interest sensitive whole life (also referred to as current assumption whole life)
Term insurance
·
temporary protecion
because it only provides coverage for a specific period of time. It is also
known as pure life insurance. Term policies provide for the greatest amount of
coverage for the lowest premium compared to any other form of protection.
Term insurance
·
temporary protecion
because it only provides coverage for a specific period of time. It is also
known as pure life insurance. Term policies provide for the greatest amount of
coverage for the lowest premium compared to any other form of protection.
Pure death protection
·
provided under pure
life insurance. If the insurer dids during the term, the policy pays the death
benefit to the beneficiary. If the policy is canceled or expires prior to the
insured's death, nothing is payable at the end of the term. There is no cash
value or other living benefits.
Renewable provision of term insurance
·
allows the policy
owner the right to renew the coverage at the expiration date without evidence
of insurability. The premium for the new term insurance will be based on the
insured's current age.
Convertible provision of term insurance
·
provides the
policyowner with the right to convertthe policy to a permanent insurance policy
without evidence of insurability. The premium will be based on the insured's
attained age at the time of conversion.
Face amount
·
death benefit that is
received when individual passes away
Level term insurance
·
the most common type
of temporary protection purchased. The word level refers to the death benefit
that does not change throughout the life of the policy.
Annually renewed term (ART) insurance
·
purest form of term
insurance. The death benefit remains level, and the policy may be guaranteed to
be renewable each year without proof of insurability, but the premium increases
annually according to the attained age, as the probability of death increases.
Decreasing term policies
·
level premium and a
death benefit that decreases each year over the duration of the policy term.
Decreasing term is primarily used when the amount of needed protection is time
sensitive, or decreases over time. Deceasing term coverage is commonly
purchased to insure the payment of a mortgage or other debts.
Increasing term policies
·
features level
premiums and a death benefit that increases each year over the duration of the
policy term. The amount of the increase in the death benefit is usually
expressed as a specific amount or a percentage of the original amount.
Return of premium life insurance
·
increasing term
insurance policy that pays an additonal death benefit to the beneficiary equal
to the amount of the premiums paid. The return of the premium is paid if the
death occurs within a specified period of time or if the insured outlives the
policy term.
Permanent life insurance
·
a general term used to
refer to various forms of life insurance policies that build cash value and
remain in effect for the entire life of the insured (or until age 100) as long
as the premium is paid. The most common type of permanent insurance is whole
life.
cash value (living benefits)
·
whole life policies
also build cash value, which the policyowner can borrow against, or to which he
or she is entitled, in the event the policy is surrendered.
nonforfeiture value (cash value)
·
does not usually
accumulate until the third policy year and it grows tax deferred. The policy
owner may also borrow against the cash value of a whole life policy.
whole life insurance
·
provides lifetime
protection, and includes a savings element (or cash value). They endow at the
age of 100, which means the cash value created by the accumulation of premium
is scheduled to equal the face amount of the policy at age 100.
Straight life health insurance
·
(also referred to as
continuous premium whole life) is the basic whole life policy. The policy owner
pays the premium from the time the policy is issued until the insured's death
or age 100 (whichever occurs first). Of all the whole life policies, straight
life will have the lowest annual premium.
limited pay life
·
designed so that the
premiums for coverage will be completely paid up well before age 100. Some of
the more common versions of limited pay life are 20 pay life whereby coverage
is completely paid for in twenty years, and life is paid up form by th
insured's age 65. This type of policy has a shorter premium paying period than
straight life insurance, so the annual premium will be higher.
. Single premium whole
life (SPWL)
·
designed to provide a
level death benefit to the insured's age 100 for a one time, lump-sum payment.
The policy is completely paid up after one premium and it generates cash
immediately. Most companied require a minimum premium for a single premium
policy.
Adjustable life insurance
·
developed in an effort
to provide the policyowner with the best of both worlds (term and premium
coverage). An ____________ policy can assume the form of either term insurance
or permanent insurance. The insured typically determines how much coverage is
needed and the affordable amount of the premium. The insurer will than
determine which is the appropriate type of insurance to meet the insured's
needs.
cash value of adjustable policy
·
only develops when the
premiums paid are more than the cost of the policy
Universal life insurance
·
known by the generic
name of flexible premium adjustable life. Implies that the policyowner has the
flexibility to increase the amount of premium going paid into the policy and to
later decrease it again. The policy owner may even skip a premium and the
policy will not lapse as long as there is sufficient cash value at the time to
cover the monthly deductions for the cost of insurance.
