Life insurance v2

1. 1

2. Agenda
Term Life Insurance
 Level Term Life Insurance
 Decreasing Term Life Insurance
 Increasing Term Life Insurance
 Features of Term Life Insurance
Cash Value and Endowment Insurance
 Whole Life Insurance
 Premium Payment Methods
 Modified Whole Life Insurance
 Whole Life Insurance covering more than one insured
 Universal Life Insurance
 Variable Universal Life Insurance
 Supplemental benefits
Policy Provisions
Non Forfeiture options (NFO)
Annuities
2

3. Term Life Insurance

4. Term Life Insurance
 Death Benefit provided only when insured dies during the policy period defined in the policy
 Specified period in policy is called Policy Term
 Policy benefit Payable only if:
1. Insured dies during policy term
2. Policy is in force when insured dies
 Policy term varies from policy to policy. Can be 1, 5, 10, 15, 30 years depending on the provider
 Policy Anniversary is the anniversary of the date on which coverage under the under the policy
became effective
 Term to Age 65 policy: Provides coverage to an insured upto the age 65

5. Example for Term to Age 65
 Case
Sara was born on November 1, 1975. She was issued a term to age 65 policy, effective October 1, 2009.
Under the terms of the policy, coverage expires on the policy anniversary closest to her 65th birthday.
Sara paid all renewal premiums as they were due.
 Analysis
Sara’s policy will expire on October 1, 2040, the anniversary date closest to her 65th birthday. If Sara’s
policy instead provided that coverage expires on the policy anniversary immediately after her 65th
birthday, her policy would expire on October 1, 2041.

6. Term Life Insurance: Types/ Insurance Products

7. Level Term Life Insurance
 Called as level face amount term life insurance or guaranteed level premium term insurance
 Policy benefit remains the same over the term of the policy
 Ex. Under a 10 year level term plan, that provides $100,000 of coverage, the insurer will agree to
pay the entire $100, 000 if the insured dies anytime during the 10 year policy period while the
policy is in force
 The premium to be paid for the entire term of the policy remains the same throughout
 Ex. For a 10 year level term insurance plan, if the initial premium is $500, then it remains the
same till the 10th year of the policy

8. Decreasing Term Life Insurance
 Policy Benefit decreases in amount over the term of the coverage
 Benefit begins at a particular face amount and then decreases every year according to a stated
method
 Ex. For a policy with a $100,000 face amount for 10 years, every year the face amount decreases
by $10,000. So in the second year, the face amount decreases to $90,000, 3rd year it decreases to
$80,000 and so on
 Premiums for this type of insurance remain more or less the same (but lesser than a level term
policy of the same period)
 This term insurance is sold to meet specific needs that decrease over time like mortgages,
family expenses, etc.

9. Mortgage Life Insurance
 Decreasing term insurance designed to provide a death benefit amount that corresponds to the
decreasing amount owed on a mortgage loan
 Term of this insurance is based on the term of the mortgage
 Beneficiary is usually a family member of the insured and may use the money to pay off the
mortgage in case of an eventuality of insured death
 At times, the mortgage lender, might also name a condition to have his name as a beneficiary on
the term insurance policy such that he gets the money owed by the insured under the mortgage
(remaining loan amount) in case of the insured’s death
 Insurers often offer a joint mortgage term life insurance that insures 2 people who have taken a
loan together

10. Credit Life Insurance
 Similar to mortgage insurance, this insurance pays for the balance due on any loan if the
borrower dies during the term of the policy
 Credit insurance always provides that policy benefit is payable directly to the lender or creditor
only
 All types of loans like Car loan, furniture loans can be covered by this type of insurance
 Credit card holders are covered by this insurance for the amount they owe on their account
 The amount of premium to be paid remains more or less the same throughout the policy
period

11. Family Income Coverage
 This policy provides the beneficiary the a stated monthly income benefit amout if the insured
dies during the policy period
 Monthly term benefits continue till the end of the policy term
 Beneficiary in such policies is generally the surviving spouse of the insured
 This type of insurance is generally taken on as a Rider to a Cash Value Life insurance policy
 A Rider is an endorsement to a policy that either expands or limits the benefits payable under a
policy

12. Increasing Term Life Insurance
 This type of a policy provides a death benefit that begins at one amount and increases by
some specified amount or percentage at stated intervals of the policy term
 Ex. A $100,000 face amount policy might increase by 5% on each policy anniversary
throughout the policy term
 Premiums for this type of policy increase with increase in the face amount
 This is generally purchased as a Rider to a life insurance policy to meet short term needs like
for providing for a child’s education
 It is a fairly uncommon policy and is generally not preferred

