Term Life Insurance

Temporary coverage for a specific period; no cash value.

What is term life insurance?

Temporary insurance that covers a specific period and has no cash value.

What are the types of term life policies?

Level, Decreasing, Increasing, Return of Premium, Annually Renewable (ART).

What does a renewable term policy allow?

The insured can renew without proof of insurability, but premiums increase with age.

What does a convertible term policy allow?

The insured can convert to whole life without proof of insurability.

Level Term 

Has level death benefits throughout the term.

Decreasing Term

Death benefit decreases over time; used for credit or mortgage protection.

Increasing Term

Death benefit increases over time; starts small.

Return of Premium Term 

Refunds part or all premiums if insured doesn’t die during term.

Annually Renewable Term (ART) 

Renews each year; premiums increase with age.

Renewable Term Feature

Can renew without proof of insurability; premiums increase.

Convertible Term Feature

Can convert to whole life without proof of insurability.

Ordinary Whole Life

Permanent coverage; fixed, level premiums; guaranteed death benefit and cash value; uses general account.

What are key features of ordinary whole life insurance?

• Fixed and level premiums

• Coverage for life

• Guaranteed death benefit and cash value

• Uses general account

• Policy loans and total surrender allowed

• Insurance license required to sell

Adjustable Life

Flexible premiums and face amount; guaranteed death benefit and rate of return; uses general account.

What makes adjustable life flexible?

Premiums, coverage, and face amount can be adjusted.

What account does adjustable life use?

General account.

Universal Life 

Flexible premiums; adjustable face amount; two death benefit options; guaranteed minimum return; uses general account; allows loans and partial surrenders.

Variable Whole Life

Fixed premiums; separate account; guaranteed death benefit but no guaranteed rate of return; requires insurance and securities licenses; regulated by State, SEC, and FINRA.

Variable Universal Life 

Flexible premiums; adjustable face amount; separate account; no guaranteed return; two death benefit options; requires insurance and securities licenses; regulated by State, SEC, FINRA.

Interest-Sensitive (Current Assumption) Whole Life

Flexible premiums; guaranteed death benefit and rate of return; uses general account.

Equity-Indexed Life

Fixed premiums; guaranteed death benefit and minimum return; tied to stock index (S&P 500 or DJIA); uses general account.

Joint Life Policy

Covers two lives; pays after the first death.

Modified Endowment Contract (MEC) 

Overfunded life policy subject to 7-pay test; withdrawals/loans taxable; 10% penalty before 59½; death benefits remain tax-free.

What are the two main types of multiple life policies?

Joint Life and Survivorship Life.

When does Joint Life pay?

After the first death.

When does Survivorship Life pay?

After the second death.

What’s a key use for Survivorship Life?

To pay estate taxes or transfer wealth.

What is a MEC?

An overfunded life insurance policy.

What test determines MEC status?

The 7-pay test.

What are the tax implications of MECs?

• Withdrawals/loans are taxable

• 10% penalty if withdrawn before age 59½

• Death benefits remain tax-free