Insurance License Section 8

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term life insurance

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• provides temporary insurance for a specified period of time (term could be 1 year, 10, 30 or to a specified age)
• pays a death benefit (matures) only if the insured dies during the term of coverage
• does not accumulate cash value
• provides pure protection and is the least expensive form of life insurance
  

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face amount

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• face amount (face value) is the amount of money listed on the face page (first page) of the policy
• amount that will be paid in the event of the insured's death
  

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characteristics of term policies

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• face amount changes throughout the life of the policy
• may be characterized according to their renewability and convertability provisions
  

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renewable term policy

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• issued for a specified term and may be renewed at the end of that term without evidence of insurability
• may be limited in the number of renewals or to a specified age beyond which renewals will not be available
• renewal policy premium will be based on the insured's attained age at the time of renewal
• annual renewable term (ART) insurance is popular
  

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nonrenewable policy

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issued for a specific term and may not be renewed (insured can apply for a new policy at the end of the term, but might not get it)

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convertible term policy

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• allows a policyowner to convert or exchange the temporary protection for some form of permanent protection without evidence of insurability
• conversion must be made prior to expiration of the term (premium will be based on age)

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reentry term policy

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• gives the insured the opportunity to provide evidence of insurability at the end of the term and qualify for reduced premium rates
  

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level term policies

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• issued for a fixed face amount, which remains the same during the term of coverage
• can be issued for an annual period, for a specified # of years, or until a specified age
• premium may increase annually or be level for the term of coverage
• age goes up, premium goes up, face amount stays the same
  

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decreasing term policies

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issued for an initial face amount the declines during the term period and reaches zero at policy expiration (ideal for many types of insurance needs that decrease over time like a mortgage)

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increasing term policies

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• begin with little or no insurance protection, and the face amount grows over time

• not very common
• sometimes sold as a rider to another policy in order to provide an additional death benefit equal to total premiums paid or some other value
  

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interim term

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used to cover the period before permanent protection is to begin (some companies do term protection that automatically converts within 11 mos to permanent)

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bad things about term insurance

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• starts cheap, but can get expensive
• no living benefits
• generally not renewable after a certain age
  

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whole life insurance

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• designed to provide coverage for the whole of life (usually up to age 100, some go to 120)
• a.k.a permanent insurance
• combo of savings element (advancing cash value) and a decreasing amt of net insurance
• when whole life policy reaches its maturity date (age 100), cash value = face amount
• more expensive than term policies
  

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characteristics of whole life insurance

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• level premiums
• level face amount
• guaranteed cash value
  
• forfeiture value (policyowner can withdraw some or all of the cash value, reduces face amount and cash value amount)
  

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guaranteed cash value

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• whole life policies include a savings element that is guaranteed to accumulate and earn a specified rate of interest
• usually starts to accumulate in year 3
• insured may cash in a policy at any time by surrendering it in exchange for its cash value
• insured may borrow some of the cash value as a policy loan (becomes indebted to the policy, if they die before they pay it back it's subtracted from the face amt)
  

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continuous premium whole life

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• most common
• stretches the premium payments over the whole life of the insured (to age 100)
• "straight life insurance"

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limited-payment whole life

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• allows the policyowner to pay for the entire policy in a shorter period of time or to a specific age
• common forms are 20 payment, 30 pmt, and life paid-up at age 65
• although it's fully paid up at the end of this period, it doesn't mature until age 100 or death
• premiums are higher because they're paid over a shorter amount of time
  

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single premium whole life

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• lump sum amount is paid which, together with interest it will earn, will be sufficient to cover all future premium payments
• costs less than paying over several years, but it's all up front

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current assumption whole life

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• a.k.a "interest-sensitive whole life"
• offers flexible premium pmts that are tied into current interest rate fluctuations
• insurance co can increase/decrease premiums within a certain range depending on interest rate changes
• adjustments usually made on an annual basis
• guaranteed rate of return or current rate, whichever is higher
  

