Types Of Life Insurance Policies - Life Insurance Exam Prep

The speaker introduces the topic of life insurance policies, specifically focusing on the different types that are essential to understand for a life insurance licensing course. They mention term life insurance as the most basic type, which offers temporary protection for a specific time period and coverage amount. The example given is a 20-year, 1 million dollar level term policy with a fixed premium. The purpose of term life insurance is to provide financial coverage for obligations, debts, or income replacement. The speaker also touches on the concept of key person insurance for businesses and the limitations of term policies based on age, highlighting that they are pure life insurance with no cash value and are meant to replace the insured's monetary value upon death.

This paragraph delves deeper into the specifics of term life insurance, explaining that the premium is based on the insured's attained age and remains constant throughout the policy's life. It discusses different types of term policies, including level term, which maintains a constant death benefit, and decreasing term, which reduces the death benefit over time but keeps the premium level. The paragraph also introduces annual renewable term insurance, which is the purest form of term insurance, renewable annually without underwriting but with increasing premiums based on age. The speaker uses a graph to illustrate how the death benefit and premiums work over time, emphasizing the cost-effectiveness of term insurance for temporary needs.

The speaker outlines special features of term life policies, such as renewability and convertibility. Renewable term policies allow the policyholder to renew the insurance without underwriting, though at an increased premium based on their attained age at the time of renewal. Convertibility is another feature that lets the policyholder switch to a permanent whole life policy without providing evidence of insurability. The paragraph also mentions the possibility of returning premiums or adding them to the death benefit in certain term policies, and the importance of understanding these features when considering life insurance.

The speaker shifts focus to whole life insurance, also known as permanent insurance, which remains in effect for the policyholder's entire life or until age 100. Whole life insurance features a cash value component that equals the death benefit at age 100, offering a guaranteed legacy builder and tax advantages. The policy's premiums are level and never change, and there's an option for limited pay whole life, where premiums can be paid off within a specific time frame. The cash value in whole life insurance is a savings element that builds up over time, and the policyholder can borrow against it or surrender the policy for its cash value. The speaker also discusses the history of cash value and its role in retaining policyholder interest in life insurance.

This paragraph provides a detailed look at the characteristics of whole life insurance, including its level premium, guaranteed death benefit, and cash value accumulation. The speaker explains that the cash value grows steadily and can reach the face amount of the policy by age 100. They also discuss different forms of whole life insurance, such as ordinary whole life, straight whole life, and limited pay whole life, each with its own premium payment structures and benefits. The paragraph concludes with an explanation of single premium pay whole life, where a one-time payment is made, resulting in immediate cash value and a level death benefit.

The speaker introduces variable life insurance, which is investment-based and carries risks due to its connection to market performance. Variable life insurance offers a level premium and a minimum death benefit, but the cash value is not guaranteed and fluctuates based on investment performance. The paragraph explains that the policyholder assumes the investment risk, and the insurance company is not responsible for losses. It also covers variable universal life insurance, which is a flexible premium policy that can be adjusted based on the policyholder's needs and market conditions, and is regulated by both state and federal authorities.

The speaker discusses indexed life insurance, which has a guaranteed minimum interest rate and the potential for market gains, with the death benefit increasing over time to account for inflation. However, insurance companies retain most of the market gains, making it a less favorable investment. The paragraph then covers universal life insurance, which is a flexible premium policy that allows the policyholder to adjust premiums, death benefits, and other aspects as needed. The speaker explains the cost of insurance in universal life and how it affects cash value and policy longevity, as well as the different death benefit options available.

In the final paragraph, the speaker describes adjustable life insurance, which can take the form of either term or whole life and allows the policyholder to make changes as their needs evolve. This includes adjusting the premium payment period, face amount, and type of policy protection. The speaker notes that while adjustable life insurance can offer flexibility, it may require evidence of insurability for certain changes and that cash value typically develops when premiums exceed the cost of insurance. The paragraph concludes with an invitation for questions and a reminder to check out the speaker's other resources for learning about life insurance sales.