280QR Lesson 05
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Loma Life insurance ppt
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Lesson 5
LESSON FIVE *
LESSON 5
LESSON FIVE *
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LESSON FIVE *
All term life insurance products provide coverage for a specified
period of time, called the policy term.
The policy benefit is payable only if
1. The insured dies during the specified term and
2. The policy is in force when the insured dies
If the insured lives until the end of the specified term, the
policy may give the policyowner the right to continue life
insurance coverage.
If the policyowner does not continue the coverage, then the policy
expires and the insurer has no liability to provide further
insurance coverage.
Characteristics of Term Life
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The length of the policy term varies considerably from policy to
policy, and can be shown as either
Characteristics of Term Life
A specified number of years
For example, a policy may specify a term of 1 year, 5 years, 10
years, or 20 years (generally speaking, insurers seldom sell term
life insurance to cover periods of less than 1 year).
A specified age the insured has reached
For example, a term insurance policy may cover an insured until age
65 (referred to as term to age 65).
Lesson 5
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By far, the most common plan of term insurance is level term life
insurance, which provides a policy benefit that remains the same
over the term of the policy.
Plans of Term Life
Insurance Coverage
Example: Under a 5-year level term policy that provides $100,000 of
coverage, the insurer agrees to pay $100,000 if the insured dies at
any time during the 5-year period that the policy is in
force.
The amount of each renewal premium payable for a level term life
insurance policy usually remains the same throughout the stated
term of coverage.
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Decreasing term life insurance provides a policy benefit that
decreases in amount over the term of coverage. The policy benefit
begins as a set face amount and then decreases over the policy term
according to a stated method in the policy.
Plans of Term Life
Insurance Coverage
Example: Under a 5-year decreasing term policy that provides a 1st
year benefit of $50,000 and decreases by $10,000 on each policy
anniversary, the insurer agrees to pay, while the policy is in
force:
$50,000 if the insured dies during the 1st policy year
$40,000 if the insured dies during the 2nd policy year
$30,000 if the insured dies during the 3rd policy year
$20,000 if the insured dies during the 4th policy year
$10,000 if the insured dies during the 5th policy year
Coverage ends at the end of the 5th policy year.
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Insurance Coverage
The amount of each renewal premium payable for a decreasing term
life insurance policy usually remains level throughout the policy
term.
Insurers offer several plans of decreasing term insurance,
including
Mortgage insurance
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mortgage insurance: a plan of decreasing term insurance designed to
provide a benefit amount that corresponds to the decreasing amount
owed on a mortgage loan
Plans of Term Life
Insurance Coverage
The term of a mortgage policy is based on the length of the
mortgage, usually 15 or 30 years.
Renewal premiums are generally level throughout the term.
In most instances, the life insurance policy is independent of the
mortgage—the institution granting the mortgage is not a party to
the insurance contract.
The beneficiary is not required to use the proceeds of the policy
to repay the mortgage.
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Insurance Coverage
If both insureds survive until the end of the stated term, the
joint mortgage policy expires.
If one of the insureds dies while the policy is in force, the
insurer pays the policy benefit to the beneficiary (typically the
surviving insured).
joint mortgage insurance: a variation of mortgage insurance which
provides the same benefit as a mortgage insurance policy except the
joint policy insures the lives of two people
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credit life insurance: a type of term life insurance designed to
pay the balance due on a loan if the borrower dies before the loan
is repaid
Plans of Term Life
Insurance Coverage
Unlike mortgage insurance policies, credit life insurance policies
always provide that the policy benefit is payable directly to the
lender, or creditor, if the insured borrower dies during the
policy’s term.
Although credit life insurance is available on an individual basis,
most credit life insurance is sold to lending institutions as group
insurance to cover the lives of the borrowers of that lender.
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Insurance Coverage
The amount of credit life insurance benefit payable is usually
equal to the amount of the unpaid debt; as the amount of the loan
decreases, the face amount of the coverage decreases.
Credit life insurance premiums may be level over the duration of
the loan or, in cases in which the amount of the loan varies, may
increase or decrease as the amount of the outstanding loan
balance—and the corresponding policy benefit—increases or
decreases.
Premiums for credit life insurance may be paid to the insurance
company by the lender or by the insured borrower; in most cases,
the borrower pays the premium to the lender, which then remits the
premium to the insurer.
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family income coverage: a plan of decreasing term life insurance
that provides a stated monthly income benefit amount to the
insured’s surviving spouse if the insured dies during the term of
coverage
Plans of Term Life
Insurance Coverage
The longer the insured remains alive during the term of coverage,
the smaller the total amount of benefits the insurer will pay
out.
Under some family income coverages, the insurer promises to pay the
income benefit amount for at least a stated minimum number of years
if the insured dies during the policy’s term.
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Increasing Term Life Insurance provides a death benefit that starts
at one amount and increases by some specified amount or percentage
at stated intervals over the policy term.
