Life Insurance Policies

Vocabulary flashcards covering term, whole life, universal, variable, joint, credit, and group life insurance policies.

Term Insurance

Temporary protection that only provides coverage for a specific period of time and provides pure death protection.

Level Term Insurance

The most common type of temporary protection purchased, where the word level refers to the death benefit that does not change throughout the life of the policy.

Level Premium Term

A policy that provides a level death benefit and a level premium during the policy term, with the premium averaged over the term of the policy.

Annually Renewable Term (ART)

The purest form of term insurance, where the death benefit remains the same and the policy is guaranteed renewable each year, but the premium increases annually according to the attained age.

Increasing Term

A term policy featuring level premiums and a death benefit that increases each year over the duration of the policy term.

Decreasing Term

Policies that feature a level premium and a death benefit that decreases each year over the duration of the policy term.

Return of Premium (ROP) Term

An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid, provided that death occurs within a specified period of time or the insured outlives the policy term.

Special Features of Term Insurance

Provisions allowing most term insurance policies to be renewable, convertible, or renewable and convertible (R&C).

Renewable Provision

A provision allowing the policy owner the right to renew coverage at the expiration date without evidence of insurability, with the premium for the new term policy based on the insured's current age.

Convertible Provision

A provision providing the policy owner with the right to convert the policy to a permanent insurance policy without evidence of insurability.

Permanent Life Insurance

A general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured or until age $100$ as long as the premium is paid.

Whole Life Insurance

Insurance providing lifetime protection that includes a savings element (or cash value), where at age $100$ the cash value created by the accumulation of the premiums equals the face amount of the policy.

Whole Life Characteristics

The core characteristics of whole life policies, consisting of Level Premium, Death Benefit, Cash Value, and Living Benefits (the ability to borrow against the cash value while the policy is in effect).

Basic Forms of Whole Life

The three foundational types of whole life policies: straight whole life, limited-pay whole life, and single premium whole life.

Straight Whole Life

A whole life policy where the owner pays the premium from the issue date until death or age $100$, featuring the lowest annual premium among whole life options.

Limited-Pay Whole Life

A whole life policy designed so that the premiums for coverage are completely paid-up well before age $100$, where a shorter payment duration equates to higher annual premiums.

Single Premium Whole Life

A whole life policy designed to provide a level death benefit to the insured's age $100$ for a one-time lump-sum payment, generating immediate cash value.

Modified Premium Whole Life

A type of whole life policy that charges a lower premium in the first few policy years, usually $3$ to $5\text{ years}$, then a higher level premium for the remainder of the insured's life.

Fixed Equity Indexed Life

A policy where the cash value depends on the performance of an equity index, such as the S&P $500$, while maintaining a fixed premium and a guaranteed death benefit.

Adjustable Life

A policy that can assume the form of either term or permanent insurance where the owner can adjust coverage and premium amounts as needs change, including converting between term and whole life.

Universal Life (UL)

A flexible premium policy that gives the policy owner the option to increase the amount of premium paid into the policy and later decrease it again.

UL Minimum Premium

The exact premium amount needed to keep a Universal Life policy in force for the current year.

UL Target Premium

A recommended payment amount on a Universal Life policy intended to cover the cost of insurance protection and keep the policy in force throughout its lifetime.

Contract Interest Rate

The guaranteed minimum interest rate in a Universal Life policy guaranteed by the insurer, usually $3\%$ to $6\%$.

Current Interest Rate

The interest rate on a Universal Life policy that is not guaranteed in the contract but may be credited higher based on prevailing market conditions.

UL Policy Components

The two structural elements of a Universal Life policy: an insurance component (which is always annually renewable term insurance) and a cash account.

UL Death Benefit Option A

The level death benefit option, where the death benefit remains level while cash value increases, thereby lowering the pure insurance risk for the insurer in later years.

UL Death Benefit Option B

The increasing death benefit option, where the death benefit includes the annual cash value accumulation, increasing each year by the exact amount that cash value rises.

Variable Life

Contracts in which cash values accumulate based upon a specific portfolio of stocks without performance guarantees, keeping pace with inflation and determined by underlying securities.

Variable Product Regulations

Dual regulation by state and federal entities where the SEC and FINRA regulate variable contracts as securities, requiring agents selling them to be FINRA-registered and securities-licensed.

Joint Life

A single policy designed to insure two or more lives based on a joint average age, where the death benefit is paid upon the first death only.

Survivorship Life

Also called "second to die" or "last survivor" life, a policy covering two lives where the death benefit is paid on the last death, commonly used to offset estate tax liabilities.

Credit Life Insurance

Special coverage written to insure a debtor's life and pay off the loan balance upon death, where the creditor is both the owner and beneficiary of the policy.

Group Life Insurance

Life insurance issued to a sponsoring organization covering multiple individual members, most commonly written for employer-employee groups.

Group Life Insurance Requirements

Coverage written as annually renewable term without requiring individual insurability; members receive a certificate of insurance while the sponsor holds the master contract.

Characteristics of Group Plans

Underwriting criteria including group purpose, size, turnover, and financial strength, with coverage cost determined by the average age of the group and the ratio of men to women.

Types of Plan Sponsors

Organizations eligible to sponsor GLI plans, including employers, debtor groups, labor unions, credit unions, and associations formed for reasons other than buying insurance.

Group Underwriting Requirements

A process requiring each participating group member to complete a short application that clearly identifies the insured and the insured's beneficiary.

Conversion to Individual Policy

A privilege granting an employee who terminates group membership the right to convert to an individual policy without evidence of insurability, usually within $31\text{ days}$.