CH 4: Life Insurance Products and Concepts

Vocabulary flashcards covering key life-insurance products, options, and concepts discussed in the lecture.

Life Insurance

A contract that transfers the financial risk of premature death from one party to another and creates an immediate estate for beneficiaries.

Immediate Estate

The instant financial estate created for beneficiaries upon issuance of a life-insurance policy.

Term Life Insurance

Pure, temporary protection that provides the maximum death benefit for the lowest initial premium and contains no cash value.

Level Term Life Insurance

Term coverage with a constant death benefit for a specified period; policy expires at the end of the term.

Increasing Term Life Insurance

Term insurance whose death benefit rises at set intervals over the policy term.

Decreasing Term Life Insurance

Term insurance in which the death benefit gradually declines over the coverage period.

Mortgage Redemption Insurance

A form of decreasing term insurance designed to pay off a mortgage balance if the insured dies.

Credit Life Insurance

Limited-benefit term policy that pays the outstanding loan balance if the debtor dies; maximum benefit equals the loan value.

Convertibility Option

Right to exchange a term policy for permanent insurance without evidence of insurability.

Interim Term Insurance

Short-term convertible coverage issued for immediate protection until permanent insurance can be purchased.

Renewability Option

Allows the policy owner to renew term coverage at expiration without proving insurability.

Step-Up Premium

A steady annual increase in premium, typical of some renewable term contracts.

Annually Renewable Term (ART / YRT)

One-year term policy that can be renewed each year without evidence of insurability; premiums rise with age.

Whole Life Insurance

Permanent insurance with level premiums, guaranteed level death benefit, and tax-deferred cash value that matures at age 100.

Ordinary Whole Life (Straight Life)

Basic whole life contract with continuous, level premiums payable for the insured’s lifetime.

Limited Payment Whole Life

Whole life policy with higher, predetermined premiums paid for a limited period after which the policy is paid-up.

Single-Premium Whole Life

Whole life policy funded by one large upfront premium, creating immediate cash value.

Modified Whole Life

Whole life plan with initially reduced premiums for an introductory period, followed by higher-than-normal level premiums.

Graded Premium Whole Life

Whole life policy with premiums that increase annually for a set period, then level off higher than straight life rates.

Enhanced Whole Life (Economatic)

Low-premium, participating whole life policy that may use dividends to purchase additional coverage.

Indexed Whole Life

Whole life insurance whose face amount increases automatically with the Consumer Price Index (CPI) without proof of insurability.

Equity-Indexed Whole Life

Whole life contract allowing the policyholder to share in a percentage of an equity index’s growth; guarantees a minimum death benefit and interest.

Adjustable Whole Life

Flexible policy combining term and permanent insurance, allowing changes to face amount and premium.

Universal Life (UL)

Flexible-premium, permanent insurance that separates insurance and cash-value components; offers adjustable death benefit and tax-deferred cash value.

Target Premium (UL)

Suggested annual premium that keeps a universal life policy funded at a desired level.

Universal Life Option A

Death benefit equals pure insurance (decreasing term) plus cash value, resulting in a level face amount.

Universal Life Option B

Death benefit equals stated face amount plus accumulating cash value, producing an increasing total benefit.

Equity Index Universal Life (EIUL)

UL policy whose credited interest is tied to an equity index, offering growth potential with downside protection.

Variable Life (VL)

Permanent insurance with fixed premiums, a guaranteed minimum death benefit, and cash values invested in a separate, securities-based account.

Variable Universal Life (VUL)

Hybrid of UL and Variable Life featuring flexible premiums, adjustable death benefit, and policy-owner control of separate-account investments.

Family Plan Policy

Single contract designed to insure all family members, often combining whole life for adults with term riders for children.

Family Maintenance Policy

Whole life plus level term rider that provides income for a set period beginning at the insured’s death.

Joint Life Policy

Covers two or more lives and pays the death benefit upon the first death; policy then terminates.

Last-to-Die (Survivor) Policy

Covers two lives and pays the death benefit upon the second (last) death; used for estate-planning needs.

Juvenile Life Insurance

Ordinary life insurance written on the life of a minor.

Endowment Policy

Contract with accelerated cash-value growth that pays the face amount at death or at the specified endowment date if the insured survives.

Modified Endowment Contract (MEC)

Life policy that fails the IRS 7-pay test by being over-funded; subject to less favorable tax treatment on distributions.

Industrial Life Insurance

Small-face-amount policies (≈$1,000) with premiums collected weekly or monthly, traditionally door-to-door.

Monthly Debit Ordinary Life

Blend of industrial and ordinary life insurance with premiums collected monthly.

Participating Policy

Life insurance contract entitled to share in insurer dividends reflecting excess company earnings.

Non-Participating Policy

Policy that does not receive dividends from the insurer’s surplus earnings.

Face Amount Plus Cash Value Policy

Pays both the policy’s face amount and its accumulated cash value upon the insured’s death.

Stranger-Owned Life Insurance (STOLI)

Arrangement in which a policy is purchased to be sold to a third party with no insurable interest in the insured.

Non-Medical Life Insurance

Coverage issued without requiring a medical exam; generally costlier than medically underwritten policies.