BU353 Lecture Notes - Lecture 13: Life Insurance, Whole Life Insurance, Endowment Policy
Chapter 13: Individual Life Insurance Products & Annuities
A life insurance policy is a legal agreement that pays an amount of cash, referred to as the death
benefit, upon the death of an insured life.
If life insurance is deemed to be needed, the next step is to determine whether the need for protection
is of a temporary or permanent nature. Short-term debts, such as car payments or student loans, are of
a temporary nature.
For most types of life insuane, the death enefit euals the poliy’s face amount, which is the stated
amount of coverage purchased by the policyholder. However, for some policies the death benefit
equals the face amount plus the cash value.
There are two broad types of life insurance products: temporary and permanent. Term insurance
provides temporary protection and is well suited to those who have a temporary need. Lifelong needs
are best managed by purchasing one of the various permanent life insurance policies.
Term Insurance
- provides a death benefit over a fixed term such as 1, 5 or 10 years
- typically provides pure death protection; pays if and only if the insured life of the policy dies within the
stated term of the policy
- almost all term policies are guaranteed renewable which means that the policy can be renewed at a
predetermined premium at the end of the term without having to again provide evidence of insurability
Endowment Insurance
- an endowment policy pays the face amount of the policy if the insured dies, but it also pays the face
amount of the policy if the insured survives the policy term
Permanent Insurance
- provides both death protection and some savings/investment accumulation
- essentially a financing plan for the long-term death protection that results in some money being saved
with the insurance company; overpayments in earlier years are used to offset the premiums that need
to be paid in later and more expensive years
Whole Life Insurance
- ontat length is the poliyholde’s entie life
- all important financial features of the product are set from the beginning of the policy
Net death protection is the death benefit minus the cash value (i.e., net death protection equals the
amount the policy would pay upon death of the insured over and above the amount that the insured
could receive if the policy was surrendered).
Death Protection = Death benefit – Cash valuet
= Face amount – Cash valuet
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Document Summary
Chapter 13: individual life insurance products & annuities. A life insurance policy is a legal agreement that pays an amount of cash, referred to as the death benefit, upon the death of an insured life. If life insurance is deemed to be needed, the next step is to determine whether the need for protection is of a temporary or permanent nature. Short-term debts, such as car payments or student loans, are of a temporary nature. For most types of life insu(cid:396)an(cid:272)e, the death (cid:271)enefit e(cid:395)uals the poli(cid:272)y"s face amount, which is the stated amount of coverage purchased by the policyholder. However, for some policies the death benefit equals the face amount plus the cash value. There are two broad types of life insurance products: temporary and permanent. Term insurance provides temporary protection and is well suited to those who have a temporary need. Lifelong needs are best managed by purchasing one of the various permanent life insurance policies.
