II.B · Types of Life Policies
Whole life: the core features
Whole life is like owning instead of renting: coverage lasts your whole life as long as premiums are paid, and the policy builds equity (cash value).
Level premium, guaranteed death benefit, and guaranteed cash value growth.
Cash value usually starts to build after the first few policy years. The owner can borrow against it; any unpaid loan plus interest is subtracted from the death benefit.
The policy matures (endows) when the cash value equals the face amount. Traditionally that is age 100, and exam questions usually use 100; policies based on newer mortality tables often mature at 121. At maturity the insurer pays the face amount to the owner and the policy ends.
By payment schedule: ordinary (straight) life, limited pay, single premium and modified premium (next page).
Remember
· Whole life: level premium, guaranteed death benefit, guaranteed cash value.
· Matures when cash value equals the face amount (traditionally age 100).
· Unpaid policy loans reduce the death benefit.
Study as cards ›Four ways to pay for whole life ›All study notes
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