Nc Life Insurance 2

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All Life Insurance contracts have the following characteristics:

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- The death benefit paid in a lump sum in NOT income taxable

- Qualifying for life insurance is primarily based on HEALTH of the proposed insured

- Any cash accumulation in a life insurance policy are tax-deferred

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Term Life Insurance

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- Often refered to as "pure" - The most "basic" life insurance product - truly a death insurance
- Provides a death benefit for a specified period of time or until the insured reaches a certain age indicated in the policy
- DOES NOT build Cash Value
- Usually has the lowest premiums when issued, BUT may cost more as the insured ages due to increased mortality risk (chance of death due to increasing age)

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Features of Term Life Insurance

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- The right to renew the policy for another period of time or term

- The right to convert to another form of life insurance

- 3 Basic Types of Term Life: Level, Decreasing, & Increasing

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Level Term Life

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- Used to provide significant sums of death benefit at very low premiums. This policy is very attractive to young individuals because of the cost.

- Provides a level death benefit amount that will not increase or decrease over the policy term

- Provides level premiums by averaging the cost of mortality over the duration of the term.

- Level Term Types: Five (5) year, Ten (10) year, Twenty (20) year, Thirty (30) year, Level Term to Age Sixty-five (65), Annual Renewable Term (ART)*

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Decreasing Term Life

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- The individual that purchases this type of policy likely has an obligation that is reducing over a time period such as a mortgage. Consequently, the need for the death benefit is reducing accordingly.

- Provides a DECREASING death benefit as the term progresses

- Provides Life level premiums for the duration of the term

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Increasing Term Life

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- Used as a hedge against inflation. The death benefit INCREASES to help meet obligation such as raising a family

- Provides level premiums for the duration of the term

- Policies are generally sold as riders on existing life insurance policies rather than as separate policies; however, it is possible to purchase an individual stand-alone policy

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Right To Renew

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Provision allows the policyowner to renew the life insurance contract for another stated period of time.

- Does so without regards to any changes in the insured’s health

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Renewable Term

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Life insurance policy allows an initial term period such as 10 or 20 years followed by periods that are based on a specific age or a certain number of renewal periods.

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Convertibility

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The policyowner’s “right” to EXCHANGE his or her term life policy for another life policy from the same insurer.

- The policy owner must request conversion in writing from the insurance company

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Attained Age Method (Way to Convert)

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Allows the term insurance policy to be converted to a new life insurance policy (typically whole life) at the insured’s current (attained) age.

- The premium for the new policy will be based on the type of policy chosen.

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Original Age Method (Way to Convert)

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Gives the policyowner the right to have the new life insurance policy premiums be based on the age of the insured when the term life insurance policy was originally issued.

- A lower mortality rate would be applied and therefore the new policy’s premium would be less than the Attained Age method of conversion.

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So why choose Attained Method over Original Method?

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The Original Method would require that all the premium difference in the old term policy would have to be paid when the new policy is issued.

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Whole Life Insurance

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- Provides a death benefit for the insured’s life typically up to age 100 (whole life)

- Contains a mechanism to accumulate money (cash value) in the policy while primarily providing a level death benefit

- Normally has a higher premium than a term life policy with an equal death benefit.

- If the insured does not die prematurely, the cash account matures (endows) at an age indicated in the policy (such as age 100)

- At maturity, the insurer pays the policyowner a cash amount equal to the death benefit listed on the Declarations Page. Once the payment is made, the contract ends.

- 3 Types of Whole Life: Ordinary, Limited-Pay, & Single Premium

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Ordinary Whole Life

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- Known as “Traditional”, “Straight” or "Continuous Premium” Whole Life

- Generally has a lower premium than other whole life contracts such as limited-pay whole life. This allows the policyowner to purchase more death benefit for less premium.

- Requires premium payments for a longer period of time. Could be the most expensive of the whole life contracts over the length of the policy period.

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Limited-Pay Whole Life

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- Provides a death benefit with a reduced length of time that premiums need to be paid.

