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49 Cards in this Set
- Front
- Back
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Endow (Endowment)
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The maturity date or time at which the cash value equals the face amount.
If the policy matures it is said to endow and the proceeds are paid to the policyowner. |
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Face Amount
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the death benefit payable on a life policy; may also be called limit of liability.
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Characteristics of Term Policies
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1. Term insurance is temporary protection for a specified period of time.
2. Term insurance will expire at an attained age (Term to 65) or after a specified period of time (Ten- Year Term). 3. Term insurance does not have a cash or loan value; it provides purely protection. 4. The face amount is only paid if the insured dies during the specified term of the policy. 5. The low, initial premium outlay when the insured is young increases at renewal or conversion, and as the insured’s age advances the policy becomes more expensive. 6. The maximum age limit for issue or renewal of coverage is usually age 70. 7. Term insurance can be written separately or with other types of insurance (as a rider) to suit individual needs. 8. Rates charged are based upon the age and gender of the insured and upon the length of time protection is provided; rates are higher for a ten-year level term than for a five-year level term. |
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Types of Term Insurance:
Level |
The death benefit remains level and the premiums remain level during the policy term. Most
group life insurance is written level term. |
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Types of Term Insurance:
Decreasing |
the death benefit decreases, but premiums usually remain level for the policy term;
often utilized as “Mortgage Redemption” or “Credit Life Insurance.” |
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Types of Term Insurance:
Increasing |
the death benefit increases over the life of the policy and the premiums remain level.
This type of term is normally written as a rider for the return of premium on a permanent policy over a set number of years. |
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Types of Term Insurance:
Re-Entry Term |
characterized by lower premiums at issue. The insured is able to renew the policy
at the lower premium classification as long as he/she can provide evidence of insurability. If health declines, premiums will increase on the policy anniversary stipulated as the “re-entry date.” |
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Types of Term Insurance:
Life-Expectancy Term |
provides a level term benefit over the life expectancy of the insured using a specific mortality table.
The contract is pure protection, but with the level premium concept, a cash value accumulates to help offset the required premiums in the later years. |
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Term Insurance: Other Uses
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Term insurance might be used to cover loans, business and personal.
The insured may purchase large amounts to cover a specific time, liability or need at the least amount of premium. |
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Term Insurance Options:
Renewability |
The right to renew on renewal date without evidence of insurability.
The renewal premium is based upon attained age. Decreasing term is never renewable. |
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Term Insurance Options:
Convertibility |
The right to convert to a permanent policy without evidence of insurability.
The premium is based upon attained age or issue age. |
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Term Options for
Group Life Insurance: |
Note: Group life is usually written as term and is both renewable and convertible.
A term policy that does not contain these two options would cost less than one that does. |
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Whole Life Policies (Ordinary Whole Life or Continuous Pay Life ): Basic Uses
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Whole life is used for a permanent need of protection (family protection and estate conservation, just to
name two prominent uses). |
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Whole Life Policies (Ordinary Whole Life or Continuous Pay Life ): Characteristics
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1. Whole life is permanent protection that matures at insured’s age 100. It pays the face amount to owner if insured lives to age 100. Premiums are paid to age 100 or to time of premature death which ever occurs first.
Insurers assume insured will not live to 100. 2. The policy builds cash, loan, and nonforfeiture values. 3. Pure insurance protection is the face value minus the cash value . (As the cash value increases the pure protection decreases, but the face amount would remain the same.) 4. The policyowner may borrow from the cash value. Policy loans may carry a fixed or variable loan interest rate. 5. If the policy lapses from nonpayment of premium, nonforfeiture values are available for use by the policyowner. Each policy contains a nonforfeiture table showing the value of these benefits. 6. The policy has a level premium and face amount. Premiums will be more than the cost of the policy in early years and less than the cost in the later years. 7. The shorter the premium paying period, the higher the premium (a Limited Pay Life of 20 years would have a higher premium than a Straight Whole Life). 8. Settlement options are available upon the death of the insured or upon the policy’s maturity. 9. The cash value equals the face value upon maturity; age 100. 10. You may add a term rider to this policy, but you cannot convert a whole life policy to a term policy. |
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Whole Life Policies: Types
Straight Life – (Continuous Premium or Permanent Life) |
both the premium and the face amount (death benefit) remain level to age 100 or death of the insured, whichever comes first.
