7.01 Life Insurance

1. 7.01 Life Insurance

2. Term Insurance • Provides insurance for a specific period of time • Relatively low cost • Policy benefits: young person can buy a large amount of coverage for minimum money • No investment benefits

3. Term Insurance • Types • Level term • Premiums and death benefits stay the same for the life of the policy • Decreasing term • Premiums stay the same but the benefits decrease over the life of the policy e.g.for home mortgage • Renewable term • The insured person can renew the policy without taking a physical • Convertible term • The insured person can change the policy from convertible to permanent without taking a physical, tend to be more expensive • Permanent life insurance (also called cash value life insurance • Provides coverage the person’s entire life and includes an investment component

4. Whole-life insurance • Provides insurance for whole lifetime as long as premiums are paid • More expensive than term b/c one pays for premium plus investment • Policy benefits: insurance coverage for a lifetime as long as all premiums are paid • Investment benefits: grows in cash value as premiums and interest accumulate; one can borrow against it at low interest rate and receive some/all of cash value if change policies

5. Whole-life insurance • Types • Limited-payment life • Coverage for entire life but premiums are higher than whole life b/c premiums are paid for a set number of years or until a set age • Universal life • Allows adjustments of premium, face value, and level of protection • Variable life • Premiums are fixed, but face amount varies with investment results