Plans of Term Life
Insurance Coverage
Example: Coverage starts at $100,000 and then increases by 5
percent on each policy anniversary date throughout the term of the
policy.
The premium for increasing term insurance generally increases as
the amount of coverage increases.
The policyowner usually has the option of freezing at any time the
amount of coverage provided by the increasing term insurance.
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Term Life Insurance
If the policy gives the policyowner the option to continue the
policy’s coverage for an additional policy term, then the policy is
a called a renewable term insurance policy.
If the policy gives the policyowner the right to convert the term
policy to a cash value policy, then the policy is referred to as a
convertible term insurance policy.
Term life insurance policies often contain features that allow the
policyowner to continue the life insurance coverage beyond the end
of the original term.
Some policies, called renewable/convertible term insurance
policies, contain both of these features.
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Evidence of insurability: proof that the insured person continues
to be an insurable risk
The insured is not required to undergo a medical examination or to
provide the insurer with an updated health history.
Often, all the policyowner must do to renew the policy is pay the
renewal premium.
Renewable term life insurance policies include a renewal provision
that gives the policyowner the right, within specified limits, to
renew the insurance coverage at the end of the specified term
without submitting evidence of insurability.
Renewable Term and Convertible
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Term Life Insurance
Under most renewable term insurance policies, the policyowner has
the right to renew the coverage for the same term and face amount
originally provided by the policy.
Example: A 10-year, $100,000 renewable term policy usually can be
renewed for another 10-year period and for $100,000 in
coverage.
Most insurers allow the policyowner to renew the policy for a
smaller face amount and/or a shorter period than provided by the
original contract, but not for a larger face amount and/or a longer
period.
One-year term policies and riders are usually renewable, and such
coverage is called yearly renewable term (YRT) insurance or
annually renewable term (ART) insurance.
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Term Life Insurance
Often, the renewal provision places some limit on the policyowner’s
right to renew. The most common limitations are:
Example: The renewal provision of a policy may specify that the
coverage is not renewable after the insured has reached age 75.
Another policy may specify that the coverage is renewable no more
than three times.
The coverage may be renewed only until the insured attains a stated
age
or
The coverage may be renewed only a stated maximum number of
times
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Term Life Insurance
The renewal premium rate is based on the insured person’s attained
age—the age the insured has reached (attained) on the renewal
date.
As people age, mortality rates and the insured’s mortality risk
increase.
As people age, renewal premium rates also increase.
The renewal premium rate remains level throughout the new term of
coverage.
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The renewal feature can lead to antiselection.
Insureds in poor health are more likely to renew their policies
because they may not be able to obtain other life insurance.
Because of this risk of antiselection, the premium for a renewable
term life insurance policy is usually slightly higher than the
premium for a comparable nonrenewable term life insurance
policy.
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Term Life Insurance
Convertible term insurance policies contain a conversion privilege
that allows the policyowner to change—convert—the term insurance
policy to a cash value policy without providing evidence that the
insured is an insurable risk.
Cash value coverage is available if the health of the person
insured by a convertible term policy has deteriorated to the point
that the person would otherwise be uninsurable.
The premium for the cash value policy cannot be based on any
increase in the insured’s mortality risk, except with regard to an
increase in the insured’s age.
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Term Life Insurance
As in the case of the renewal provision, the conversion privilege
can lead to antiselection.
Insureds in poor health are more likely to convert their coverage
because they may not be able to obtain other life insurance.
Because of this risk of antiselection, the premium for a
convertible term life insurance policy is usually higher than the
premium for a comparable nonconvertible term life insurance
policy.
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After the insured attains a stated age
or
After the term policy has been in force for a specified time
Example: A 10-year term policy may not permit conversion after the
insured has attained age 65 or may only permit conversion during
the first 8 years of the term.
Conversion also may be limited to an amount that is only a
percentage of the original face amount.
Example: A 10-year term policy may permit conversion of 100 percent
of the face amount within the first 5 years of the 10-year term,
and a smaller percentage, such as 50 percent, if the policy is
converted during the last 5 years of the 10-year term.
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Term Life Insurance
Under an attained age conversion, the renewal premium rate is based
on the insured’s age when the coverage is converted.
Under an original age conversion, the effective date of the cash
value life insurance policy is considered to be the date on which
the policyowner purchased the original term insurance policy; as a
result, the premium rate for the cash value policy is based on the
insured's age at the time the original term insurance policy was
purchased.
Premiums for a converted policy depend on the type of
conversion.
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Some of the typical personal needs that life insurance can meet
are
Personal Needs
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Business Needs
Business continuation needs
A life insurance policy can provide funds to ensure that a business
continues in the event of the death of an owner, partner, or other
key person.
Employee benefit needs
A business can purchase life insurance to provide benefits for its
employees.
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Lesson 5
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