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Whole Life Policies: Types
Limited Payment |
premium payments are for a specified time, such as 20-pay, 30-pay or to age 65.
However, the face amount(death benefit) remains level to age 100. |
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Whole Life Policies: Types
Single Premium |
The entire cost of the policy is paid at the time of
purchase. The face amount(death benefit) remains level to age 100. The cash value builds more quickly than in Straight Life or Limited Life. |
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Current Assumption (Interest Sensitive) Whole Life
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a Straight Whole Life policy with the following variations:
a. Flexible premiums, with adjustments made on specific anniversaries, as specified by the insurer. b. The face amount (death benefit) does not fluctuate. c. The (current) interest rate is higher than the insurers rate for traditional whole life policies, thusly providing some inflation protection. |
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Enhanced Ordinary Life
(Economatic) |
this policy was designed for participating policies using
the dividends to purchase additional insurance. The applicant needs a greater amount of protection than he/she can presently afford. The Economatic allows the applicant to purchase a reduced amount of whole life with a term rider attached to make up the difference. Within a stated period of time the dividends will purchase additional insurance until the face amount plus the additional insurance equals the original need. The plan is generally computed on a 70/30 percent split (seventy percent whole life and thirty percent term). If the actual dividends are not sufficient to provide the additional coverage over the stated time, the dividends will be diverted to buy one year renewable term until such time as the original contract limits are reached. |
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Endowment Policies: Characteristics
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1. Endowments offer permanent protection until the policy endows. An endowment matures prior to age 100.
2. Endowments contain cash, loan and nonforfeiture values. 3. The owner may borrow from the cash value. 4. Level premium and face amount provide protection until death or endowment, whichever is first. 5. The shorter the premium paying period, the higher the premium. 6. Settlement options are available upon the death of the insured or upon the policy’s endowment. 7. Endowment policies place more emphasis on the savings element rather than on the insurance aspect. The endowment should not be considered for fulfilling a long-term life insurance need. 8. Endowment policies normally have higher premiums than whole life policies. Many in the world of insurance and finance consider the endowment the most expensive policy. 9. The primary advantage of an endowment policy is the forced savings with a life insurance benefit. |
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Flexible Design Policies:
Adjustable Life |
1. Adjustable Life is a level-premium, level-death benefit policy that can assume the form of Term or Whole Life within a single policy while remaining within certain guidelines.
2. All the common features of level premium cash value life insurance are still present. 3. The policyowner may change or make adjustments without adding or exchanging existing policies. The type or amount of coverage and the premium amount may be changed. 4. An increase in death benefit usually requires evidence of insurability. 5. When the premiums paid exceed the cost of a policy a cash value develops. 6. An increase in premium has the effect of increasing future cash values and either: a. Lengthening the period of protection if the policy is in the term range. b. Shortening the premium payment period if the policy is in the whole life range. 7. 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. 8. This policy has proven to be difficult for the consumer to understand and has a high cost of administration and for these reasons other flexible premium policies evolved. |
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What is Universal Life?
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1. Universal Life allows the policyowner to select the face amount, within an insurer’s allowable minimum
and maximum. The frequency of premium is also chosen by the policyowner within the limits set by the insurer. Adjustments to the face amount, up or down may be requested by the policyowner to reflect changes in need. The flexible premium schedule is the main difference from Whole Life products. 2. Universal Life has divided the two elements of a traditional Whole Life policy, cash value and life insurance. The death benefit is in the form of one year renewable term while the cash value account earns interest at the current rate. 3. The policyowner pays a premium that is placed in the policy’s cash value account; the premiums may be of any authorized mode. Each month a mortality charge is deducted from the policy’s cash value account for the cost of the insurance protection and expenses (unbundled). 4. Interest is credited to the cash value. The interest is credited at the current interest rate with a guaranteed minimum rate established. However, the amount of cash value is never guaranteed. 5. The policyowner may borrow or make partial withdrawals without terminating the policy. Loans may reduce the interest amount credited to the cash value. 6. To comply with the IRS Tax Code’s definition of “Life Insurance,” the cash value cannot be disproportionately larger than the term insurance portion of the policy. 7. The policyowner receives an annual statement detailing expenses, mortality, and interest earnings. 8. Any surrender charges must be stated in the policy showing the costs upon policy surrender. 9. Universal Life is usually purchased to provide the policyowner with flexibility not found in Whole Life policies. It adjusts to interest rate changes and allows the owner to make additional contributions that will increase the cash value or skip some premiums if the owner desires to do so. 10. Universal Life policies offer a choice of two death benefit options, usually referred to as option A and B. This allows the policyowner to choose a level death benefit that builds more cash value (A), or to choose option (B) which increases the death benefits by paying the face amount plus the cash value. 11. The flexibility of this policy and the separate account(s) of the Variable Life policy were used in the 1980’s to develop the Variable Universal Life policy which we will introduce last under the flexible policy classification. |
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What is Variable Life?
