Chapter 4 : Types of Policies

summary

Chapter 4 is about learning to identify the different types of life insurance policies and recognize how each one works from the clues in an exam question. Don’t try to memorize every policy as an isolated definition. Focus on Premium, Death Benefit/Coverage, Cash Value, and Duration.

Start with TERM INSURANCE. Your guide gives you three rules that apply to term: Pure Protection, Temporary Coverage, and Low Cost/High Coverage. Most importantly, term insurance has NO cash value. Study Guide

Know the major types of term insurance. Level Term keeps the coverage and premium level during the term. Annual Renewable Term (ART) maintains level coverage while premiums increase as the policy renews. Decreasing Term has level premiums but decreasing coverage and is associated with Mortgage/Credit Life. Increasing Term increases coverage while premiums remain level and is associated in your guide with a Return of Premium (ROP) rider. Study Guide

Also master Renewable vs. Convertible. Renewable means continuing the term coverage at a higher premium, while Convertible means changing the term policy to another type of policy. Your study guide emphasizes that both can be exercised without evidence of insurability. Study Guide

Next is WHOLE LIFE. Think permanent + guarantees + cash value. Your guide's whole-life template is: fixed/guaranteed premium, face amount, cash value earning fixed interest in the general account, maturity at age 100, and living benefits such as loans and nonforfeiture values. Whole Life may also be called Permanent, Ordinary Life, or Straight Life. Study Guide

Then learn UNIVERSAL LIFE (UL). The major word to remember is FLEXIBLE. Universal Life combines insurance with an interest-sensitive cash component and provides flexibility in premiums and coverage. Option A has a level death benefit, while Option B has an increasing death benefit. Study Guide

For Variable Universal Life, memorize the Rule of S from your guide: Separate Account → Security → Securities License Required. Because securities are involved, the values aren't guaranteed in the same way as traditional fixed products. Study Guide

Finally, know the specialized policies. Joint Life = First-to-Die. Survivorship Life = Second-to-Die. Juvenile Policy = coverage for a minor. Mortgage Life = decreasing term designed around the mortgage principal. Family Policy = individual coverage for family members. Study Guide

EXAM MINDSET: Hunt for the keyword. Temporary + no cash value → Term. Permanent + fixed premium + cash value → Whole Life. Flexible premium → Universal Life. Separate account/securities → Variable. First death → Joint Life. Second death → Survivorship. Mortgage balance → Decreasing Term.

THE BIG 5 TO MASTER

TERM → Temporary / No Cash Value
WHOLE LIFE → Permanent / Fixed / Cash Value
UNIVERSAL LIFE → Flexible
VARIABLE → Securities / Separate Account
SPECIALIZED POLICIES → Know who they cover and when they pay

Your goal isn't to memorize Chapter 4 word-for-word. Your goal is to see two or three clues in an exam question and immediately know which policy they're describing.