4. Life & Health: Types of Life Insurance Policies

What does face amount mean?

The amount of the death benefit payable when the insured dies.

Face amount = it’s usually found on the 1st (face) page of the policy, also called faced value

What are living benefits?

Financial benefits that are available while the insured is still alive.

What is term life insurance?

• policies that only offer a death benefit

• duration is only during a specific period of time (term)

• no benefit if insured dies after the term

What is level term policy?

A type of term life insurance where both the death benefit and the premium stay the same (level) throughout the entire term.

•  Death benefit = Remains equal to the face amount for the whole term.

•  Premium = Stays level (does not increase) during the term.

•  Term length is stated in years (e.g., 10-year, 20-year, 30-year) or to a specific age (e.g., Term to Age 65, Term to Age 70).

What is a decreasing term policy?

The death benefit goes down every year until $0, premium stays the same.

— good coverage for financial obligations that decrease over time, such as a mortgage or bank loan.

What is a increasing term policy?

The death benefit starts low (often at zero) and increases over the term of the policy, the premium also increases.

— good for financial obligations that increase over time, such as keeping up with inflation or cost of living.

What is a return of premium term policy?

Return all or part of the premium paid if the insured is still alive at the end of the term.

• premium higher than a regular term policy

• premium depends on the % of the return

• 100% return = higher premium

• 50% return = lower premium

What is renewability?

With term life insurance, it guarantees the policy will renew (extend) at the end of the term.

• no need to reapply or qualify medically

• renewal period is the same term as the original

• guarantees the same amount of death benefit, but the premium will increase based on age = insured “attained age”

• higher premium at each renewal = step-rate premium

• renewable term policies expire at the age specified in the policy

What does “attained “age” mean?

The insured’s age at the time of renewal w/ a renewable term policy.

What is an A.R.T. (Annual Renewal Term) contract?

1-year term that renews annually with increasing (step-rate) premiums each year.

What is convertibility?

A feature that allows a policyowner to convert a term life insurance policy into a permanent life insurance policy w/ out a medical exam or new application.

•  Conversion must occur before the term policy expires

•  Premium for the permanent policy is based on:

1. attained age: insured’s current age at time of conversion (most common)

   OR

2. original age: age when the original term policy was issued; requires a lump-sum (down payment) that equals the cash value had the permanent policy originally been purchased

— “No evidence of insurability” (medical exam) is the biggest advantage

What are the advantages of term insurance?

• lower premiums

• least expensive form of life insurance

What are the disadvantages of term insurance?

• coverage only during the term of the policy

• premiums increase as insured ages

• renewability feature expires before the average lifetime fe expectancy

What is Whole Life Insurance?

Permanent insurance policy to remain in force for the whole life of the insured + premiums never increase.