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Variable Life is a fixed-premium Whole Life policy under which the death benefit and/or cash value varies to reflect the investment experience of a separate pool of assets (separate accounts supporting the reserves for the policy.
2. Premiums, less expenses and mortality, are paid into separate account(s) (usually a mutual fund) where they are invested. The policyowner selects, within limits, the cash accumulation vehicle. 3. There is a guaranteed minimum face amount (original issue amount) and a maximum loan value (normally up to 90% of the cash value or investment value) but no guarantee of minimum cash value. The loan may be at an 8% fixed or a variable interest rate. 4. Variable Life is designed to provide a hedge against inflation. 5. Variable Life is considered a security and can only be sold by agents licensed with the National Association of Securities Dealers (NASD). This license is in addition to a (life) insurance license. The historical performance of these securities are found in a currently dated prospectus which must be given to the prospective buyer prior to any discussion of a variable contract. The (SEC) Securities Exchange Commission regulates the investments that make up the separate account(s). Each prospective buyer must receive a prospectus covering each of the separate account(s) to enhance his/her decision making process. This enables the prospect to determine the suitability of this policy. 6. The policyowner has no control over investment fluctuations, but assumes the investment risk. 7. The application for Variable Life must contain questions that enable the insurer to determine if Variable Life is suitable for the applicant. |
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What is Variable Universal Life?
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1. The premium and death benefits are flexible, as in a traditional Universal Life policy; however, instead
of a cash account, the excess cash is placed in a separate account or accounts as an investment. 2. Normally the insurer allows the policyowner to select the type of separate account(s) from those available within the policy (usually mutual funds). The policyowner is allowed to transfer funds between these accounts during the life of the policy. The transfers are generally made without administration fees and are never taxed as the funds remain within the confines of the policy. This allows the owner to choose where funds will be invested, allowing flexibility in the timing and amount of premium payments, and also providing more participation as well as responsibility. 3. The separate account(s) (mutual funds) offered are grouped under account headings (sometimes called the family of funds) showing the actual investment participation and the historical performance of each account. This information is provided through the use of a prospectus. 4. The prospectus for the VUL policy must be given to the prospective buyer showing detailed information on each of the separate account(s) (securities). |
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Specialized Policies:
Family Income (Policy or Rider) |
1. A combination of Whole Life and Decreasing Term insurance.
2. Its purpose is to provide a specified monthly income from the date of the insured’s death until a specified future date. 3. The income period begins from the effective date of the policy. 4. If the insured dies within the term period the benefits are paid for the remainder of the term followed by the Whole Life benefits. If the insured lives beyond the income period, only the Whole Life benefits remain to be paid upon death. 5. The Family Income Rider may be added to any permanent policy. |
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Specialized Policies:
Family Maintenance |
1. A combination of Whole Life and Level Term insurance.
2. Family Maintenance insurance provides monthly payments for a selected period of years beginning from the date of death of the insured, if death occurs during the stated term. The amount of term insurance is calculated using a multiple of thousands in the face amount. $20 monthly income/ thousand would be $20 X 100 = $2,000 for a $100,000 policy. 3. The Whole Life death benefit is paid at the time of death. It is not paid at the end of the monthly payments as in a Family Income policy. 4. If the insured lives beyond the term, only the face amount of the Whole Life is paid upon death. 5. The Family Maintenance policy is more expensive than a Family Income policy of a like amount. |
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Specialized Policies:
