Overview
This lecture covered key types of life insurance policies, important features, policy provisions, and major exam concepts with a focus on word associations and practical implications.
Types of Life Insurance Policies
- Whole life insurance provides lifelong coverage and builds cash value.
- Term life insurance offers affordable premiums for a set period without cash value.
- Variable life insurance allows policyholders to invest in accounts similar to mutual funds.
- Universal life insurance features flexible premiums and adjustable coverage.
- Indexed universal life ties cash value growth to an equity index.
- Convertible term policies allow conversion to permanent coverage without proof of insurability.
- Graded premium whole life starts with lower premiums that increase, then level off.
Policy Features & Provisions
- Stopping premiums on whole life may use cash value to cover them.
- Nonforfeiture options let policyholders retain value if they stop paying premiums.
- The incontestability clause prevents claim denial after a set period.
- A modified endowment contract (MEC) triggers tax on distributions if overfunded.
- Waiver of premium rider waives payments if the insured becomes disabled.
- Guaranteed insurability rider lets coverage increase without medical proof.
- Universal life’s main benefit: flexible premium payments (can increase, decrease, or skip).
- Policy loans and withdrawals are allowed from whole and universal life.
- Excess withdrawal (over cost basis) from universal life is taxable as income.
- The family term rider covers spouse and children.
- The spendthrift clause protects beneficiaries from creditors claiming the death benefit.
Settlement Options & Policy Processes
- Life income option provides guaranteed income for life.
- Fixed period option gives equal payments for a set number of years.
- Joint life policies pay the benefit after the first death; survivorship (second-to-die) pays after both pass away.
- Reinstatement provision allows reactivating lapsed coverage under certain conditions.
- Coverage does not begin until the first premium is paid.
- Free look period allows policyholders to cancel within a defined timeframe for a full refund.
Exam Tips & Word Associations
- MEC = taxes on distributions.
- Variable = investments, stock market, mutual funds, not guaranteed.
- Universal = flexible premium; can skip, increase, or decrease payments.
- Whole life = fixed premium.
- Spendthrift = creditors.
- Incontestability = prevents claim denial/cancellation after a period.
Key Terms & Definitions
- Whole Life Insurance — Permanent policy with cash value and fixed premiums.
- Term Life Insurance — Temporary coverage with no cash value, low premiums.
- Universal Life Insurance — Permanent policy with flexible premium/payment.
- Variable Life Insurance — Policy investing in subaccounts like mutual funds.
- Modified Endowment Contract (MEC) — Overfunded life policy with taxable distributions.
- Incontestability Clause — Prevents policy denial after a certain time.
- Spendthrift Clause — Protects policy proceeds from beneficiaries’ creditors.
- Waiver of Premium Rider — Waives premium if insured is disabled.
- Guaranteed Insurability Rider — Allows coverage increases without medical evidence.
Action Items / Next Steps
- Review definitions and word associations for each policy type and feature.
- Memorize which policy features are linked to taxes, flexibility, or investments.
- Study all key terms and review any unclear exam points.