Recap of Chapter Three

A life insurance policy matures (endows) when its cash value equals the face amount. (3.1)

At maturity, the insurer pays the face amount to the policyowner. (3.1)

The cash value of a whole life policy is a living benefit. The policyowner may borrow against the cash value or receive it upon surrender before the insured’s death. (3.1)

Term insurance provides a pure death benefit and is often referred to as temporary insurance because it offers coverage for a specified number of years or until a stated age. (3.2)

Decreasing term insurance features a declining death benefit and is commonly used to cover obligations such as mortgages or other debts. (3.2)

Renewable term insurance allows the policy to renew at the end of the original term without requiring new evidence of insurability, up to a specified maximum age. (3.2)

Premiums for a renewed term policy are calculated based on the insured’s attained age at the time of renewal. (3.2)

Term insurance provides pure protection only and does not accumulate cash value. (3.2)

Term coverage may be purchased as a standalone policy or added as a rider to another type of life insurance. (3.2)

The terms “level,” “decreasing,” and “increasing” describe the structure of the death benefit, not the premium. (3.2)

A level term policy maintains the same death benefit for the entire period the policy is in force. (3.2)

Under a decreasing term policy, the death benefit declines each year while the premium remains level. Because the benefit decreases over time, premiums are generally lower than comparable level term policies. (3.2)

Re-entry term is a form of level term insurance that allows renewal at a reduced premium if the insured satisfies specified underwriting requirements. If the insured does not qualify, the policy renews at the standard attained-age premium. (3.2)

Traditional whole life policies credit a guaranteed rate of return to the policy’s cash value. (3.3)

Ordinary Whole Life insurance may be structured as Straight Life (Continuous Premium), Limited Pay Life, or Single Premium Life. (3.3)

Universal life insurance offers flexible premium payments and an adjustable death benefit. The policyowner may increase, decrease, or skip premiums (within policy limits) and may increase or decrease the face amount, subject to contract provisions. An increase in the death benefit generally requires evidence of insurability. (3.4)

Premiums paid into a universal life policy are credited to the cash value account. From that account, the insurer deducts monthly mortality charges and administrative expenses. After these deductions, interest is credited to the remaining cash value, allowing it to grow. (3.4)

The credited interest rate in a universal life policy may vary based on current conditions but will never fall below the policy’s guaranteed minimum rate. A potential advantage of universal life is the opportunity to earn current interest rates that may exceed the fixed rate credited under traditional whole life policies. (3.4)

Universal life policy cash values are maintained in the insurer’s general account, and only a life insurance license is required to sell this type of policy. (3.4)

Policy loans taken from a universal life contract do not immediately reduce the total cash value or the face amount; however, outstanding loans will reduce the death benefit if not repaid. Partial withdrawals permanently reduce the cash value and may also reduce the face amount. (3.4)

Universal life provides two death benefit options:

Option A (Level) – Pays the face amount only.

Option B (Increasing) – Pays the face amount plus accumulated cash value. (3.4)

Variable whole life (variable life) is a fixed-premium policy in which the cash value is invested in a separate account. The policyowner allocates funds among subaccounts similar to mutual funds, allowing for market-based returns—positive or negative. (3.4)

The separate account in a variable life policy does not guarantee a rate of return; however, the policy includes a guaranteed minimum death benefit. (3.4)

Variable universal life (VUL) combines universal life flexibility with separate account investing, allowing the policyowner to direct cash value into market-based subaccounts rather than earning fixed interest. VUL policies do not provide guaranteed interest rates or guaranteed death benefits beyond contractual minimums. (3.4)

Producers must hold both a valid life insurance license and the appropriate securities registration in order to sell variable insurance products. (3.4)

Juvenile life insurance policies are issued on the lives of minor children and often include a provision that automatically increases the face amount at a specified age, typically between ages 21 and 25. (3.5)

Joint-Life (First-to-Die) policies are generally permanent, cash value policies that pay the death benefit upon the death of the first insured. Once the benefit is paid, the policy terminates. (3.5)

Joint-and-Survivor (Last-to-Die) policies are also typically cash value policies, but the death benefit is paid only after the last insured dies. These policies are commonly used to provide liquidity for estate tax obligations. (3.5)

Life insurance riders are optional provisions that add benefits or provide additional flexibility to the base policy. (3.6)

A Waiver of Premium rider waives required premium payments if the insured becomes totally disabled after a six-month elimination period. If the insured recovers, premium payments resume. In a whole life policy, cash value continues to accumulate as though premiums were being paid. The insured and the policyowner must be the same person. (3.6)

A Waiver of Cost of Insurance rider is used in universal life policies in place of a waiver of premium. It covers the monthly mortality and expense deductions during a period of total disability. (3.6)

A Payor Benefit rider waives premiums on a juvenile policy if the payor—typically a parent—dies or becomes totally disabled. Premium payments resume when ownership transfers to the child, usually at age 21 or 25. (3.6)

A Disability Income rider provides a monthly income to a totally disabled insured, typically calculated as a percentage of the policy’s face amount (such as 1%). The disability income benefit does not reduce the policy’s death benefit. (3.6)