Family Policy (Family Protection Plan) |
1. The Family Policy provides life insurance in a single contract for all members of the family.
2. A Whole Life policy is written on the head (wage earner) of the family. It may have riders attached (waiver of premium, accidental death, etc.). 3. Level Term coverage is written on the spouse and the child or children, known as the Family Rider in some states. 4. The Spousal coverage is generally Term to age 65, at which time it expires. This coverage is guaranteed convertible while in force. 5. The Child Rider provides coverage for all children who are 14 to 15 days old and a dependent member of the insured’s family. The maximum age of coverage is age 25. Those children born to the primary insured after the policy is issued are covered automatically after 14 or 15 days of age at no additional premium. Adopted and step-children are also covered. Upon reaching the maximum age, the coverage is convertible without evidence of insurability. 6. The premium paying period of the base plan is usually longer than the Term Rider(s). 7. If the primary insured dies while the Family Rider is in force, the rider is paid up until each family member’s term of coverage expires. |
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Specialized Policies:
Juvenile |
1. Juvenile insurance is any policy written on the life of a minor.
2. A popular type is commonly called “Jumping Juvenile” because it automatically increases the face amount at a given age (usually age 21 to 25). 3. The premium remains level for the life of the policy, and the usual increase in the face amount is five times the issue amount. |
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Specialized Policies:
Modified Whole Life |
1. Premiums are lower than a typical Whole Life policy in the early years.
2. In the later years, the premiums are slightly higher than a typical Whole Life policy. 3. The purpose of Modified Whole Life is to make the purchase of permanent insurance more attractive for individuals who have limited finances presently, but have the potential for an improved position in the future, such as a new college graduate. |
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Specialized Policies:
Graded Premium |
1. Is similar to Modified Whole Life, except the premium increases each year during the early years of
the policy and then remains level. 2. In the later years of the policy, the premium would be greater than a Whole Life policy. |
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Specialized Policies:
Joint Life (First to Die) |
1. A policy that is written to cover two or more lives.
2. The death benefit is paid upon the death of the first to die. 3. Premiums are based upon a joint issue age; which is obtained by an average of both insureds’ ages resulting in a lower premium than two separate policies. If you combine premiums of two Straight Life policies, the combined premium is always more than one Joint Life, or Joint Survivorship Life policy. 4. This policy provides income protection for spouses when both have earned income. It is also used to fund Buy-Sell Agreements. 5. Written on a Whole Life basis (matures at joint age 100). |
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Specialized Policies:
Joint Survivorship Life |
1. A policy is written to cover two or more lives.
2. The death benefit is not paid until the last insured dies. 3. Premiums are based upon a joint issue age determined from a special table. 4. Couples who plan to defer estate taxes until the second spouse dies purchase this policy. 5. Rates are lower than two separate policies and coverage is in larger amounts. 6. Written on a Whole Life basis (matures at joint age 100). |
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Comparing Policy Values:
What are the two types of Policy Comparison Methods? |
1. Surrender Cost Index
2. Comparative Interest Rate (CIR) |
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Comparing Policy Values:
Surrender Cost Index |
The Surrender Cost Index is the most recognized method of comparing policies of the same type.
This method cannot be used to compare any policy that doesn’t have a fixed interest rate and a systematic accumulation of cash value. |
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Comparing Policy Values:
Comparative Interest Rate (CIR) |
The CIR system determines the amount of interest rate necessary to compare a cash value policy with a term plan and investing the premium difference. The calculation is to determine the interest
rate necessary to equal the cash value at a specific time for both policies. The future value of money cannot be a factor in any type of policy comparison. None of the following policies have a guaranteed cash value: Universal Life, Variable Life, or Variable Universal Life. |
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Policies with/without a Guaranteed Cash Accumulation:
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Term policies do not have a characteristic of cash value accumulation.
