Module 10

Life
Insurance
Reporter’s

Reporter 1
Table of
Short description here

Contents
 Types of Life
Life Insurance Policies can be classified as;
1. Term Insurance
2. Cash Value
Insurance
Term Insurance
- It is a type of life insurance policy that provides coverage for
a certain period of time, or specified term of years.
 Types of Life
Life Insurance Policies can be classified as;
1. Term Insurance
2. Cash Value
Insurance
Term Insurance
- It is a type of life insurance policy that provides coverage for
a certain period of time, or specified term of years.
 Basic Characteristics of
Term
- The period
30 years.
Insurance
of protection is temporary, such as 1,5,10,20,or

- Most term insurance policies are renewable

- Most term insurance policies are also convertible.
Two methods for converting a Term Policy:
1. Attained-Age Method
2. Original-Age Method
- Term Insurance Policies have no cash-value or savings
element.
A financial adjustment is also required. Many insurers require
policyholders to pay the larger of:

(1)The difference in reserves (or cash values) under the

policies being exchanged, or
(2) The difference between the premiums paid on the term
policy, with interest on the difference at a specified rate.
 Types of Term
-
- Insurance
Yearly renewable term
5-,10-,15-,20-,25- or 30- year term
- Term to age 65
- Decreasing term
- Re-entry term
- Return of premium term insurance
 Types of Term
Insurance
Yearly Renewable Term Insurance is issued for a one-year
period, and the policyholder can renew for successive one
year periods to some stated age without evidence of
insurability.

Term Insurance can also be issued for 5,10,15,20,25 or 30

years . A term to age 65 policy provides protection to age 65,
which time the policy expires.
 Types of Term
Decreasing term insurance is a form of term insurance where

Insurance
the face amount gradually declines each year.

Re-entry term is a term insurance policy in which renewal

premiums are based on select (lower) mortality rates if the
insured can periodically demonstrate acceptable evidence of
insurability.

Return of premium term insurance is a product that returns the

premiums at the end of the term period provided the insurance
is still force.
 Uses of Term
Term insurance is appropriate in three situations.
Insurance
First, if the amount of income that can be spent on life
insurance is limited, term insurance can be effectively used.

Second, term insurance is appropriate if the need for

protection is temporary.

Finally, term insurance can be used to guarantee future

insurability.
 Whole Life
Insurance
- It is a cash value policy that provides lifetime protection.
- Whole Life insurance is also called ordinary life insurance.

Basic Characteristics of
1. Premiums are level throughout the premium-paying period.
Ordinary
2. Accumulation ofLife Insurance
cash-surrender values, which is the
amount paid to a policyholder who surrenders the policy.
 Uses of Ordinary Life
Insurance
1. An ordinary life policy is appropriate when lifetime protection
is needed.
2. Ordinary life insurance can also be used to save money.
3. Substantial amounts of cash-value life insurance are sold
today as an investement and as a method to save money.
 Limited-Payment
Life Insurance
A limited-payment policy is another type of traditional whole life
insurance.
- The most common limited-payment policies are 10,20,25 or
30 years.
- A paid-up policy at age 65 or 70 is another form of limited-
payment insurance.
- An extreme form of limited –payment life insurance is single
premium whole life insurance, which provides lifetime
protection with a single premium.
 Endowment
Insurance
- It is another traditional form of life insurance.

- It pays the face amount of Insurance if the insured dies within

a specified period; if the insured survives to the end of the
endowment period, the face amount is paid to the policyholder
at that time.
 Types of Life
Insurance
Life Insurance Policies can be classified as;
1. Term Insurance
2. Cash Value

Term Insurance
- It is a type of life insurance policy that provides coverage for a
certain period of time, or specified term of years.
Basic Characteristics of
Term Insurance
The period of protection is temporary, such as 1,5,10,20,or 30 years.
 Most term insurance policies are renewable

 Most term insurance policies are also convertible.

Two methods for converting a Term Policy:
1. Attained-Age Method
2. Original-Age Method

 Term Insurance Policies have no cash-value or savings element.

A financial adjustment is also required. Many insurers require
policyholders to pay the larger of:

(1)The difference in reserves (or cash values) under the policies being
exchanged, or
(2) The difference between the premiums paid on the term policy, with
interest on the difference at a specified rate.
 Types of Term


Insurance
Yearly renewable term
5-,10-,15-,20-,25- or 30- year term
 Term to age 65
 Decreasing term
 Re-entry term
 Return of premium term insurance
 Types of Term
Insurance
Yearly Renewable Term Insurance is issued for a one-year
period, and the policyholder can renew for successive one
year periods to some stated age without evidence of
insurability.

Term Insurance can also be issued for 5,10,15,20,25 or 30

years . A term to age 65 policy provides protection to age 65,
which time the policy expires.
 Types of Term
Decreasing term insurance is a form of term insurance where

Insurance
the face amount gradually declines each year.