- “Compact” the required premiums into fewer years than a traditional whole life policy

- Have a cash value that grows faster in the early years of the policy than the cash value found in the Ordinary Whole Life policies

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Single Premium Whole Life

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- One (single) large premium that is paid when the policy is applied for.

- Accumulates cash value at an accelerated rate in the early years of the policy; however, the death benefit remains level throughout the contract.

- Can be considered the most economical method of purchasing whole life coverage since only one large initial premium is required

- Could be reclassified as a Modified Endowment Contract (MEC) and lose significant tax-advantages granted to life insurance policies

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Interest Sensitive Whole Life

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- Also known as “Current Assumption” whole life insurance, is a version of the traditional whole life policy.

- Designed to provide for an increasing cash value and an increasing death benefit through the application of excess interest that is not present in the traditional whole life policy.

- This policy features:
- A guaranteed death benefit that doesn’t decrease
- A minimum guaranteed cash value
- Some additional cash growth through the use of higher interest rates.

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Endowment

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- Could be viewed as tax-deferred savings accounts backed up by a life insurance death benefit. (Term Life insurance with savings program...used a lot of times for saving for college)

- Policy owner chooses how much you want to save each month and when you want the policy to mature.

- Based on monthly contributions, your guaranteed a payout --> called endowment (when policy matures)

- Designed to provide a living benefit to the owner of the policy who is typically the insured.

- They are insurance policies designed principally for accumulating a sum of money for future delivery to the living policyowner once the policy has matured (endowed) at some specified age or after a specified number of years.

- The policy will pay the face amount (death benefit) to the policyowner if the insured survives the endowment period.

- Does NOT require medical exam

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Pure Endowment

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This is an Endowment policy that will only pay the full face amount if the insured lives to the maturity date of the policy. This contract does not contain a mortality based death benefit.

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Universal Life (UL) “Adjustable Life”

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- Adjustable, flexible, and provides cash value growth at competitive interest rates (the policy is often referred to as interest-sensitive).

- Includes the ability of the policyowner to change the death benefit amount within the contract and to change the premium deposits during the contract to meet current needs

- When an individual purchases a Universal Life insurance policy, he or she may choose:
- The amount of death benefit
- The premium paying period
- The amount of cash value accumulation desired

- Cash account cannot exceed the death benefit.

- Features 2 Death Benefit Options - A & B

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Option A

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- This option, the death benefit remains level throughout the contract.

- This policies death benefit is always a combination of a decreasing amount at risk and an increasing cash account.

- The amount at risk to the insurance company is the difference between the death benefit on the policy and the amount the insurance company has collected in premiums and earned in interest from its investments.

- Offers greater CASH accumulation

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Option B

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- This option features a level death benefit and an increasing cash account

- The policy proceeds are equal to the death benefit plus the policy’s cash value.

- Generally require greater premium deposits than in Option A to offset the increasing mortality charges.

- Offers greater DEATH benefits

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Single Premium

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- Require only one payment.

- Could be the least expensive way to pay for the life insurance contract if viewed from the perspective of the policy remaining in benefit for a long period of years.

** Single Premium Whole Life is an example of this.

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Level Premium

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- Require the same premium throughout the contract.

- The insured is typically overpaying in the early years to compensate for the increasing death risk in later years.

** Generally associated with some term insurance contracts, some whole life contracts, and endowment contracts.

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Adjustable Premium

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- Allows the insurance company or policyowner to adjust premiums to more or less than the initial scheduled premium amount

- Increases or decreases are cause by higher or lower mortality costs and expenses not initially anticipated by the insurance company.

** Universal Life Insurance features this type of premium arrangement.

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Modified Premium

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- Allows the policyowner to pay a lower premium, typically the same as a term life insurance rate, for the first 3-5 years.

- Premium then automatically increases at a specified date in the contract to a higher fixed premium for the duration of the contract.

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Graded Premium

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- Allows premiums to increase gradually over a stated period of time.

- Premiums gradually increase for the first 3-5 years and then are level for the remainder of the contract.

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Indeterminate (Non-Guaranteed)

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- Premiums are guaranteed in the early years of the policy (typically the first 2-3 years) and are generally less than what would be charged for a traditional life policy.