Life insurance policies fall into 2 categories: temporary and permanent protection

Term Life

Term insurance is temporary protection (coverage for a specific period of time)

Provides pure death protection

Lowest premium compared to other protection, usually maximum age

Good for young people (cheap)

3 types based on face amount (death benefit) changes over the term: level,
increasing, decreasing (premium stays constant)
-Level: death benefit stays constant, highest premium
-Decreasing: benefit decreases each year, common for mortgage or debt
insurance if the insured dies early
-Increasing: increasing death benefit

Annually renewable term: premium increases each year with renewable as
probability of death increases

Renewable: can renew coverage at expiration date with different premium

Convertible: right to convert to permanent insurance (can also have both renewable
and convertible in same, R&C)

Whole Life

Permanent life is the general

Cash value created by premium is equal to face value of policy at age 100

Characteristics:
-level premium
-death benefit
-cash value
-living benefit (can borrow against cash value)

3 forms: straight, limited-pay, single premium
-straight/ordinary: lowest annual premium, cash value increases over course
of life
-limited-pay: payment up until a certain age (eg. 65)
-single: one time lump sum

Modified life: lower premiums at the start

Graded-premium: lower premiums then gradually increase until another level

Indeterminate premium whole life: variable premium with max and min

Endowment: like whole but matures at an earlier age

Combinations and Variations

Multiple indemnity: benefits doubled or tripled if death from certain circumstances
(prior to a certain age and from accident)

Family: whole to breadwinner and convertible to others

Family Income: combo with decreasing term and whole life , provides monthly
income in addition to death benefit

Family Maintenance: pays monthly income with death benefit, combo with level and
whole

Joint life: discount for more than one person, premium based on average age, benefit
paid upon the first death only

Survivorship Life (second to die): pays upon the second death instead of the first,

Juvenile Life: face amount jumps often at age 21

Nontraditional Life Insurance

Universal life: flexibility to increase amount of premium paid and decrease it later
(may have minimum and target), can have a partial withdrawal and decrease cash
-option 1: level death benefit
-option 2: increasing death benefit

Interest-Sensitive Whole Life: buy term and invest difference

Liability and Loss Exposures

Allows a groups losses to be financed and redistributed into an insurance pool

Liability loss form 3 sources:
-organization responsible for injuring someone
-cost of legal defense
-loss prevention arising from potential liability

Employer Liability: health and treatment (complicated with heart because it could
be from work)

Principle of Indemnity: contract by which one person secures another against an
anticipated loss

Insurable interest: someone has an insurable interest when loss or damage could
cause them to suffer a financial loss or certain kinds of losses

Can include a gift for a charity

Cash value: function of the size of premium payments, factors: premium, expenses,
cost of term, investment earnings

Cash on death is not taxable, neither are dividends on premium

Premium dependent on three factors: expense rate (commission), mortality risk,
rate of dividends to be credited as earnings

Small death costs when younger ($1000)

Cash value coverage can be good if you need more than $750,000, contributing
maximum to IRA, earnings more than $150,000

Calculate how much: 5-8 annual income, or enough to cover debts

Annuities

Annuitant receives benefits, if they die, beneficiary

Annuities for retirement income and sometimes college education

Can be funded by single payment or periodic payments

Immediate: payments due within one year, lump sum

Deferred: payments begin after 1 year

Interest rates fixed, variable, indexed

Pure life: payments cease at death

Policy provisions, options, and features

Provisions define the characteristics of an insurance contract

Riders are added to modify provisions

Options offer ways to invest or distribute sum of money available in a life policy

Free look: can get a refund within 10 days if dissatisfied

2 types of policy assignment:
-Absolute: transferring all rights to another person
-collateral: transfer of partial rights to another person

Per Capita: evenly distributes benefits amount the living named beneficiaries

Per Stirpes (by the bloodline): distributes the benefits of a beneficiary who died
before the insured to that beneficiarys heirs

Primary then contingent beneficiary

Waiver of premium: dont have to pay premium if become disabled

Guarantee insurability rider: can purchase additional insurance without evidence of
insurability

Indemnity: in the event of loss, an insured or a beneficiary is permitted to collect
only to the extent of the financial loss and is not allowed to gain financially because
of the existence of an insurance contract

Underwriting: risk selection and classification process

Credit insurance: special type to insure the life of a debtor and pay off the balance of
a loan in case of death (usually decreasing term)

Premiums not tax deductible, death benefit tax free unless it is paid in installments
and the interest is taxable

If policy owner withdraws any of the cash value or surrenders the policy for the
cash value, the amount is tax deductible

403(b) plan is retirement savings plan for public educational organizations, some-
non-profit employers

Social Security provides three types of benefits: Retirement, disability, and survivors

IRA early distribution not always penalty

Adhesion: insureds only option is to accept or reject

Warranty: guaranteed to be true

Representations: statements that are true to the best of the applicants knowledge

Both state government and the insurance department regulates variable life policies

In group life insurance, employer or organization purchasing the policy retains the
master contract and people who elect coverage through the group receive a
certificate of credible coverage (cost based on average age and ratio of men and
women)
Non contributory: 100%
Contributory: 75%

Qualified workers can receive reduced Social Security benefits at age 62 as opposed
to age 65

Creditor is owner and beneficiary of credit life insurance

Tax sheltered annuity is available to certain groups of employees only, such as
public educators

Unilateral: only one of the parties is legally bound

Aleatory: requires a relatively small amount of premium for a large or risk