You would find a guaranteed cash value accumulation in all of the following policies: a. Whole Life (all types) b. Endowment policies c. Family and some Juvenile policies d. Graded Premium e. Joint Life (both types) |
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Disability Riders:
Waiver of Premium |
if the insured becomes totally disabled, the company waives premiums for the
duration of the disability. There is usually a maximum six-month elimination period before premiums are waived. Waiver of Premium becomes inoperative at an age stipulated in the contract. Cash value and dividends continue as under normal premium payments. |
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Disability Riders:
Waiver of Payors Premium (Payor Benefit) |
premium is waived if the premium payor becomes
disabled or dies. It is commonly used on juvenile policies or policies in which the owner and the insured are two different people, such as under a Cross Purchase Buy-Sell Agreement. When added to a juvenile policy, the waiver normally cancels at insureds age 21 to 25. |
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Disability Riders:
Waiver of Premium/Disability Income |
in the event of disability, premiums are waived and the
insured is paid a monthly income, such as $10 per month for each $1,000 of face amount. |
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Riders Covering Additional Insured:
Spouse Rider |
is a level or decreasing term rider added to cover primary insured’s present spouse
as named in the application; sometimes referred to as The Other Insured Rider. |
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Riders Covering Additional Insured:
Child Rider |
is a term rider that covers one child or several children. The children are covered from age 14 or 15 days, and may remain covered up to age 21, with some insurers offering the
coverage to the child’s 25th birthday. Those born after the rider is issued are covered automatically after 14 or 15 days at no additional premium and those adopted are covered immediately. Upon reaching the maximum age, the coverage is convertible without evidence of insurability. If the primary insured should die while the rider is in force the rider becomes a term policy and will be in force until the age stated in the policy. |
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Riders Covering Additional Insured:
Family Rider |
this is the combination of writing both the Spouse and Child Rider on one policy. This may be written as a policy or a rider; in the market today, it is normally written in the form of a rider.
Some insurers who write this coverage in policy form use the unit method. For each $1,000 or $5,000 of coverage on the primary insured, the spouse and children are covered for a stated amount that is always less than the primary insured’s coverage. |
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Riders Affecting the Death Benefit Amount:
Accidental Death (Double Indemnity) |
in the event of a claim, the policy normally pays double
the face amount if death was a result of an accident (may be called multiple indemnity rider, paying multiple times face amount). Normally, this is of lower cost per $1,000 than the base policy and is payable only if death occurs before a specific age and within 90 days of the accident. It does not add any additional values to the base policy. |
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Riders Affecting the Death Benefit Amount:
Guaranteed Insurability |
allows the insured to purchase additional amounts of insurance at certain
ages, events, or specified dates without evidence of insurability. The premiums are based on attained age. |
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Riders Affecting the Death Benefit Amount:
Return of Premium |
is Increasing Term insurance equal to the amount of premiums paid. If the insured dies within the term, the beneficiary would receive the face amount plus an amount equal to the premiums paid. It adds flexibility when added to a whole life policy.
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Riders Affecting the Death Benefit Amount:
Return of Cash Value |
is Increasing Term insurance equal to the cash value. This rider provides the payment of term insurance equal to the cash value amount at time of death. This does not relieve
the obligation to pay loans from the claim proceeds at time of death. |
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Riders Affecting the Death Benefit Amount:
Cost of Living (COL) |
is Increasing Term insurance that increases as the Consumer Price Index
increases. Adjustments are normally made each anniversary. Premiums are adjusted to pay for adjusted coverage. |
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Riders Affecting the Death Benefit Amount:
Living Need (Accelerated Benefit) |
allows the early payment of a portion of the face amount
before death, should the insured become terminally ill. (Monthly report must include the benefit amount remaining.) Upon death, the early payment will be deducted from the benefit paid to the beneficiary. It could also include nursing home benefits and dread disease benefits, but does not include a disability income benefit. The rider is normally provided without a premium charge because it is an advance of the death benefit. |
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Riders Affecting the Death Benefit Amount:
Viatical Trust Settlement Agreements |
an agreement between a business firm (specializing in
such transactions) and a life insurance policyowner insuring the life of an individual with a life threatening or terminal illness, normally with a life expectancy of two years or less. The firm purchases the policy at 60 to 80% of the face amount, expecting to profit as the new policyowner. The insured is provided with tax exempt discounted value during the terminal illness, relinquishing all ownership rights to the buyer (e.g. an insured has a $100,000 policy and the Viatical Agreement is $60,000, the new owner upon the insured’s death could profit up to $40,000 less a very minimum business expense). The discounted proceeds are received by the insured at the time of the agreement. The policy must be in force when the agreement takes place. This is the latest use of life insurance. |
