life and Health Insurance - FIN-3660
Abu khaled
chapter_6_cash_value_and_endowment.pptxCash Value Life Insurance and Endowment Insurance
Life and Health Insurance FIN 3660
Chapter 6
Cash value life insurance vs. whole life insurance
Cash value life insurance – (permanent life insurance) provides life insurance coverage throughout the insured’s lifetime and provides a savings element, known as cash value.
Provides protection for the entire lifetime of the insured
Provides both insurance coverage and a savings element that a policyowner can use to meet financial needs during the insured’s lifetime.
Whole life insurance – a type of cash value life insurance that provides lifetime insurance coverage usually at a level premium rate that does not increase as the insured ages.
Whole life – refers to the broad classification of insurance products that are considered to be cash value insurance.
Also used to refer to a specific type of cash value insurance product.
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Whole Life Insurance
Policy loan – a loan a policyowner receives from an insurer using the cash value of a life insurance policy as security.
Cash surrender value – the amount of the cash value that a policyowner is entitled to receive upon surrender.
Premium Payment Periods
Continuous-premium whole life policy: premiums are payable until the death of the insured.
Most whole life insurance policies sold today are continuous-premium policies.
Also known as a straight life insurance policy or an ordinary life insurance policy.
Limited-payment whole life policy: a whole life policy for which premiums are payable only for a stated period of time or until the insured’s death, whichever occurs first.
They are designed to meet a policyowner’s need for life insurance coverage that continues throughout the insured’s lifetime and that is funded over a limited time.
Paid-up policy – requires no further premium payments but continues to provide coverage.
Single-premium whole life policy: a type of limited payment policy that requires only one premium payment.
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Whole Life Insurance
Modified Whole Life Insurance
Modified-premium whole life policy: a whole life policy for which the annual premium amount changes after a specified initial period (typically 5 or 10 years).
The face amount of a modified-premium policy remains level throughout the life of the policy.
Graded-premium policies - whole life policies for which premium payments are modified even more frequently.
Modified coverage policy: a whole life policy under which the amount of insurance provided decreases by specific percentages or amounts either when the insured reaches certain stated ages or at the end of stated time periods.
The annual premium for a modified coverage whole life policy is lower than for a continuous-premium whole life policy having the same initial face amount.
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Whole Life Insurance
Whole Life Insurance Covering More Than One Insured
Joint whole life insurance: same features and benefits as individual whole life insurance, except that it insures two people under the same policy.
Referred to as fist-to-die life insurance
Because coverage under a joint whole life policy ends once the policy death benefit is paid, the surviving insured may be left uninsured.
Last survivor life insurance: a variation of joint whole life insurance under which the policy benefit is paid only after both people insured by the policy have died.
Also known as second-to-die life insurance or survivorship life insurance
Family Policies: a whole life insurance policy that includes term life insurance coverage on the primary insured’s spouse and children.
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Universal Life Insurance
Universal Life (UL) Insurance – a form of cash value life insurance that is characterized by its flexible premiums, its flexible face amount and death benefit amount, and its separation of the three primary policy elements.
Separation of Policy Elements
Mortality Charges: the amount needed to cover the risk the insurer has assumed in issuing the policy.
“Cost of insurance”
Periodically deducted from a universal life insurance policy’s cash value.
Interest Rate
Universal life insurance policy guarantees that the insurer will pay at least a stated minimum interest rate on the policy’s cash value each year.
Insurer will pay a higher interest rate if economic and competitive conditions warrant.
Usually the insurer determines the current interest rate for universal life policies based on the return that its own investments are earning.
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Universal Life Insurance
Separation of Policy Elements
Expenses
A flat charge during the first policy year to cover sales and policy issue costs.
A percentage of each annual premium (such as 7 percent) to cover expenses.
A monthly administration (management) fee, sometimes referred to as a policy fee.
Surrender charges, which are specific charges imposed if the owner surrenders the policy for its cash surrender value.
Specific charges for other services such as coverage changes or policy withdrawals.
Operation of a Universal Life Insurance Policy
When an insurance company receives a universal life premium payment, the insurer first deducts the amount of any applicable expense charges. The insurer then credits the remainder of the premium to the policy’s cash value.
The policyowner can increase the cash value of a universal life policy by making additional or larger-than-required premium payments.
If the cash value of any universal life policy is not sufficient to pay the periodic mortality and expense charges, the policy will lapse, unless the policyowner takes action to keep the policy in force.
Lapse: the termination of a life insurance policy for nonpayment of premium.
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Universal Life Insurance
Flexibility Features
A universal life insurance policy gives the policyowner a great deal of flexibility, both when he purchases the policy and over the life of the policy.
Face Amount and Death Benefit: when a person buys a universal life policy, he specifies the policy’s face amount and decides whether the amount of the death benefit payable will remain equal to the face amount (as with most traditional whole life policies or will vary with changes in the policy’s cash value.
Premiums: a universal life policy may be either a flexible premium policy or a fixed premium policy.
Flexible premium universal life insurance policy – allows the policyowner to alter the amount and frequency of premium payments, within specified limits.
Fixed premium iniversal life insurance policy – requires a series of scheduled premium payments of a specified amount for a specified length of time (typically 8 to 10 years) or until the insured’s death, whichever comes first.
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Universal Life Insurance
Periodic Reports
Generally include:
The amount of the death benefit payable
The amount of the policy’s cash value
The amount of the cash surrender value, if different from the cash value
The amount of interest earned on the cash value
The amount of the mortality charges deducted
The amount of the expense charges deducted
The amount of premiums paid during the reporting period
The amount of policy loans outstanding
The amount of any cash value withdrawals
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Variable Life Insurance
Variable Life (VL) Insurance - a form of cash value life insurance in which premiums are fixed, but the death benefit and other values may vary, reflecting the performance of investment subaccounts that the policyowner selects.
Subaccount: an undivided investment account in which an insurer maintains funds that support its contractual obligations to pay benefits under its guaranteed insurance products, such as whole life insurance and other nonvariable products.
Separate account: (segregate account) an investment account the insurer maintains separately from its general account to isolate and help manage the funds placed in its variable products.
General account: an undivided investment account in which an insurer maintains funds that support its contractual obligations to pay benefits under its guaranteed insurance products, such as whole life insurance and other nonvariable products.
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Variable Universal Life Insurance
Variable Universal Life (VUL) Insurance – (flexible-premium variable life insurance) combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance.
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Endowment Insurance
Endowment Insurance – provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.
Maturity date: the date on which the insurer will pay the policy’s face amount to the policyowner if the insured is still living.
Reached either (1.) at the end of a stated term, such as 20 years, or (2.) when the insured reaches a specified age.
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