7.01 Life Insurance

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

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 persons entire life and includes an investment component

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

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