insurance part 3

at what age does whole life insurance mature?

All whole life lasts until death or age 100, has a fixed premium, and level benefit with cash value accumulation, regardless of how it is paid.

what is Single premium whole life?

Allows the insured to pay the entire premium in one lump-sum and have coverage for the insured's entire life. * An immediate nonforfeiture value is created* An immediate cash value is created* A large part of the premium is used to set up the policy's reserve

if you pose a risk to the insurance company, what happens to your dividend?

it will be less because you are a risk to them. people who don't pose a risk, get a hirer dividend. therefore, more of the premium is going to satify the risk of the insurance company if they need to pay a claim

A term rider is always...

level term

what is limited pay in whole life insurance?

limited Pay the coverage remains on a limited-pay life policy until age 100 or death, whichever happens first. Even though the premium payments are limited to a certain period, the insurance protection extends until the insured's death, or to age 100.

Target premium is a

suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.

what do variable life insurance products offer?

the potential to realize investment gains that exceed those available with traditional life insurance policies. This is done by allowing policyowners to direct the investment of the funds that back their variable contracts through separate account options.

what is the most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age?

the premium cost and the number one factor which impacts life insurance premium cost is the insureds current or attained age.

Beneficiaries and assignees are entitled to...

the proceeds upon the death of the insured before any claims of the insured's creditors.

what type of insurance has the same type of benefits?

whole life insurance. The only difference in "types" of whole life is how the policy is paid. Some will be paid straight until death or age 100, some will be paid for after a few years or by a specific age, some may give you a little discount in the early years to help you get started, etc.

The cost recovery rule states that...

when a life policy is surrendered for its cash value, the cost basis (total premiums paid) is exempt from taxation.

what makes a Modified Endowment Contract (MEC) lose favorable tax?

when an A MEC does not meet the 7-pay test and is considered over-funded, according to the IRS. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period.

there are who types of permanent life insurance... what are they?

whole life and universal life

this type of insurance is compared to buying a house

whole life insurance

life insurance that pays a benefit on the death of the insured and also accumulates a cash value is called....

whole life life insurance

a policy that becomes a modified Endowment contract (MEC)

will lose many of its tax advantages

Juvenile Insurance is...

written on the lives of children who are within specified age limits and generally under parental control.

what happens if you have purcahsed a policy for your child and something happens to you?

you are leaving them with premium payments.

absolute

you are permanatly giving that insurance over to someone else.

what happens when all the money in the cash amount is used up in a universal life insurance account?

you either have to make the payments or the payments go away.

what happens if you puraches policy on yourself and something happens to you? what have you left your child?

you have left them money to make premium payments.

how much do industrial life insurance issues typically face?

$1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

what 3 things does whole life insurance have?

1.) death benefit 2.) cash value 3.) premium - it is a level premium for life (the reason for its name)

Types of whole life insurance include what?

1.) straight whole life 2.) limited pay whole life 3.) single-premium whole life 4.) modified whole life5. graded whole life

A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?-Straight life accumulates faster than Limited-pay Life-20-Pay Life accumulates cash value faster than Straight Life-Cash value accumulation of both 20-Pay life and Straight Life depend on the insurer's financial rating-20-Pay Life and Straight Life accumulate cash value at the same rate

20-Pay Life accumulates cash value faster than Straight Life

what are the two things you have when you buy universal life insurance?

A death benefit plus a cash benefit that will grow over the years. if you want to put more money in it, you can and if one year you don't want to put much in it, you can take some out.

what is it called when you make a profit off of participating in a whole life insurance policy?

A dividend. these will increase your death benefit and increase your cash value. dividends are paid to the owners of the insurance company based on how much of an owner you are.

Face Amount Plus Cash Value

A face amount plus cash value policy is a contract that promises to pay the policies face amount plus the policy's cash value upon death of the insured. This is not a common policy.

Juvenile Insurance

A juvenile life insurance policy is any type of ordinary life insurance policy that insures the life of a minor. Applications for insurance and ownership of the policy rests with an adult, such as a parent or guardian, and do not require the minor's consent. This is known as third-party ownership. Additionally, the adult applicant is usually the premium payor until the child comes of age and is able to take over the payments.

Participating vs Nonparticipating

A participating life insurance policy is a policy that has dividend payments from the life insurance company. It is called participating because it is permitted to share or "participate" in the excess earnings of the life insurance company. A nonparticipating policy does not have the right to share in excess earnings, and consequently does not receive dividend payments.

