Life Insurance: Basic Policy Types

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Life Insurance Basic Policy Types
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Life Insurance Basic Policy Types
Two Basic Types Term Insurance Permanent
Insurance
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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

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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

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Life Insurance Basic Policy Types

• Term Insurance
• Increasing Term Insurance
• Death benefit increases over time
• Premiums increase over time

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Life Insurance Basic Policy Types

• Term Insurance
• Term Policy Options
• Renewability Option
• After the term has expired you can choose to
  renew your policy
• Dont have to prove insurability
• Will pay a higher premium

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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

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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

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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

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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 companys profit that it pays
  to its policyholders

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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 initially higher 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

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Life Insurance Basic Policy Types

• Permanent Life Insurance
• Whole Life Insurance
• Advantages
• Absolutely predictable with zero risk
• Return is guaranteed
• Disadvantage
• Relatively inflexible

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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

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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

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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

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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