Chapter 4 Life Insurance Policies

issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

is life insurance of the commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

is insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.

gives you the greatest amount of coverage for a limited period of time. Term insurance is only good for a limited period of time because it has a TERMination date. Term insurance is an inexpensive type of insurance, making it an attractive option for large policies. Term life is the CHEAPEST type of pure life insurance, and due to having a termination date and not having any cash value, it will ALWAYS be cheaper than a whole life policy with the same face value. It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.

is also called level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal. Life insurance written to cover a need for a specified period of time at the lowest premium is called Level Term Insurance. Term insurance always expires at the end of the policy period. For example, if D needs life insurance that provides coverage for the remainder of her working years and wants to pay as little as possible, D would need Level term. Level term provides a fixed, low premium in exchange for coverage which lasts a specified time period.

is term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection. A decreasing term policy is a type of life policy which has a death benefit that adjusts periodically (according to a schedule) and is written for a specific period of time. Decreasing term policies are usually written for a mortgage or other debt that typically decreases over time until it is paid off. For example, a 15 year decreasing term policy could protect a 15-year mortgage. As the mortgage balance reduces each year, the face value of the insurance policy will adjust accordingly to match. After the mortgage is paid off, the insurance policy will expire.

are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Since Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid, credit policies can only be purchased for up to the amount of the debt or loan outstanding. For example, if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would use a 5-year decreasing term life insurance policy with an initial face value of $20,000. You will pay the same level premium every month for the 5-year term of the policy. The face value will start out at $20,000 and change according to a schedule (the decreasing balance of the auto loan). After 5 years, the car will be paid for and the insurance policy will no longer be needed.

is term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

is a provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability. Convertible Term provides temporary coverage that may be changed to permanent coverage without evidence of insurability.

is term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability. For example, if you have a 10-year renewable and convertible term; After the 10 years are up, the policy terminates or you can renew it.

is term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.

is a type of life insurance product which covers children under their parent's policy. A term rider is always level term. Term riders allow for additional family members to be covered under one policy by attaching everyone to a main policy.

provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values.

premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death. straight whole life provides fixed premiums, a level death benefit, and cash value.

the coverage remains on a limited-pay life policy until age 100 or death, whichever happens first. Even though the premium payments are limited to a certain period, the insurance protection extends until the insured's death, or to age 100.

is a policy where the premium stays fixed for the first 5 years, and then increases in year 6 and stays level for the remainder of the policy. Modified whole life has all of the same features of any other whole life except the insurance company cuts you a break on premium for the first few years

is best described as a policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract. A MEC does not meet the 7-pay test and is considered over-funded, according to the IRS.

covers the lives of 2 individuals and save on premium cost by averaging the ages of the two insureds. Joint Life policies pay the face amount after the first person covered on the policy dies. If B and M were insured under a joint life policy and B were to die, M would receive the entire benefit and would also no longer be insured.

cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the death benefit upon the death of the last insured person.

pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period.

pay an income beginning at the insured's death and continues for a period specified from the date of policy issue.

owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make adjustments to the premium and/or face amount of an Adjustable Life insurance policy.

incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policy owner can use the cash value to manipulate the flexible aspects of a universal life insurance policy.

require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities. These policies are also known as interest sensitive policies. The policies usually have a fixed level premium, but the cash value and death benefits of a Variable Life policy can fluctuate according to the performance of its underlying investment portfolio.

the policyowner controls the investment of cash values and selects the timing and amount of premium payments. Variable Universal Life policies give a policy owner the best of both Variable Life and Universal Life.

Equity Index Universal Life Insurance or Equity Indexed Life combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index

An investor originated life insurance policy is when an investor purchases a policy on the life of someone else to profit upon that person's death. The investor is typically the policy owner, payor, and names themselves beneficiary. Usually, this is in exchange for a monetary living benefit for the insured. (For example, L, the Investor, has taken out a $100,000 life insurance policy on E, the insured. L is the policy owner who will receive the $100,000 upon E's death. E is the insured, and in exchange for allowing the policy on his life, receives $500 a month to help with bills.)

is the equity amount or "savings" accumulation in a whole life policy.

is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period.

s a contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value.

is written on the lives of children who are within specified age limits and generally under parental control.

typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant's medical history and lifestyle.

is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.