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economatic

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• An economatic policy is a whole life type policy with a term rider that uses dividends to purchase additional paid-up insurance
• as policy dividends are declared, they are used to purchase additional paid-up insurance
• as the paid-up insurance is added, an equal amount of term insurance is removed from the policy, thus maintaining the full face amount at no additional cost
  

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adjustable life insurance

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• policyowner can adjust the policy's face amount, premium, type of protection, and/or length of protection
  

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universal life

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• might pay higher interest rates during inflationary times
• greater flexibility because they allow policyowners to adjust the death benefits and/or premium payments
  

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characteristics of universal life

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• has death protection and cash value, death protection resembles one-year renewable term insurance and cash acct grows according to current interest rates
• premium pmts are paid toward the insurance protection, loading cost and remaining balance is used to build the cash value (w/ interest)
• policyowner may increase/decrease the death benefit
• premium amts may be changed
  
• interest earned by the cash acct will vary, subject to a guaranteed minimum
  

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current annual rate

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varies with current market conditions and may change every year

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contract rate

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minimum guaranteed interest rate

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2 options for death benefit payable

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1. A: level death benefit equal to the policy's face amount (as cash value increases, net death protection decreases, making structure similar to a whole life contract)
2. B: increasing death benefit equal to the policy's face amount plus the cash account (more like a combo of level term insurance and increasing cash value)
   

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cash withdrawal

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• partial surrender
• not treated like a loan
• not subject to any interest
• reduces total cash value in the account (rather than face amount)
• if repaid later, treated as a premium payment
  

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characteristics of variable life insurance

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• guaranteed minimum death benefit
• cash values are not guaranteed
• regulated as securities
  

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general account

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• maintained for fully guaranteed contracts
• "general asset"
• has safe and conservative investments
  

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separate account

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• "separate asset"
• for variable products
• portfolio of common stocks and other securities-based investments
• risky, no guarantees of future value
  

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12% Rule

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• must be followed by agents during sales solicitations for variable life insurance
• illustrations must not be based on projected interest rates greater than 12%
  

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variable universal life

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• blends a combination of the variable and universal life insurance concepts
• backed by equity investments (like variable life)
  
• allows policyowner to adjust the amount of the death benefit and/or premium (life universal life insurance)
  

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equity indexed life insurance

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• face amount linked to an equity index
• additional premium charged for the increased amt of protection
  

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go do Section 8.5 page 12

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industrial life insurance

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• small face amount, usually $2000 or less
• premiums payable weekly or monthly
• premiums collected at home or workplace
• sales are made in premium units rather than insurance units
• all family members covered from birth to age 65 or 70
• medical exam not required
  

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industrial life insurance provisions

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• 31 day grace period (28 for weekly premiums)
• application not required to be part of policy
• cash values do not accumulate sufficiently to provide loans
• suicide provisions not included
• divs used to reduce premium pmt or to purchase paid-up additions
  

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home service life insurance

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• policies are usually modest in size, typically from $10k to $15k in face value
• typically sold on a monthly debit plan (automatic bank draft) or pmts by mail, so no agent is needed to collect the premiums
  

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credit life insurance

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• designed to insure the lives of debtors for the benefit of a creditor (who is the policyowner)
• if the insured debtor dies, it pays the outstanding balance of the loan
• may be written for individual or group
• usually written as decreasing term insurance in connection with a purchase being financed
• may not be written for an amt greater than the total debt
• collateral (temporary) assignment
• insureds are given a certificate of coverage
  

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credit life insurance provisions

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• number of insureds under the policy must be maintained at a specified level (usually 100)
• policy does not have a conversion privilege
  

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endowment policies

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• policies that provide for the payment (to the bene) of the face amount upon the death of an insured during a specified period or the payment of the face amount at the end of the specified period if the insured is still alive, whichever comes first
• designed to combine life insurance and savings elements
• may be issued for specified periods or up to a specified age
• once the period has passed and the insured is still living, the face amount would be paid to that insured in a lump sum or in installments
• premium payments are higher than for traditional whole life contracts
  

