Life Insurance
Protection against the death of an individual in the form of payment to a beneficiary – usually a family member, business or institution. In exchange for a series of premium payments or a single premium payment, upon the death of an insured, the face value (and any additional coverage attached to a policy), minus outstanding policy loans and interest, is paid to the beneficiary. Living Benefits may be available for the insured in the form of surrender values or income payments.
Ordinary Life Insurance: A policy that remains in full force and effect for the life of the insured, with premium payments being made for the same period.
Term Life Insurance: Life insurance that stays in effect for only a specified, limited period. If an insured dies within that period, the beneficiary receives the death payments. If the insured survives, the policy ends and the beneficiary receives nothing. For example, if an insured with a five year term policy dies within that period, the beneficiary receives the face amount of the policy. If the insured survives the five year period, the policy ends with no benefit payable.
Universal Life Insurance: Adjustable life insurance under which:
- Premiums are flexible, not fixed.
- Protection is adjustable, not fixed.
- Insurance company expenses and other charges are specifically disclosed to a purchaser.
This policy is referred to as “unbundled” life insurance because its three basic elements (investment earnings, pure cost of protection, and company expenses) are separately identified both in the poloicy and in an annual report to the policy owner. After the first premium, additional premiums can be paid at any time. (There usually are limits on the dollar amount of each additional payment.) A specified percentage expense charge is deducted from each premium before the balance is credited to the cash value, along with interest. The pure cost of protection is subtracted from the cash value monthly. As selected by the insured, the death benefit can be a specified amount plus the cash value or the specified amount that includes the cash value. After payment of the minimal initial premium required, there are no contractually scheduled premium payments (provided the cash value account balance is sufficient to pay the pure cost of protection each month and any other expenses and charges. Expenses and charges may take the form of a flat dollar amount for the first policy year, a sales charge for each premium received, and a monthly expense charge for each policy year). An annual report is provided to the policy owner that shows the status of the policy (death benefit option selected, specified amount of insurance in force, cash value, surrender value, and the transactions made each month under the policy during the year – premiums received, expenses charged, guaranteed and excess interest credited to the cash value account, pure cost of insurance deducted, and cash value balance).
Whole Life Insurance: See Ordinary Life Insurance.
Permanent Life Insurance: See Ordinary Life Insurance.
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