Consideration Clause:

A policy owner must pay a premium in exchange for the insurer's promise to pay benefits. A policy owner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. In insurance, the insurance company exchanges the promises in the policy for a two-part consideration from the insured. Consideration is an exchange of something of value on which a contract is based. An insurance contract is valid only if the insured provides consideration in the form of the initial full minimum premium required and the statements made in the application. The applicant begs, "Please CONSIDER me for insurance. Here is my completed application, my initial premium, and how much money, how often I agree to pay. Please CONSIDER me!"

Modified Endowment Contracts (MEC):

A policy that is overfunded, according to IRS tables, is classified as a Modified Endowment Contract. Policies that do not meet the 7-pay test are considered MEC's and will lose favorable tax treatment. The 7-pay test is a limitation on the total amount you can pay into your policy in the first seven years of its existence. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period. For example, if yearly premium is $500, in a seven year period a

what can also be known as "second to die" policy

A variation of the joint life policy is the joint and survivor policy, or a "survivorship life policy". This plan also covers two lives, but the benefit is paid upon the death of the last surviving insured.

Adjustable Life

Adjustable life policies, also known as blended or combination policies, are distinguished by their flexibility that comes from combining term and permanent insurance into a single plan. The policyowner determines how much face amount protection is needed and how much premium the policyowner wants to pay. The insurer then selects the appropriate plan to meet those needs. Another option would be the policyowner may specify a desired plan and face amount.

Variable Whole Life Insurance can be described as:A. Both an insurance and securities productB. An insurance product onlyC. A securities product onlyD. The insurance company assumes the investment risk

A. Both an insurance ans securities product

There are two types of assignments:

Absolute andCollateral

what is Absolute Assignment?

Absolute assignment is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment clauseAn AD&D clause provides benefits for death due to an accident or for the loss of one or more hands, feet, arms, legs, or loss of sight.

what are the two factors that come into play when deciding if you want to purchase insurance?

Age and income

Misstatement of Age or Sex:

Allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefit payable if the age of the insured was misstated when the application for the policy was made.The insurer can adjust the benefit to what the premiums paid would have purchased at the insured's actual age.If the insured were older at the time of application than is shown in the policy, benefits would be reduced accordingly. The benefits would be increased if the insured were younger than listed in the application.

Term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.

Annual renewable term

Consideration Clause

As previously discussed, there must be an exchange of value between the two parties for the contract to be legally enforceable. Consideration is the value given in exchange for a contractual promise. In an insurance policy, the consideration clause states that the policy owner's consideration consists of completing the application and paying the initial premium. The consideration clause or provision in an insurance policy also specifies the amount and frequency of premium payments that the policy owner must make to keep the insurance in force. The policy owner provides truthful statements and a premium "in consideration" of the insurer's promise to pay the death benefit if the insured dies while the policy is in force.

what is an example of A Joint Survivor or Last Survivor Life Policy?

B and M purchase a joint life survivor policy. If B were to die first and then M died 10 years later, no benefits would be paid out from the policy until M died. A Joint Life and Survivor policy covers two lives but only pays benefits after the death of the last insured.

When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?A. Extended term optionB. Conversion provisionC. 1035 ExchangeD. Incontestable period

B. Conversion provision

Which of these types of life insurance allows the policy owner to have level premiums and to also choose from a selection of investment options? A. Modified Whole Life B. Variable Life C. Universal Life D. Adjustable Life

B. Variable Life

Whole life is often compared to...

BUYING; like BUYING a house

Dividend options include

Cash Reduced, reduction, or suspension of premiums Paid-up permanent additions One-year term insurance Accumulate at interest One of the unique features of a life insurance contract is the ability for the applicant (usually the policy owner) to customize the policy to meet their specific needs through policy add-ons known as riders. The waiver of cost of insurance rider, also be referred to as the waiver of monthly deductions, is typically reserved for universal whole life policies. The disability income benefit rider provides an income benefit if the insured is totally and permanently disabled as defined by the policy. Policies that pay a multiple of two times the policy face amount are called double indemnity, and those that pay three times the death benefit for death due to accidents are called triple indemnity and so forth. The death benefit paid under accidental death coverage is called the principal sum. The severance (dismemberment) benefit paid under accidental dismemberment is called the capital sum and is usually one-half of the principal sum. Guaranteed Insurability Option allows a policy owner to purchase additional life insurance coverage at specified dates without providing evidence of insurability. Payor rider may also be referred to as the payor benefit provision or payor clause and is only added to a policy an adult purchased to cover the life of a child. Term insurance riders were created to give insureds an inexpensive option to add additional temporary coverage to a permanent policy. A level term rider adds an additional fixed, level death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy. A decreasing term rider adds an additional decreasing death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy. An increasing term rider will allow for a greater amount of coverage each year. Increasing term riders provide an additional term insurance face amount at death, equal to either all premiums paid or the amount of cash value. Cost of Living Rider automatically increases the face amount of the policy at specified intervals based upon increases in the Consumer Price Index (CPI). Riders can be added to a life insurance policy that provide term insurance coverage for the spouse, children, or entire family. The exchange privilege rider, also known as the substitute, insured rider, outlines the conditions and processes for changing the insured of an insurance policy. The war exclusion prevents an insurer's financial catastrophe and typically applies to declared and undeclared wars. The status war clause is a restrictive type of clause which states that the insured will not possess coverage under an individual life insurance policy while he or she is in the military even if killed while away on furlough. The results clause states that an individual policy does not provide coverage if the insured dies while participating in military activities or during military maneuvers of some sort. Most life insurance policies will exclude deaths that result from certain types of high-risk aviation activities.

