Types of Policies
These are the two main types of private life insurance.
What are term life & whole life?
This rider provides a death benefit for a child, often with the option to convert it to permanent coverage later.
What is a Child Rider? (or Child Term Rider)
This is the living benefit of a permanent life insurance policy that grows tax-deferred and can sometimes be borrowed against.
What is Cash Value?
Designed to provide income, often for retirement, by giving the insurance company money so they can pay you income later.
What is an Annuity?
Premiums paid by an employer for a group life insurance policy covering employees are treated this way for tax purposes.
What is tax-deductible for the employer?
This whole life option lets you finish paying off the policy early—such as in 20 years or by age 65—while still keeping lifetime coverage.
What is Limited-Pay Whole Life?
This part of a life insurance policy specifies what each party gives and gets—premiums from the policyowner and coverage from the insurer.
What is the Consideration Clause?
Before purchasing a life insurance policy on someone else, this requirement ensures you must have a legitimate financial stake in their life.
What is Insurable Interest?
The person whose life expectancy determines the payments.
What is an Annuitant?
If a permanent policy lapses while a loan is outstanding, this portion of the loan is treated as....
What is considered Taxable Income?
This type of term policy has a death benefit that shrinks over time while the premium stays the same, making it useful for things like mortgages or loans.
What is Decreasing Term?
If a policyowner doesn’t pay a premium, this optional feature automatically takes a loan from the policy’s cash value to cover the payment and prevent lapse.
What is an Automatic Premium Loan?
Before accepting the initial premium, the producer must provide a document that gives the applicant generic information about life insurance, helping them understand their options.
What is a Buyer’s Guide?
When you take money out of an annuity, the gains are considered withdrawn first, meaning you pay taxes on them before your original contributions. This method is known as what?
What is LIFO? (Last In, First Out)
These can be taken as cash, used to reduce premiums, or used to buy paid-up additions, and are not taxable.
What is a Dividend?
This Universal Life death benefit option costs more because the death benefit increases each year by adding the cash value.
What is Option B?
This nonforfeiture option lets the policyowner convert the cash value into a smaller permanent policy that requires no further premiums.
What is Reduced Paid-Up Insurance?
This type of premium receipt makes coverage effective only once the application is approved and the risk is considered standard.
What is a Conditional Receipt?
This type of annuity’s growth is tied to a market index, such as the S&P 500, providing potential for higher returns while offering some level of protection.
What is an Indexed Annuity?
Overfunding a life insurance policy too quickly creates this contract, where withdrawals are taxed as LIFO but the death benefit stays tax-free.
What is a Modified Endowment Contract? (MEC)
Jessica wants a life insurance policy that will provide lifelong coverage, but she also wants the cash value to be invested in stocks and bonds so it can grow over time. She understands that the investment performance could make her death benefit go up or down. Which type of life insurance fits her needs?
What is Variable Life?
Maria wants the option to buy more life insurance later without proving she’s healthy again. This rider gives Maria that option.
What is the Guaranteed Insurability Rider?
These two approaches calculate how much Life Insurance coverage a person should buy.
What are the Human Life Value (HLV) Approach and the Needs Approach?
This payout option guarantees payments for a set number of years even if the annuitant dies early, providing a safety net for beneficiaries.
What is Life With Period Certain?
Although a life insurance death benefit is usually income tax-free, it may be included in the insured’s estate for tax purposes. A common way to avoid this is to place the policy in this type of trust.
What is an Irrevocable Life Insurance Trust (ILIT)?