Term 20Insurance by 2rwZZG

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									    Term life insurance and
     endowment insurance




                                    Richard MacMinn




1     Thursday, November 10, 2011                 Copyright MacMinn.org
    Objectives

       Consider the competitive pressures facing life
        insurers
       Consider how life insurers are responding to
        competitive pressures through product design and
        distribution
       Define term and endowment life insurance
       Describe the features of term life insurance
       Describe and explain endowment life insurance


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    The changing face of financial services
    markets

       Factors contributing to change
        –   International growth of life markets
        –   Confluence of economic, cultural, demographic
            and technological factors
        –   Convergence in financial services




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    Insurance company reactions

       Potentially lower cost coverage
        –   Indeterminate premium plans
        –   More refined classification systems
        –   Provisions to encourage persistency
       Increased flexibility
        –   Face value may be changed at any time
        –   Increased flexibility in premium payment


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    Insurance company reactions

       Greater disclosure
        –   The disclosure of the elements of the policy, i.e. how much
            of the premium goes to mortality and expenses versus cash
            buildup
        –   The transparency extends to annual transaction summaries
            that allows the policyholder to monitor the financial results
            and compare to policy illustration at time of purchase
       Increased risk to consumers
        –   Price competition has motivated insurers to offer less liberal
            guarantees and shift more risk to the consumer, e.g., in
            variable life and annuity products


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    Types of life insurance

       Term life
       Endowment
       Whole life




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    Term life

       Nature of term life
        –   Renewability
        –   Convertibility
        –   Reentry
        –   Quotes
       Limitations of term life
        –   Benefits
                Indemnity cost is lower
                Flexible and transparent
        –   Costs
                It does not provide a savings instrument
                There is a renewal risk at term


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    Types of term life

       Level face value             Increasing term is equivalent to
       – Increasing premium          renewable term. Note the
                                     classification and YRT rates in table
       – Level premium
                                     4-1
            Life expectancy term
                                       The life expectancy term provides
            Term to age 65
                                       protection for the life expectancy of
                                       The family income policy is a
     Non-level face value             the insured term that provides a
                                       decreasing given age and sex.
                                       monthly income to generates
                                       The level premium a surviving a
       – Types
                                       cash value which increases andrider to
                                         The payor a certain usually a
                                       spouse until benefit is age or for a
            Mortgage protection term then decreases to zero at policy
                                       certain contract on a juvenile. The
                                         a life period.
            Payor benefit             expiration. death benefit is just
                                         decreasing
            Family income policy        sufficient to pay the premiums on the
                                         juvenile life contract, i.e., until the
                                         insured is 21.
8                                                              MacMinn
    Endowment insurance

       Nature of endowment
         –   Endowment insurance is equivalent to term life
             plus a pure endowment
         –   Endowment insurance is equivalent to decreasing
             term with increasing savings
        Endowment policies provide the
        face value upon death or the end      The pure endowment policy would
        of the term if the insured survives   be the face value payment in the
        until term                            event of survival till term


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     Endowment insurance
        Types of endowment
          –   Endowment contracts of 3-10 years are common in Asia.
          –   Single premium endowment policies are popular in part of Europe
          –   Long term endowment policies are popular in the UK as
              companions to mortgage loans, i.e., preset to pay the loan balance
              at term
          –   Retirement income policy provides the face value or cash value
              which ever is greater at term
          –   Modified endowment policy is popular in some markets such as
              Thailand. It provides periodic payments over the policy term which
              are proportional to the insured amount plus the face value at term.
        Uses and limitations
          –   The endowments have had difficulty competing with whole and
              term policies in the US and increasingly elsewhere also


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     Questions

        Life insurers have actively responded to competitive pressures
         in the financial services markets. How do the changes affect
         life insurance from the savings and risk perspectives?
        Reentry in term insurance allows life insurers to address
         adverse selection. How do these provisions make term
         insurance more attractive to consumers?
        Explain the renewability and convertibility features of term
         insurance.
        Term and endowment are two forms of life insurance.
         Compare and contrast the characteristics and objectives of the
         two policy types.



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     1. Insurers can offer lower-cost coverage
     with the following approaches:

     1.   Indeterminate-premium
          plans
     2.   More refined risk-
          classification
     3.   Provisions to encourage
          persistency
                                                                0%            0%           0%          0%
     4.   All of the above




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     2. Which of the following statements about
     term insurance is true


     1.   The insurance provides
          protection for a specified
          period of time.
     2.   Most policies can be renewed
          for additional periods without
          evidence of insurability.
     3.   Most policies can be
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          converted to a permanent life
          insurance policy.




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          All of the above

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13                                                                          MacMinn
     3. Decreasing term insurance is most
     suited to meeting which of the following
     needs?


     1.   funeral expenses.
     2.   educational funds.
     3.   mortgage payment.
     4.   retirement income.
     5.   none of the above.
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14                                                                       MacMinn
     4. Under the conversion privilege of a
     convertible term life insurance policy


     1.   The insured may convert to
          another term policy at expiration.
     2.   The insured may convert to
          another term policy prior to
          expiration.
     3.   the insured may convert to a
          whole life policy prior to
          expiration.
     4.   the insured may convert to a
          whole life after expiration                                       0% 0%                0% 0% 0%
     5.   all of the above.




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15                                                                                 th      MacMinn

								
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