13. Features of Term Insurance
Renewable Convertible
Return of
Premium
(ROP)

14. Cash Value Life Insurance

15. Whole Life Insurance
 Cash value life insurance providing coverage for lifetime
 Builds cash value over time as premiums are paid
 Cash Value build up depends upon:
1. Face Amount
2. Policy period
3. Premiums paid
 Insured can use the cash value on the policy over time through a loan on the amount
 Cash Surrender value is the benefit one receives when policy is surrendered midway

16. Premium Payment for Whole Life Policies
Continuous Premium
Whole Life Policies
Premiums payable
during the entire term of
the policy
Modified Premium &
Modified Coverage
Premiums vary over
time of policy
Coverage reduces over
time
Limited Premium
Whole Life Policies
Eg.
20-payment whole life
Paid-up-at-age-65

17. Whole Life Insurance: Covering more
than one insured
Joint Whole
Life
Last Survivor
Whole Life
Family
Policies

18. Universal Life Insurance
 A cash Value accumulating life insurance policy
 Features:
1. Flexible Premiums
2. Flexible face amount
3. Flexible Death Benefit
 Insurer will specify the following charges on the insurance policy:
1. Mortality Charges (Cost of insurance)
2. Interest Rate on cash value (Bare minimum guaranteed)
3. Expenses (Flat charge, flat premium percentage, surrender charges)

19. Universal Life Insurance

20. Universal Life
Insurance: Flexibility
Face Amount and Death
Benefit
Insured can have the face
amount on the policy to be
reduced or increased during
the policy term
Premiums
Flexible Premium Policy:
Premium can be increased or
decreased over a period of time
Fixed Premium Policies:
Premium remains the same
over the period of the policy

21. Variable Universal Life Insurance
 Cash value life insurance similar to Universal whole life
 Features:
1. Flexible Premium
2. Varying death benefit
 Subaccount: Alternate pools of investment in which a policyowner allocates premiums paid and
the cash value that accumulates under the policy
 Two primary subaccounts maintained by insurer:
1. Separate Account
2. General Account

22. Difference Between UL and VUL insurance

23. Supplemental Benefits
Waiver of Premium
for Disability
Waiver of Premium
for Payor
Disability Income
benefit
Accidental Death
Benefit
Terminal Illness
Benefit
Dread Disease
Benefit
Long Term Care
Insurance Benefit

24. Insurance Policy Provisions
 Free look provision: Initial 10-30 days of the policy when policyowner can go through the policy and
decide if he wants to continue or cancel the policy. Premiums are refunded if cancelled.
 Entire Contract Provision: Defines documents that constitute the insurance contract between
insurer and policyowner.
 Incontestability provision: Time limit under which insurer has a right to avoid the contract on
grounds of material misrepresentation(misleading or false statement) in the application
 Grace period Provision: Time period after the policy renewal within which premium due must be
paid to avoid lapse of coverage. Generally 30-31 days.
 Reinstatement Provision: Terms and conditions an insured must meet to reinstate a policy that
was cancelled.
 Misstatement of Age or Sex provision: Allows the insurer to adjust the premium on the policy in
case it was misstated in the application.

25. Nonforfeiture Provisions (NFO)
 Primarily provided to Insured in case they are not able to make premium payments, surrender the
policy or if the policy lapses
 Cash payment NFO: Policyowner receives cash surrender value of policy as a lumpsum amount
 Reduced Paid Up insurance: Cash Surrender value of the policy used as a single net premium to
purchase paid up life insurance of the same plan as the original policy
 Extended Term insurance: Cash Surrender Value can be used to purchase term insurance for full
coverage amount provided under original policy
 Automatic loan premium option: Insurer pays an overdue premium on the policy by making a loan
against the cash value as long as cash value equals or exceeds amount of premium due
 Policy Exclusions: Conditions under which the insurer will not pay policy proceeds following a
death. Ex. Suicide Exclusion

26. Annuities

27. Annuities
 A contract under which an insurer promises to make a series of periodic payments to an
individual or insured for a series of premium payments over time
 Payments from insurer begin on the Maturity Date and this period of payments is called the
Payout period.
 Annuity period is the time span between two annuity payments by insurer
 Types based on:
1. When periodic payments begin
2. How often premiums are paid
3. How annuity premiums are invested

28. Types of Annuities
Single Premium Immediate
Annuity (SPIA)
Single Premium Deferred Annuity
(SPDA)

29. Fixed and Variable Annuities
Fixed Annuities
Minimum Interest Guarantee on
accumulated cash value
Minimum amount of periodic payments
guarantee given by insurer
Variable Annuities
Amount of accumulated value and
amount of periodic payments fluctuate
in accordance with performance of
investment instruments