Collateral Assignment:

Collateral assignment is an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. Any proceeds above the amount due at the insured's time of death will be paid to a beneficiary designated by the policy owner.

level premium term insurance also has...

Convertible insurance.

A term life policy has a provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability. Convertible Term provides temporary coverage that may be changed to permanent coverage without evidence of insurability. For example, if you take out a term insurance policy when you are young to take advantage of your good health and the policy's lower premium, but want the option convert the policy to a permanent one for final expense benefits once your finances improve, you would want a convertible term life policy. The conversion privilege of a group term life policy allows an individual to leave the group term (temporary) plan and convert his or her insurance to an individual (permanent) policy without providing evidence of insurability. The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is the premium cost. The number one factor which impacts life insurance premium cost is the insureds current or attained age. For example, a $25,000 policy on a healthy 7-year-old boy will cost substantially less than a $25,000 policy on a 57-year-old man. Whether converting an individual or group term insurance policy, although your insurability is guaranteed, your age is typically reevaluated to your current (attained) age, not left at the age you were when you applied for the original term policy. Convertible Term would allow you to take your temporary coverage and change it to permanent coverage without evidence of insurability or good health, but your premiums will increase due to using your attained age.

Convertible term

what are some Advantages to whole life insurance?

Covers the entire life of the insured Living benefits - cash value and policy loans* Fixed premiums Drawbacks of whole life insurance:* Protection is more expensive because of living benefits* Premium paying period may extend beyond the income-earning years

what are credit policies all about?

Credit policies are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Since Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid, credit policies can only be purchased for up to the amount of the debt or loan outstanding. For example, if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would use a 5 year decreasing term life insurance policy with an initial face value of $20,000. You will pay the same level premium every month for the 5-year term of the policy. The face value will start out at $20,000 and change according to a schedule (the decreasing balance of the auto loan). After 5 years, the car will be paid for and the insurance policy will no longer be needed.

Current Assumption Whole Life (CAWL) \ Interest-Sensitive Whole Life

Current assumption whole life, also known as interest-sensitive whole life and excess interest whole life, is characterized by premiums that vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors. However, interest sensitive products also provide that the cash values may be greater than the guaranteed levels. If the company's underlying death, investment, and expense assumptions are more favorable than expected, policyowners will have two options: lower premiums or higher cash values. Underlying assumptions could also turn out to be less favorable than anticipated, which would call for a higher premium than that at policy issue. The policyowner may then either pay the higher premium or choose to reduce the policy's face amount and continue to pay the same premium. An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest- free. The provision that allows this is called the Partial Surrender provision.

is issued a life insurance policy with a death benefit of 100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains the same at $100,000. Which type of Life Insurance policy is this?A. EndowmentB. Graded PremiumC. Straight lifeD. Modified Premium Life

D. Modified Premium Lifestart with a lower premium than typical whole life during the first few years (typically 5) and then are higher thereafter.

Provides both living and death benefits. Provides permanent life insurance protection for the insured's entire life. It also provides living benefits such as cash value and policy loans.

Whole Life Insurance

Term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection. A decreasing term policy is a type of life policy which has a death benefit that adjusts periodically (according to a schedule) and is written for a specific period of time. Decreasing term policies are usually written for a mortgage or other debt that typically decreases over time until it is paid off. For example, a 15 year decreasing term policy could protect a 15-year mortgage. As the mortgage balance reduces each year, the face value of the insurance policy will adjust accordingly to match. After the mortgage is paid off, the insurance policy will expire.

Decreasing term

F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?

Decreasing term policy

Owner's Rights Provision

Defines the person who may name and change beneficiaries, select options available under the policy, and receive any financial benefits from the policy.

Dependent Riders (Other Insureds Rider):

Dependents may be added to as additional (other) insureds through the use of a dependent rider. Other insured riders are typically used for spouses and children.

Activities of daily living (ADLs) include:

Eating, Dressing, Bathing, Toileting/continence, Walking/ambulation, Transferring or Taking medication.

