Life Insurance Policies Part 1

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.

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

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 have 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.

Also called a level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewal 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.

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 which 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 according to match. After the mortgage is paid off, the insurance policy will expire.

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 of loan outstanding. For example, if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would used 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.

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

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. For example, if you take out a term insurance policy when you are young to take advantage of your good health and the policy’s lower premium, but want the option convert the policy to a permanent one for final expense benefits once your finances improve, you would want a convertible term life policy. The conversion privilege of a group term life policy allows an individual to leave the group term (temporary) plan and convert his or her insurance to an individual (permanent) policy without providing evidence of insurability. The most important factor to consider when determining whether to convert term insurance at the insured’s attained age or the insured’s original age is the premium cost.

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. If you renew it at the premium price will go up, and you will have the policy for another 10 years. This cycle continues until you are too old to renew or it’s too expensive. ALL TERM insurance has a final TERMINATION date where you can no longer renew it.

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

Type of life insurance product which covers children under their parent’s policy. Family plan policies usually cover the family head with permanent insurance, and the coverage on the spouse and children is term insurance in the form of a rider. A term rider is always level term. This is cheaper than every family member getting their own policy. For example, the main policy may be on Dad, then mom and the children are riding on (attached to) dad’s policy as term riders. Term riders allow for additional family members to be covered under one policy by attaching everyone to a main policy. Term riders can also allow an applicant to have excess coverage by adding an additional term rider for them to the main policy.

Provides death benefits for the entire life of the insured It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium. All whole life has the same type of benefits. The only difference in “types” of whole life is how the policy is paid. Some will be paid straight until death or age 100, some will be paid for after a few year or by a specific age, some may give you a little discount in the early years to help you get started, etc. All whole life lasts until death or age 100, has a fixed premium, and level benefit with cash value accumulation, regardless of how it is paid. Whole life is often compared to BUYING; like BUYING house.

premiums are payable throughout the insured’s lifetime, and coverage continues until the insured’s death. Said differently, premiums are payable as long as coverage is in force. Like all other whole life policies, straight whole life provides fixed premiums, a level death benefit, and cash value. Whole life also requires the face amount to be paid out to the insured at age 100 (when the policy matures), provided a death benefit has not already been paid. If G wants a policy with a fixed level premium and a benefit that pays out at death or age 100, G would want a whole life policy. Straight whole life allows you to maintain coverage throughout your entire lifetime and spread the cost out over your entire life.

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. For example, if you were to purchase a 20-pay policy, premiums would need to be paid for 20 consecutive years. After that, you would not be required to make any additional premium payments, and your coverage would be guaranteed until death or age 100. A 40-year old applicant who would like to retire at age 70 and wants a policy with level premiums, permanent protection, and premiums paid up at retirement would also choose a paid-up at age -70 limited pay policy. A limited pay life insurance policy covers an insured’s whole life with level premiums paid over a limited time.

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 as all the same features of any other whole life except the insurance company cuts you a break on premium for the first few years.

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 -pay test and is considered over-funded, according to the IRS. For that reason, the policy will lose favorable tax treatment. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of the seven-year period.

Covers the lives of 2 individuals and save on premium costs by averaging the ages of the two insureds. Joint Life policies pay the face amount after the first person covered on the policy dies. This is similar to a Joint Checking account. The policy is shared between two people, and when one person dies, the other receives the entire account.

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. For example, G purchased a family income policy at age 40, with a 20-year rider period. If G were to die at age 50, G’s family would receive an income for 10 years.

Incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually goes towards the cash value.

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 is assuming all of the investment risk and the rate of return is not guaranteed.

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. If a policy owner was looking for a policy that allowed them to control how much and when premium was due, what investment accounts were used for funding, and where the returns from those investment accounts went, they would be looking for a VUL policy.

