Sec 12.5 Life Insurance

Sec 12.5 Life Insurance

• Objectives– Define term, ordinary life, limited payment, and

endowment life insurance policies.– Understand universal life, variable life, and

endowment policies.– Find the annual premium for life insurance.– Use premium factors with different modes of

premium payment.

There are four types of life insurance under consideration in this section:


Term Life Insurance


Term Life Insurance

Ordinary Life Insurance


Term Life Insurance


Limited Payment Life Insurance (20-Pay)


Term Life Insurance


Limited Payment Life Insurance (20-Pay)

Endowment Policies (20-year endowment)

Term Life Insurance

- Provides protection for a fixed term, or length of time. Once the term is over, the policy may be renewed, but usually at a higher premium.

Term Life Insurance

- Provides protection for a fixed term, or length of time. Once the term is over, the policy may be renewed, but usually at a higher premium.

- Term life insurance is the least expensive of the types of insurance listed and provides the greatest amount of coverage for the money invested. However, once the term is over, the insured has nothing to show for their investment . . .

Term Life Insurance- Provides protection for a fixed term, or

length of time. Once the term is over, the policy may be renewed, but usually at a higher premium.

- Term life insurance is the least expensive of the types of insurance listed and provides the greatest amount of coverage for the money invested. However, once the term is over, the insured has nothing to show for their investment. . . unless they die!

Ordinary Life Insurance (whole life)

- Combines the protection of life insurance with a savings plan. The insured pays a fixed amount until death or retirement--whichever comes first. Regular monthly payments are made to the insured upon retirement, until his or her death.

Ordinary Life Insurance (whole life)

- Combines the protection of life insurance with a savings plan. The insured pays a fixed amount until death or retirement--whichever comes first. Regular monthly payments are made to the insured upon retirement, until his or her death.

- Builds up cash value which can be used to pay retirement benefits or can be borrowed against. However, any monies borrowed

would have to be repaid in order to get the full face value of the policy.

Limited Payment Life Insurance (20-pay life)

- Similar to Ordinary Life Insurance except that premiums are paid for only a fixed number of years.

Limited Payment Life Insurance (20-pay life)

- Similar to Ordinary Life Insurance except that premiums are paid for only a fixed number of years.

- Commonly used by athletes, actors, or other individuals whose income is likely to be high for several years and then sharply decline.

Endowment Policies (20-year endowment)

- A policy which guarantees payment of a fixed amount of money to a given individual;regardless of whether the insured lives or not.

- Commonly used by athletes, actors, or other individuals whose income is likely to be high for several years and then sharply decline.

Annual Premium = # of x Rate per thousands $1000

Face Value = ------------- -- x Table Value 1000

Example 1

Face Value of Policy: $85,000Age of Insured: 30Sex of Insured: MaleType of Policy: Universal Life

Example 1

Face Value of Policy: $85,000

Age of Insured: 30

Sex of Insured: Male

Type of Policy: Universal Life

Table Value

= $6.08

Annual Premium

$85,000

= -------------- x $6.08

$1,000

Annual Premium

$85,000

= -------------- x $6.08

$1,000

= $516.80

Premium Factors

Mode of Payment Premium Factor

Semiannually 0.51

Quarterly 0.26

Monthly 0.0908

If the annual premium is $516.80, find the quarterly premium.


Quarterly PMT

= Annual Premium x Premium Factor


Quarterly PMT


Quarterly PMT

= $516.80 x 0.26


Quarterly PMT


Quarterly PMT= $516.80 x 0.26= $134.37

Hwk Sec 12.5 1, 2, 3, 4, . . . 20 all.

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Sec 12.5 Life Insurance