Minimum premium (for universal life insurance)
·
the amount needed to
keep the policy in force for the current year. Paying the minimum premium will
make the policy as an annually renewable term product.
target premium ( for universal life insurance)
·
a recommended amount
that should be paid on a policy in order to cover the cost of insurance
protection and to keep the policy in force throughout its lifetime.
components of a universal life policy
·
an insurance component
and a cash account. The insurance component of a universal life policy is
always annually renewable term insurance.
partial withdrawal (partial surrender) for
universal life policies
·
allows partial
withdrawal of the policy cash value. During the withdrawal, the interest earned
on the withdrawn cash value may be subject to taxation, depending on the plan.
option A (level death benefit option)
·
the death benefit
remains level while the cash value gradually increases, thereby lowering the
pure insurance with the insurer in the later years. Notice that pure insurance
is actually increasing as time passes, lowering the expenses, and allowing for
greater cash value in the older years.
option b (increasing death benefit option)
·
the death benefit
includes the annual increase in cash value so that the death benefit gradually
increases each year by the amount that the cash value increases. At any point
in time, the total death benefit will always be equal to the face amount of the
policy plus the current amount of the cash value. Since the pure insurance with
the insurer remains level for life, the expenses of this option are much
greater than those fofr option A, therby causing the cash value to be lower in
the older years (all else being equal).
variable whole life
·
a fixed premium policy
with the addition of an underlying investment account. Does not contain the
same guarantees of principal and interest that are found in traditional whole
life policies.
separate account (for variable whole life)
·
the premium, after certain
deductions for expense loads, may be allocated into a sub account held by the
insurance company
types of sub accounts (for variable whole
life)
·
bond accounts, growth
stock accounts, money market accounts, real estate accounts, and a balanced
fund account
variable whole life: differences from
traditional whole life
·
the death benefit and
cash value are not guaranteed under variable life. The cash value or death
benefit of the policy may increase or decrease under the life of the policy
depending on the investment performance of the underlying sub-account. The
death benefit cannot decrease below the initial face amount of the policy. The
premium is fixed and will not change over the life of the policy.
variable life insurance
·
designed primarily as a
hedge against inflation. Person must have a securities license in addition to a
life insurance license in order to sell variable life.
variable universal life
·
combination of
universal life and variable life. Like universal life, it provides the policyowner
with flexible premiums and an adjustable life benefit. Like variable life, the
policyowner rather than the insurer, decides where the net premiums(cash value)
will be invested
to sell variable life insurance
·
must be licensed for
both securities and life insurance
interest sensitive whole life (also referred
to as current assumption whole life)
·
fixed premium whole
life policy that provides a guaranteed death benefit to age 100. This type of
policy credits that cash value with the current (nonguaranteed) interest rate
that is usually comparable to money market rates.
joint life
·
single policy that is
designed to insure two or more lives. They can be in the form of term life
insurance or permanent insurance. The premium is based on a joint average age
that is between the ages of the insured. The death benefit is paid upon the
first death only. They are used when there is a need for two or more persons
survivorship life (second-to-die)
·
insures two or more
lives for a premium that is based on a joint age. Survivorship life pays on the
last death rather than upon the first death. Often used to offset the liability
of the estate tax upon death of the second spouse.
Annuity
·
contract that provides
income for a specified period of years, or for life. It protects a person from
outliving his or her money. Annuities protect against the possibility of
outliving ones' income by liquidating an estate. A contract bw a life insurance
company and a purchaser (contract owner) which guarantees a monthly income for
the life of the annuitant (person who receives benefits or payments from the
annuity)
annuitant
·
the person who
receives benefits or payments from the annuity
accumulation period (pay in period)
·
period of time over
which the annuitant makes payments into an annuity. Period of time during which
the payments earn interest on a tax deferred basis.
annuity period (annuitization period,
liquidation period, or payout period)
·
time during which the
sum that has been accumulated during the accumulation period is converted into
a stream of income payments to the annuitant.
immediate annuity (for annuity)
·
one that is purchased
with a single, lump sum payment and provides income payments that start within
one year from the date of purchase.
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