death benefit are guaranteed. These products are not considered securities.
adjustable whole life (non traditional)
also reffered to as blended or combination policies, are distinguished by their flexibility from combining term and permanent insurance into a single plan.
premium may change
looks to future
adjustable death benefit based on changing needs
Universal life (non traditional)
essentially a term policy with cash value, flexible premiums, and an adjustable death benefit.
tax deffered cash value has a gauruntee
considered permanent insurance. coverage remians in place for the life of the insured as long as the cost of insurance can be paid by th cash value or increasing premium payments.
may surrender the universal life for its entire cash value at any time
target premium is a suggested premium that’s used in universal life policies
offers 2 death benefit options:
1) death benefit equals cash values plus remaining pure insurance (decreasing term plus increasing cash values)
2) death benefit equals face amount (pure insurance) plus the cash values (level term plus increasing cash values)
