Term Life Insurance
this is known as "pure protection" insurance and is less expensive than "permanent" life insurance. Used for death protection only.
Level Premium Term Life Insurance
premium is constant for a fixed time period of 1, 5, 10 or 20 years; the constant premium is an average premium over the fixed time period; assuming that it is renewable, the premium is increased due to the increased age of the insured; can also be convertible to "permanent insurance".
Decreasing Term Insurance
usually written for terms of 10 or 20 years; face amount of insurance declines each year down to zero at its expiration date; premium remains level each year; usually written as convertible to "permanent" insurance".
Credit Term Life Insurance
pays the remaining balance of a loan if the insured dies; can be very expensive but may be the only insurance available to an individual because of health problems.
Guaranteed Renewable Term Insurance
premiums go up at each renewal; policy may limit the number of renewals and may specify a maximum age for renewal; does not require a physical for each renewal; premium increases for age only.
offers the policyholder the option of converting a term policy for a permanent policy without evidence of insurability; usually available in the early years; two ways to do this: [fill in once have notes] .
Group Term Life Insurance
issued by the employer; premiums paid are reflected as OI; the first $50,000 is tax deductible.
Cash-Value Life Insurance
Is a combination of decreasing term insurance and an investment account; often called permanent insurance as policies do not need to be renewed as long as the premiums are paid
Limited-Pay Life Insurance
Provides life-time insurance coverage; Premiums are paid for a specified number of years; e.g, 20-pay Life Insurance or paid-at-65 Life Insurance
Single Premium Life Insurance
An extreme form of limited-pay life insurance; the entire premium is paid up-front
Vanishing Premium Life Insurance
another name for Limited-Pay Life Insurance; when premiums stop depends on the success of the investment element; "vanished" premiums are paid out of cash value
allows you to increase the face amount without a medical exam on specific dates or when the insured marries or has children
Waiver of Premium
pays the premium if you are totally or permanently disabled and under certain other conditions; can be expensive
Automatic Premium Loan Provision
a feature that authorizes the insurer to use a policy loan to make the premium payment
allow the policyholder to borrow from the cash-value built up in the policy; interest must be paid
Cash Surrender Value
the accumulated Cash-Value (including accrued but unpaid interest/dividends), minus any loans and accrued but unpaid interest, minus any surrender charges
Whole Life Insurance
sometimes called straight life insurance or ordinary life insurance; can provide lifetime insurance coverage; in this case, fixed premiums are paid for life; pays interest on the cash value portion with a guaranteed minimum interest rate during life of the contract
Adjustable Life Insurance
sometimes called Premier Whole Life; the basic premise is a money purchase concept; the amount of premiums paid determines the amount of protection and length of protection; llevel premium and level death benefit unless changed as indicated below; you can adjust various facets of the policy over time as the need for protection, length of protection, and the ability to pay premiums changes, but you must formally request this; purpose is to provide flexibility to customers
A type of whole life insurance; reduced premiums in the early years and then higher premiums in the later years; early years are covered by term life insurance
Endowment Life Insurance
this life insurance is designed to pay the face amount at death or some pre-set time, whichever comes first; the date of payment ("endowment date") is commonly specified for xxx number of years, such as 20 or 30 years; because of tax law changes, new _______life insurance policies are no longer available.
Interest Sensitive Life Insurance
is cash-value life insurance where the rate of return on the cash-value varies according to the success of the investments made; was developed in response to customer desires for a higher level of earnings on the cash values; The three types of this are: Universal Life Insurance, Variable Life Insurance, Variable Universal Life Insurance.
Universal Life Insurance
referred to as "unbundled" life insurance; Easier to see the charges for term insurance, company expenses and the interest being paid on the cash accumulation account; Greater flexibility; can change almost anything in policy; Can increase death benefits subject to insurability requirements; Can lower the amount of death benefit amount thus more of the premium goes to cash-value buildup; Premiums may be changed as long as premium is paid to maintain the policy; Two rates of return within Universal Life Insurance: 1.) Current year guaranteed rate and 2.) Contract rate; no guaranteed minimum death benefit like the Variable Life Insurance policy; Includes Option A - level death benefit (face amount of the policy) and Option B , which has an increasing death benefit where the payout at time of death is the death benefit plus the cash accumulation account
Variable Life Insurance
also referred to as "unbundled" life insurance; you can invest in stocks, bonds, mutual funds, zero coupon bonds, money market instruments, etc.; death benefit and cash value portion fluctuate with changes in rates of return on the investment(s); usually a guaranteed minimum death benefit which may increase over the life of the policy, depending on investment performance; funding of the death benefit uses an "assumed interest rate"; cash values are not guaranteed and are usually determined daily; some policies contain provisions calling for the payment of fees and sales charges before there are any policyholder returns (always read the policy); fees and sales charges can be somewhat high, between 1%-1.5%
Variable Universal Life Insurance ("VUL")
the most popular form of cash-value life insurance; usually no guaranteed minimum rate of return; fees and commissions are likely to be higher than for Variable Life (2% - 5%); primary difference from Variable Life; after the first year, you CAN vary the premium on most of these policies (something you cannot do with Variable Life) and adjust the face amount and cash-value buildup rate; based on the results of the cash-value portion after the first year and succeeding years, the insured may never have to pay another premium if he or she decides not to; however, there is a guaranteed minimum death benefit like Variable Life Insurance has; death benefit depends on which option the policy owner chooses (same as Universal Life Insurance); you choose the investment vehicle(s)
IRC Section 1035 Exchanges
these are certain exchanges can be made without the recognition of a gain. The gain at the time of the transaction is deferred rather than forgiven. Examples: 1.) A life insurance contract that is exchanged for another life insurance contract. 2.) A life insurance contract that is exchanged for an endowment contract. 3.) A life insurance contract that is exchanged for an annuity. 4.) An endowment contract that is exchanged for another endowment contract where the regular payments begin at a date no later than the date payments would have been received under the contract exchanged. 5.)An endowment contract that is exchanged for an annuity contract. 6.) An annuity contract that is exchanged for an annuity contract.
IRC Section 1035 Exclusions
where an exchange increases the possibility of eliminating tax by extending the period of life insurance protection; because of this part, some tax accountants argue that exchanging a term life insurance policy for a whole life insurance policy does not qualify.
Multiple of Earnings Approach (simple rule of thumb) to Estimating Life Insurance Needs
multiplies one's income by some factor to derive a rough estimate of the level of need.
Multiple of Earnings Approach (more complex) to Estimating Life Insurance Needs
addresses only one factor, that of income replacement; easy but not as accurate as the Needs Approach
Needs Approach to Estimating Life Insurance Needs
considers all of the factors that might potentially affect the level of need. It improves upon the calculations of the multiple-of-earnings approach by including a more accurate assessment of income-replacement needs and incorporates factors that add to and reduce the level of need.
Variable Universal Life Insurance ("VUL")
Is a form of universal life insurance the gives the policyholder some choice in the investments made with the cash-value accumulated by the policy. This is the most popular form of cash-value life insurance, and most closely embodied the philosophy "buy term and the invest the difference."