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Life_Insurance_and_Annuities (part 1) stdt

Use of illustrated dividends dividend options cash

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Unformatted text preview: a policy Accumulate at interest Offset premiums (pay premiums due) Purchase one-year term insurance Policy Loans Can borrow against the cash value of the Can policy policy Then owes the principal plus the interest, if Then the policyholder dies prior to repaying the loan, the loan balance reduces the death benefit benefit Why does a policyholder have to pay interest Why on his/her own money? on Automatic premium loan provision (prevent lapse) Settlement Options How death benefits are paid: Cash (lump sum) Interest only Fixed period (annuity certain) Fixed amount (annuity certain) Life Income Options (with or without guarantee) Universal Life Insurance Product Innovation: Universal Life Universal Life Policies Provide permanent death protection and Provide savings accumulation savings Differs from traditional whole life policies: Differs offer greater flexibility with premium payments the cash value varies explicitly over time the based on premium payments, expense and mortality charges, and credited interest mortality Product Innovation: Universal Life Premium flexibility No fixed premium schedule Cash value is not fixed in advance Cash Value Accumulation The cash value of a universal life policy varies over The time (whole life has predetermined rate) time Death benefit and savings accumulation are unbundled Usually guarantee a minimum interest rate Danger of projections (vanishing premium concept) Cash Value Accumulation: Universal Life (Figure 15-2) Cash Value + Premium payments at beginning of period Mortality charge at beginning of period Expense charge at beginning of period + Interest credited at end of period = Cash value at end of period Cash Value with Univ. Life Concept Check: Other things being equal, explain how each of the following would be likely to affect the growth of a universal life policy’s cash value. (a) The policyholder reduces the annual premium payment by 50 percent after five years. (b) Market interest rates are stable for five years and then decline sharply a...
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