Life Insurance: Basic Policy Types

1. Life Insurance: Basic Policy Types

2. Life Insurance: Basic Policy Types Two Basic Types Term Insurance Permanent Insurance

3. Life Insurance: Basic Policy Types • Term Insurance • Simplest • Usually most inexpensive • A policy that is limited to a specific length of time, or term • Does not accumulate cash value • Usually term is 1,5,10,15,20,25,or 30 years

4. Life Insurance: Basic Policy Types • Term Insurance • Level Term Insurance • Pays the same death benefit throughout the term • Premium usually remains level • Decreasing Term Insurance • Death benefit decrease throughout the term • Premiums remain level • One use is to pay off a mortgage

5. Life Insurance: Basic Policy Types • Term Insurance • Increasing Term Insurance • Death benefit increases over time • Premiums increase over time

6. Life Insurance: Basic Policy Types • Term Insurance • Term Policy Options • Renewability Option • After the term has expired you can choose to renew your policy • Don’t have to prove insurability • Will pay a higher premium

7. Life Insurance: Basic Policy Types • Term Insurance • Term Policy Options • Convertibility Option • Permits policyholder to convert to permanent insurance • Does not require proof of insurability

8. Life Insurance: Basic Policy Types • Term Insurance • Options for paying term premiums • Level • Premium remains the same • Increasing • Premium increases by a specified amount at a specified time • Level/Increasing • Stays level for a certain period and then increases • Indeterminate • Has a minimum and maximum rate

9. Life Insurance: Basic Policy Types • Permanent Life Insurance • Covers the insured for a lifetime or until age 100 • If you live to 100 insurer pays individual the death benefit • Three types of Permanent Insurance: • Whole life • Universal life • Variable life

10. Life Insurance: Basic Policy Types • Permanent Life Insurance • Cash Value • Cash reserves accumulate in the policy • You can take a loan out on the policy • You can cash in your policy • Dividends • The proportion of a company’s profit that it pays to its policyholders

11. Life Insurance: Basic Policy Types • Permanent Life Insurance • Whole Life Insurance • Policyholder pays the same premium amount for a certain number of years • Annual premiums are initiallyhigher than term, but in the long run they may become less since they stay level • If you plan on having insurance for more than 20 years it is usually more advantageous to have whole life insurance

12. Life Insurance: Basic Policy Types • Permanent Life Insurance • Whole Life Insurance • Advantages: • Absolutely predictable with zero risk • Return is guaranteed • Disadvantage: • Relatively inflexible

13. Life Insurance: Basic Policy Types • Permanent Life Insurance • Universal Life • Takes advantage of high interest rates and yields higher returns on the cash value • You can adjust the premiums you pay and the death benefit amount

14. Life Insurance: Basic Policy Types • Permanent Life Insurance • Universal Life • Advantages: • Flexibility • You can increase the amount of money you put in • Disadvantages: • Risks of investment market are transferred to the policyholder • You may end up having to pay more in premiums than expected

15. Life Insurance: Basic Policy Types • Permanent Life Insurance • Variable Life • Both life insurance and an investment tool • Subject to regulation from the Securities and Exchange Commission • The funds in the policy have to be managed

16. Life Insurance: Basic Policy Types • Permanent Life Insurance • Variable Life • Advantages: • Policy owners who are knowledgeable about the stock market can potentially yield high returns • Disadvantages: • Risk of investment is passed onto the policyholder • Only guarantee is a specified minimum death benefit • Policyholder could lose most of the principal