Chapter 3 Whole life and Term-100

Permanent vs Term (VERY IMPORTANT)

What is permanent insurance?

Lifetime coverage with guaranteed death benefit (if premiums paid).

Main difference: term vs permanent insurance?

• Term = temporary

• Permanent = lifetime

How do premiums differ?

• Term = cheaper initially, increases

• Permanent = level for life

Which builds cash value (CSV)?

Permanent insurance (NOT term).

Does term insurance have CSV?

No

3 types of permanent insurance?

1. Whole Life

2. Term-100 (T-100)

3. Universal Life

Whole Life Insurance (BIG SECTION)

Key features of whole life?

Lifetime coverage + level premiums + builds CSV

What is policy reserve?

Extra premiums early → saved to cover later costs + builds CSV.

What determines premiums?

• Mortality costs

• Expenses

• Investment returns

What is a modal factor?

Extra cost when paying monthly/quarterly vs annually.

Premium Payment Options

3 payment options for whole life?

• Lifetime pay

• Single premium

• Limited pay

What is limited pay whole life?

Pay for set years → coverage lasts for life.

Participating vs Non-Participating

What is a non-participating policy

No dividends; insurer keeps profits.

What is a participating policy?

Pays dividends (NOT guaranteed

What causes dividends?

Better-than-expected:

• mortality

• expenses

• investment returns

Dividend Options

5 dividend options?

• Cash

• Premium reduction

• Accumulation

• Paid-up additions (PUA)

• Term insurance

Which option increases BOTH CSV + death benefit?

Paid-up additions (PUA).

Which option earns taxable interest?

Accumulation

Non-Forfeiture Benefits

What are non-forfeiture benefits?

Value kept if premiums stop.

3 main non-forfeiture options?

• Cash surrender value (CSV)

• Reduced paid-up

• Extended term

What is CSV?

Money received if policy is cancelled

What is reduced paid-up?

Smaller coverage, no more premiums

What is extended term?

Same coverage, limited time only.

Automatic Premium Loan (APL)

What is APL?

Uses CSV to pay missed premiums

What is the downside of APL?

Interest + reduces CSV and death benefit.

What is premium offset?

Dividends/CSV used to pay premiums.

Advantages of whole life?

• Lifetime coverage

• Level premiums

• Builds CSV

• Possible dividends

Disadvantages of whole life?

• Expensive

• Long-term commitment

• Limited investment control

Key features of term insurance?

• Temporary

• Cheap initially

• No CSV

• Premiums increase

Key features of whole life?

• Lifetime

• Level premiums

• Builds CSV

What is T-100 insurance?

Lifetime coverage, level premiums, NO CSV

When do T-100 premiums stop?

Age 100.

Does T-100 build cash value?

No