Kaplan - Unit 4 Flashcards
Types of Life Insurance Policies (44 cards)
Face Amount
The amount of the death benefit because it’s usually found on the the first page of the policy.
Living Benefits
Financial benefits that are available while the insured is still alive.
Level Term Policy
Equals the face amount throughout the term of coverage. Premium also remains level. Term of coverage may be expressed in reference to a number of years or a specified age.
Decreasing Term Policy
Benefit declines over the coverage period until it reaches zero at the end of the term. Appropriate for financial obligations that decrease steadily over time like mortgages, loans, etc.
Increasing Term Policy
Benefits begin near zero and grow over the term of coverage. Appropriate to cover financial obligations that increase steadily. Also helps keep benefits current with inflation and rising cost of living expenses.
Term Insurance Differences
LEVEL TERM
- Death benefit is level
- Premium is level for the term
DECREASING TERM
- Death benefit decreases
- Premium remains level
INCREASING TERM
- Death benefit increases
- Premium increases
Return of Premium Term
Premium is higher than regular term policy. The premium paid by insured is paid back if insured is alive at the end of the term.
Renewability
Guarantees that the policy will renew (extend) at the end of its term. Insured does not have to re-apply or qualify medically for the coverage.
The premium for the new renewal period will increase based upon the insured’s age at renewals; the insured’s attained age. This is called a step-rate premium. The term policy expires at an age specified in the policy (65 or 70)
Convertibility
Allows a policyowner to convert a term insurance to a permanent type of policy without evidence of insurability and without an application.
The premium for the policy is based on one of two options:
Attained age: Insured’s age at time of conversion
Original age: Age at the time the original term policy was written. A down payment is required equal to the amount of what the originally purchase would have been.
Term Life Insurance
- Renewable
+ No new application required
+ New premium based upon attained age - Convertible
+ Can be changed to permanent insurance
+ No new application required - LOW initial cost
- Coverage for a short period of time
Whole Life Insurance
A permanent insurance policy, guaranteed to remain in for for entire lifetime, as long as premiums are paid or the policy maturity date. Premiums will never increase.
Level Premium
Results in overpaying for the risk of dying at younger ages, and underpaying in later ages. The mode of payment is on a fixed schedule.
Fixed, Level Death Benefit
Like the premium, the death benefit of a whole life policy is fixed and level and the face amount will remain the same.
Cash Values
An integral part of a whole life policy, and reflect the reserves necessary to assure payment of the guaranteed death benefit.
Guaranteed Interest Crediting
The policy cash value increases over the life of the contract due to a guaranteed (level) rate of interest as stated in the policy illustration.
Policy Surrender
The right to quit a contract early for a claim of a share of the reserved fund attributable to the policy. This waives the death benefits.
Policy Loans
Loan provisions that allow the policyholder to borrow up to the cash value of the policy. Interest must be paid, and if the insured dies, the amount borrowed plus any interest charges are deducted from the death benefit.
Death Benefit Components
- The cash value (or the savings element), and
- An insurance protection element that must be paid in addition to the cash value so that the benefit equals the face amount.
This is known as the net amount of risk to the insurance company; the amount of money the insurer must have on hand to pay the benefit.
Traditional Whole Life
- Fixed premium
- Fixed & level death benefit
- Cash value
+ Guaranteed interest
+ May be surrendered
+ May be borrowed
+ Endows at age 100 - Death benefit
+ Amount at risk to the company
+ Plus cash values
Continuous Premium Whole Life
Same each year for the duration of the contract, also referred to as straight life or ordinary life. If premium payments are discontinued, insured receives the cash value.
Limited-Payment Whole Life
Allows for a lifetime of premiums to be paid in a shorter period of time.
- 10-pay or 20-pay whole life; premiums are payable in 10 or 20 level annual installments, and
- life paid-up at age 65; premiums are payable in level annual installments from the date of purchase to the year the insured turns 65.
Single Premium Whole Life
One payment made at the time of purchase. This, along with interest earnings, will cover all costs of maintaining the policy. They create immediate cash value.
Modified Premium Whole Life
Lower premiums during the first 3-5 years, similar to term insurance. However, after that, the premiums increase and are then level for the rest of the policy, making them higher in cost than a continuous premium whole life policy.
Graded Premium Life Insurance
Starts out lower than other types of whole life policies and increases every year for five to ten years until leveling off for a as long as the policy remains in force.