(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. These policies are characterized by guaranteed minimum interest rate, tax deferral of interest accumulations, and policy loan access.

when the insured dies, the policyowner (investor) benefits. In normal circumstances, it is the beneficiary with insurable interest who benefits from the death of an insured. An investor originated life insurance policy is when the investor purchases a policy on the life of someone else to profit upon that person's death. This type of policy is illegal

The equity amount of "savings" accumulation in a whole life policy

The 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.

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.

Written on the lives of children who are within a 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.

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.

Ordinary Insurance, Industrial Insurance, and Group Insurance.

Level Term, Decreasing Term, and Increasing Term

There are certain features of whole life insurance that distinguish it from term insurance: cash values and maturity at age 100. These two features combine to produce living benefits to the policyowner.

-The face amount of the policy
-The duration and amount of the premium payments
-How long the policy has been in force.
Generally speaking, the larger the face amount of the policy, the larger the cash values. the shorter the payment period, the quicker the cash values grow. The longer the policy has been in force, the greater the build-up in cash values. The reason for this can be clarified with an understanding of the maturity of a whole life policy.

• An immediate nonforfeiture value is created

• An immediate cash value is created

• A large part of the premium is used to set up the policy's reserve

• The advantage offered by a single premium policy is that the policyowner will pay less for the policy than if the premiums were stretched over several years

The length of the premium-paying period also affects the growth of the policy's cash values. The shorter the premium paying period (and consequently, the higher the premium), the quicker the cash value grows. This is because a greater percentage of each payment is credited to the policy's cash values. by the same token, the longer the premium paying period, the slower the cash values grow.

A limitation on the total amount you can pay into your policy in the first seven years of existence. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period. If there is a material change in the contract, the seven pay test applies again.

Introduced in the 1970s, variable insurance products added a new dimension to life insurance: The opportunity for policyowners to achieve higher-than-usual investment returns on their policy cash values by accepting the risk of the policy's performance. This concept is best explained by a comparison to traditional whole life plans. with a variable life policy, premium payments are fixed. Variable insurance products do not guarantee contract cash values, and it is the policyowner who assumes the investment risk. By placing their policy values into separate accounts, policyowners can participate directly in the account's investment performance, which will earn a variable (as opposed to a fixed) return. Because of the transfer of investment risk from the insurer to the policyowner, variable insurance products are considered securities contracts as well as insurance contracts. Therefore, they fall under the regulatory arm of both state offices of insurance regulation and the securities and exchange commission (SEC). To sell variable insurance products, an individual must hold a life insurance license and a financial industry regulatory authority (FINRA) registered represenative's license (FINRA was formerly known as NASD).

This policy can provide financial benefits if an insured is killed, loses a limb, suffers blindness, or is paralyzed in a covered accident.

• Straight whole life

• Limited pay whole life

• Single-premium whole life

• Modified whole life

• Graded whole life

States the insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can't send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT.

the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage "We ensure to INSURE you for…"

State the policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

States a policyowner must pay a premium in exchange for the insurer's promise to pay benefits. A policyowner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. "please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me"

A period after the due date of a premium during which the policy remains in force without penalty. For life insurance the grad period is typically one month.

Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. To reinstate a policy, you need: a reinstatement application, statement of good health, all back premiums.

apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. the policyowner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.

allows the insurance company to deduct overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don't receive payment from you.

Provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured's lifetime, usually one or two years after the issue. After that period, the policy is considered incontestable.

Allows the right to transfer policy rights to another person or entity.

A policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

An assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Suicide Clause, Aviation, War or Military Service, Commitment of a felony/illegal occupation, alcohol/narcotics, hazardous occupation or hobby

The policy will be voided and no benefit will be paid if the insured commits suicide within 2 years from the policy issuance. The primary purpose of the suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.

The insurer will not pay the claim if the insured dies or is injured due to involvement with aviation, such as a military pilot flying a jet aircraft.

The insurer will not pay the claim if the insured dies or is injured while in active military service or due to an act of war.

If the insured dies or is injured while committing a crime of participating in an illegal occupation, the insurer will not pay the claim.

If the insured dies or is injured as a result of alcohol or narcotics the insurer will not pay the claim.