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retirement endowment

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• issued to mature at age 65 when the insured planned to retire
• like whole life insurance, the face value was payable as a death benefit if the insured died before the maturity date
• however, at maturity, the full face amount became payable, usually in the form of monthly installment income
  

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pure endowment

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• provided for the payment of the policy's face amount only if the insured lived to the maturity date
• if the insured died before the endowment date, all benefits were forfeited
• essentially a high-risk savings plan (all savings lost upon death), rarely sold
  

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endowment life insurance

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• combo of a pure endowment plus term insurance for a specified period
• the pure endowment provided a living benefit at the end of the endowment period
• the term insurance paid a death benefit if the insured died before the end of the endowment period
  

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juvenile endowment policies

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• designed to mature at a specific age, such as age 18, to help fund a college education
  

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family income policy

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• combines whole life insurance with decreasing term coverage
• provides an income to be paid upon the death of the breadwinner
• income payments begin when the insured dies and continue for a period specified from the date of policy issue (not from date of insured's death)
  

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family maintenance policy

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• combines ordinary life insurance and level term insurance
• affords the payment of a monthly income during a stated period or to age 65
• monthly income payable from the date of death to the end of the period
• payment of face amount of policy is payable at the end of such preselected period
  

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family protection policy

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• "the family policy"
• whole life on the breadwinner and convertible term on the spouse and children (additional children auto added at no cost)
• term insurance on each child expires at 18, 21, or 25 (can be converted to permanent insurance)
  

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retirement income policy

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• accumulates a sum of money for retirement while providing a death benefit
• upon retirement, the policy pays an income such as $10 per $1000 of life insurance for the insured's lifetime or a specified period
  

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joint life policies

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• whole life contract written with two or more persons as names insureds
• most commonly issued on two lives with the insured amount payable on the death of the first insured
• a variation is the "survivorship life policy" which pays the insured amount, not upon the death of the first insured to die but upon the death of the last survivor
• can also be sold as term life
  

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juvenile life insurance

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• any form of coverage written on the lives of minors
• one type is called "jumping juvenile" because it automatically increases in face amount at a given age, usually 21, but the premium remains level
  

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minimum deposit/ financed insurance

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• technically a method of paying for insurance and not a type of policy
• high cash and loan value whole life policy
• the cash value of a permanent policy is loaned out and used to pay the premiums
  

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modified whole life policies

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• distinguished by premiums that are lower than typical whole life premiums during the first few years (usually 3-5) and then higher than typical thereafter (just one increase)
  

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graded premium whole life policies

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• gradual increase in premiums
• premium increases each year during the early years of the contract (usually 5) and remains the same after that time
  

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mortgage redemption policy

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• or a mortgage redemption rider
• simply decreasing term insurance
• benefit amount is intended to be sufficient to pay off the unpaid remainder of a mortgage loan if the insured dies before paying it off
  

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multiple protection policies

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• combination of whole life and term in which the amount of protection is higher in the early years and less in the later years
• ex: $10k benefit up to age 65, then $5k
  

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index-linked policies

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• face amounts increase by the amount of inflation
• hedge against inflation
• generally linked to the Consumer Price Index

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deposit term insurance

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• level term insurance policy that has a much higher premium for the first year than for subsequent years
• initial premium is significantly higher than the average premium needed to cover the cost of mortality during the term period
• the excess front-end premium (deposit) is then set aside to earn interest, and these dollars will be applied to reduce the premium payments required in the following years
  

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preneed funeral/burial insurance

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• type of life insurance used to pay for an insured's funeral (usually at a particular funeral home)
• pays face amt upon death
• really a contract to provide a preplanned funeral and cemetery services funded by a life insurance contract or annuity
• funeral home is bene
  

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viatical settlement

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• peeps with a terminal illness or severe chronic illness sell their life insurance to viatical companies
• viatical settlement provider will contact the physician and determine life expectancy
  

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life settlements

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• similar to viatical, but policyowner is not necessarily terminally or chronically ill
• many states are reclassifying viatical settlements as a type of life settlement
• transfer of ownership interest in a life insurance policy to a third party for compensation less than the expected death benefit
• may limit the ability to purchase future life insurance