Life Insurance - Types of Whole Life Policies

Other Types of Whole Life
Joint and Survivor- Joint life and survivor insurance is a type of life insurance coverage for more than one person, typically couples. With joint life and survivor insurance, benefits are not paid until both of the policyholders have died. Lower premiums exist on these policies than on individual life policies because of the potential for a much longer period of time before the policy is called upon to pay benefits. Joint life and survivorship insurance is a tool often used to help pay estate taxes, because estate taxes can be delayed until both husband and wife die.
This can take two different forms; first-to-die or second-to-die with death benefits taking place at first or second deaths.

Family Income Policies- These policies are a combination of decreasing term and a form of whole life where the term insurance provides a monthly payment from the insured's death to some point in the future.

Modified Whole Life- During the first five years, the premium is slightly more than a term life premium, and then the premium increases to slightly above what a whole life premium would have been at original purchase.

Graded premium Whole Life- Policy that starts with a low initial premium and gradually increases annually or until it levels out.

Vanishing Premium- A participating whole life policy whose dividends are expected to cover all future premium payments.

Single Premium Life- Paid for by insured/owner in one single premium payment to pay a future benefit in the case of death. May have unfavorable tax consequences if it does not meet the 7-pay test required by the IRS. This may result in the policy being classified as a MEC (modified endowment contract) thus subjecting it to taxable income and possible early withdrawal penalties.

Credit Life- Credit life insurance pays the insured balance of your loan, up to the policy maximum, in the event of your death. This ensures your family will not be left with your loan debt and protects the lender from financial loss in the case of death before completing a loan debt.

Practice Question:
Luis and Donna are in their mid-sixties and have been married for 30 years. They've accumulated a very nice estate together over the years, especially since the sale of their business five years ago. Their estate planning attorney determined that they will need an additional $2,000,000 of life insurance to help pay for estate taxes at their death. Luis has smoked cigars for 20 years and Donna has high blood pressure. What is the best policy considering their condition?

A. Variable universal life on Luis
B. Survivorship life using universal life
C. Term policy on Donna
D. First-to-die on Luis & Donna using variable whole life

Answer: B
The need here is to find the best policy to cover estate taxes. Estate taxes are due at the death of the second spouse, so a second-to-die or survivorship life policy would be the best choice. Just because Luis is a smoker and Donna has high blood pressure does not mean that they are uninsurable, they may just have higher premiums to pay because of their issues.

Comparing Life Insurance Policies
Related Articles
  1. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  2. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: Guggenheim BulletShrs 2018 HY CorpBd

    Find out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DWA SmallCap Momentum

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
RELATED TERMS
  1. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  2. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  3. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  4. Gross Exposure

    The absolute level of a fund's investments.
  5. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  6. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
RELATED FAQS
  1. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  4. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
  5. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
  6. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!