Chapter 5:- Term Life Insurance

It remains in force for specific period of time. Benefits generally received from life insurance is not
taxable.

5.1 Needs met by life insurance

Personal Needs
 Dependents Support
 Debts and Final Expenses

Accumulated assets that one person owns when she dies are referred as persons estate. And is
distributed according to will or by law if now will is there.

The person representative to settle estate is executor if there is valid will and administrator if
person dies without will.

Business Needs
Business Continuation Insurance:-
 Key person life insurance:- Business owns, pays and is beneficiary. Key person generally include
a company owner, executive or a manager, top salesman or a person with great contacts.
 Buy Sell Agreement:- in which business owner agrees to sell his share of business after his death
to second party at a particular amount. Second party can have insurance on life of business
owner and make himself beneficiary.

Employee Benefit:- business provide life insurance as employee benefit.

A life insurance policy face amount is amount of life insurance benefits for which an individual applies
and insurer approves.

Term Life Insurance provides coverage only if the insured dies within period specified in policy, known as
policy term.

If insurer lives till the end period of policy, policy may give right to policy owner to continue some form
of life insurance. If policy owner does not continue coverage, policy expires.

Term can be of 1, 5, 10, 20 years.

Policy Anniversary:- anniversary of policy date

Policy date:- Date on which policy coverage begins

Expiration date:- Date on which policy coverage ends

Another type of term insurance policy cover insured till specified age generally 65 0r 70. Is referred to as
term to age 65. However policy does not expire at exact age of insurer, while policy anniversary
closest to insured 65th birthday.

Term life insurance don’t accumulate cash value.

5.2 Plans of Term Life Insurance Coverage
Level Term Life Insurance:-
Death benefit remain same over the term. Also called level premiums. Renewal premium usually remain
same but may increase depending on the policy

Decreasing Term Life Insurance:-

Death benefit decreases over period of time. Renewal premium usually remain same. Renewal premium
are less than Level Term Life Insurance for same face amount.

 Mortgage Life Insurance:- Also referred as mortgage redemption insurance, is a plan of

decreasing term life insurance. Company also provides joint mortgage life insurance. If any one
dies, death benefit is provided. Death benefit may or may not be provided directly to lender. In
Canada always provided to lender.
 Credit Life Insurance:- is designed to pay loan other than mortgage if borrower dies before loan
is paid. Death benefit is always provided to lenders. Generally loan must be 10 years or less.
 Family Income Coverage:- is a plan of decreasing term life insurance because longer the person
is alive during the term of coverage, shorter the time is required to pay monthly income
benefits. It’s most purchased as policy rider.

A policy rider, also known as endorsement is an amendment to an insurance policy that becomes part of
insurance contract. Riders generally provide supplementary benefit.

Increasing Term Life Insurance:-

Death benefit starts at one amount and increases over the period of time.

5.3 Features of term life insurance

Renewable Term Life Insurance
Gives option to policy owner to continue coverage at end of term without presenting evidence of
insurability. Provision is known as renewal provision.

Generally this type of policy places two limits

 Cannot renew after certain age.

 A stated maximum no of times.

Renewal premium is based on attained age.

Convertible Term Life Insurance:-

Can be converted to cash value life insurance. Two type of conversion.

i. attained age conversion

ii. original age conversion

Return of Premium Term Insurance:-

Chapter 6:- Cash Value Life Insurance and Endowment Plan
Two characteristics that differentiate CVLI with Term Insurance

 CVLI provides coverage for entire life time of insured, as long as policy remain force.
 CVLI provides a savings element, known as cash value.

While CVLI is designed for long term financial needs, it can also be used in short term. The owner can
use cash value as security for a policy loan from the insurer.

Policy owner can also surrender. The Cash Surrender value is the amount that a policy owner is entitled
to receive upon surrendering.

Whole Life Insurance:-

Is a type of cash value life insurance that provides lifetime insurance coverage, usually at a level
premium rate that does not increase as the insured ages. During policy early years, the cash value is less
than the policy reserves. Eventually at last year of mortality table, cash value and reserves become equal
to face amount of policy.

Premium Payment Periods:-

 Continuous-Premium Policies:-

Under continues premium whole life insurance, also refereed as straight life insurance policy or
ordinary life insurance policy, premiums payable until the death of insured. Premium amount
required is less than any other.

 Limited Premium Policies:-

Premium paid for a particular amount of time. A policy that requires no further premium
payment but continues to provide coverage is said to be a paid-up policy.

 Single Premium Policy:-

Cash value is available immediately.

Modified Whole Life Insurance:-

Some insurance company offer life insurance under which premium changes over period of time or face
value changes

Modified Premium
Premium amount increases after certain time. User able to purchase larger amount of insurance. Cash
value builds slowly. Face value remains same

Modified Coverage
Coverage decreases after particular time. Premium is less than continues premium policy.

Whole Life Insurance covering more than one insured

Joint Whole Life Insurance:- Also referred as first to die. If one insured dies, death benefit paid to other.
If both dies, death benefit of both is paid.

Last Saviour Whole Life Insurance:-

Also known as Second-to-die, both have to die to get coverage.

Family Policy:- Spouse and children get term insurance in addition of whole Life insurance of insured