Re-entry term is a term insurance policy in which renewal

premiums are based on select (lower) mortality rates if the
insured can periodically demonstrate acceptable evidence of
insurability.

Return of premium term insurance is a product that returns the

premiums at the end of the term period provided the insurance
is still force.
 Uses of Term
Term insurance is appropriate in three situations.
Insurance
First, if the amount of income that can be spent on life
insurance is limited, term insurance can be effectively used.

Second, term insurance is appropriate if the need for

protection is temporary.

Finally, term insurance can be used to guarantee future

insurability.
 Whole Life
 It is a cash value policy that provides lifetime protection.
Insurance
 Whole Life insurance is also called ordinary life insurance.

Basic Characteristics of
Ordinary Life Insurance
1. Premiums are level throughout the premium-paying period.
2. Accumulation of cash-surrender values, which is the
amount paid to a policyholder who surrenders the policy.
 Uses of Ordinary Life
Insurance
1. An ordinary life policy is appropriate when lifetime
protection is needed.
2. Ordinary life insurance can also be used to save money.
3. Substantial amounts of cash-value life insurance are sold
today as an investement and as a method to save money.
 Limited-Payment
Life Insurance
A limited-payment policy is another type of traditional whole life
insurance.
- The most common limited-payment policies are 10,20,25 or
30 years.
- A paid-up policy at age 65 or 70 is another form of limited-
payment insurance.
- An extreme form of limited –payment life insurance is single
premium whole life insurance, which provides lifetime
protection with a single premium.
 Endowment
Insurance
- It is another traditional form of life insurance.

- It pays the face amount of Insurance if the insured dies within

a specified period; if the insured survives to the end of the
endowment period, the face amount is paid to the policyholder
at that time.
 Variable Life
Insurance
Variable life insurance can be defined as a fixed premium
policy in which the death benefit and cash values vary
according to the investment experience of a separate
account maintained by the insurer.
 A variable life policy is a permanent whole life contract with
a fixed premium.
 The entire reserve is held in a separate account and is
invested in common stocks or other investments.
 Cash-surrender values are not guaranteed, and there are
no minimum guaranteed cash values.
 Universal Life
Universal life insurance is another important variation of

Insurance
whole life insurance. Universal life insurance (also called
flexible premium life insurance) can be defined as a flexible
premium policy that provides protection under a contract that
unbundles the protection and saving components.

Universal Life Insurance

Unbundling of Component Parts
Characteristics
A distinct characteristic of universal life insurance is the
separation or unbundling of the protection component and
the saving component.
 Premiums. As noted earlier, except for the first premium,
the policyholder determines the frequency and amount of
premium payments.
 Mortality charge. A monthly mortality charge is deducted
from the cash value account for the cost of the insurance
protection.
 Expense charges. Insurers typically deduct 5 to 10 percent
of each premium for expenses.
 Interest rate. Interest earnings credited to the cash-value
account depend on the interest rate.
If the policyholder borrows the cash value, the amount borrowed
is usually credited with a lower rate of interest.
Two Forms of Universal
Life Insurance:
Option A pays a level death benefit during the early years.
As the cash value increases over time, the net amount at
risk declines.
Option B provides for an increasing death benefit. The death
benefit is equal to a constant net amount at risk plus the
accumulated cash value.
Considerable Flexibility
Includes:
■ The policyholder determines the frequency and amount of
premium payments.
■ The face amount of insurance can be increased with
evidence of insurability.
■ The policy can be changed from a level death benefit to a
death benefit equal to a specified face amount plus the policy
cash value (with evidence of insurability).
■ The policyholder can add cash to the policy at any time,
subject to maximum guideline limits that govern the
relationship between the cash value and the death benefit (tax
law limitations).
Considerable Flexibility
Includes:
■ The policyholder determines the frequency and amount of
premium payments.
■ The face amount of insurance can be increased with
evidence of insurability.
■ The policy can be changed from a level death benefit to a
death benefit equal to a specified face amount plus the policy
cash value (with evidence of insurability).
■ The policyholder can add cash to the policy at any time,
subject to maximum guideline limits that govern the
relationship between the cash value and the death benefit (tax
law limitations).
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 Summar
Life Insurance is a contract between an insurance policy holder and an

y
insurer or assurer, where the insurer promises to pay a designated
beneficiary a sum of money upon the death of an insured person.
Depending on the contract, other events such as terminal illness or critical
illness can also trigger payment.

Premature death can be defined as the death of a family head with

outstanding unfulfilled financial obligations, such as dependents to
support, children to educate, and mortgage to pay off.
 Summar
There are financial impact of premature death on different types of

y
families;
Single People, Single-Parent Families, Two-Income Earners with
Children, Traditional Families, Blended Families, Sandwiched Families.

The Three approach for estimating the amount of life insurance to own;
Human Life value Approach, Needs Approach, Capital Re
Thank You
Any question ?