Chapter 2 Life insurance

Term Life insurance

What does “Term” means

Provides coverage for a fixed period of time. ( payout only if insured is within the term)

Typical terms

common: 10, 20, 30, or renewable 5 year terms

Age limits

usually renewable up to age 70-80 ( new policies typically not issued after 75)

2.2 Policyholder vs life insured

Policyholder

The person or entity who owns the contract, pays premiums, and controls it

Life insured

The person whose covered ( death triggers payment)

Single Life

One insured person. benefit paid upon death

Joint first-to-die

covers two or more lives. pays out on first death

(common for couples to protect income or debts)

Joint last-to-die

Pays after last person dies

(Often used for estate taxes since both partners assets roll over tax-free at first death) 

2.3 Death benefit

Lump sum payment upon death of insured

Level term

Death benefit stays constant for entire term

Decreasing term

Death benefit decreases over time

(premiums usually level or lower)

Increasing term

Death benefit rises over time

(premiums may rise accordingly)

2.4 Term insurance premiums 

How are premiums set

based on three main concepts…

1. Mortality costs: expected death rates from actuarial tables

2. expenses: adminitration, commissions, underwriting etc

3. profit margin / interest: insurer investments offset part of cost

premiums also depend on:

age (younger=cheaper)

gender ( females=loner life expectancy)

smoking status

health