These policies are characterized by a guaranteed minimum interest rate, tax deferral of interest accumulations, and policy loan access. The equity index returns are designed to keep pace with or beat inflation which protects the policyholder against downside market risk. Equity indexed life insurance contracts combine term life insurance with an investment feature, similar to a universal life plan. Death benefit amounts are based upon the coverage amount selected by the contract owner plus the account value.

Equity Index Universal Life Insurance

What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?

Family Maintance policy

P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase?

Family Maintenance policy

what is an example convertible term?

For example, if you take out a term insurance policy when you are young to take advantage of your good health and the policy's lower premium, but want the option convert the policy to a permanent one for final expense benefits once your finances improve, you would want a convertible term life policy.

what is an example of limited pay in whole life insurance?

For example, if you were to purchase a 20-pay policy, premiums would need to be paid for 20 consecutive years. After that, you would not be required to make any additional premium payments, and your coverage would be guaranteed until death or age 100. A 40-year old applicant who would like to retire at age 70 and wants a policy with level premiums, permanent protection, and premiums paid up at retirement would also choose a paid-up-at age-70 limited pay policy. A limited pay life insurance policy covers an insured's whole life with level premiums paid over a limited time

There are two different ways a long-term care rider approaches:

Generalized or independent approach Integrated approach An insurance dividend is not considered to be taxable income. A policy that provides a choice of dividend options must include a statement that dividends are not guaranteed.

this type of insurance is written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.

Group life

what is an example of Whole Life - Straight Life insurance?

If G wants a policy with a fixed level premium and a benefit that pays out at death or age 100, G would want a whole life policy. Straight whole life allows you to maintain coverage throughout your entire lifetime and spread the cost out over your entire life.

what is an example of a Family Maintenance policy?

If P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20- year period, he should purchase a Family Maintenance policy. Family maintenance policies provide an income for a specific period starting at the death of the insured.

this type of insurance issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Industrial life

Automatic Premium Loans:

It allows the insurer to automatically use the policy cash value to pay an overdue premium. Therefore, it allows the insurance company to deduct the overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy. There is no cost for this provision. Automatic Premium Loans is similar to using a savings account for overdraft protection, but there's no fee, just interest for borrowing your money. If you don't pay it back, interest is added to the loan. Outstanding loans are subtracted from any death benefit or cash surrenders if not paid back first. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don't receive payment from you. Automatic Premium Loans can continue for as long as the insurer does not receive payment and the policy owner has cash value remaining in the policy. Once all of your cash value is gone, if you don't start paying, your policy will lapse. Automatic premium loans function in the same manner as any other cash value loan.

what is an example of the whole life modified policy?

K wants to buy life insurance because she knows it is cheaper when she is young. However, she is a college student and cannot afford the large premium associated with whole Life. The insurance company may offer her a Modified whole life to lock in her age and provide her all of the benefits of whole life, but give her a discount on premium while she is in college. After the first five years of the policy, she will be out of school and be able to afford the normal premium cost. Modified Whole Life describes a whole life policy with a premium that increases once after the first few years and then remains level for the remainder of the policy.

Life insurance written to cover a need for a specified period of time at the lowest premium is called...

Level Term Insurance

also called level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal. Life insurance written to cover a need for a specified period of time at the lowest premium is called Level Term Insurance. Term insurance always expires at the end of the policy period. For example, if D needs life insurance that provides coverage for the remainder of her working years and wants to pay as little as possible, D would need Level term. Level term provides a fixed, low premium in exchange for coverage which lasts a specified time period.

Level term

if D needs life insurance that provides coverage for the remainder of her working years and wants to pay as little as possible, D would need...

Level term.

what is Modified whole life?

Low premiums in the early years and jumps to a higher premium in the later years and remains fixed thereafter. Premiums increase just once.

Standard Life Insurance Policy Provisions

Most states require the same set of provisions to be included in all life insurance contracts. These standard or usual provisions are almost identical in verbiage no matter the insurance company or what locale in which the policy is issued. These "standard provisions" found in all life insurance policies identify the duties, obligations, and rights of the parties to the contract. A provision may also be referred to as a policy clause. Generally speaking, provisions are intended to protect the owner of the policy.

Non-Medical Life Insurance

Non-Medical Life Insurance typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant's medical history and lifestyle.

Nonforfeiture Options:

Nonforfeiture options are the options you have for your cash value if you terminate a policy that has a cash value. You are closing your account (surrendering your policy); what do you want us to do with your cash (so you don't forfeit it)? When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy

this type of insurance is made up of several types of individual life insurance, such as temporary (term), permanent (whole). Term life insurance gives you the greatest amount of coverage for a limited period of time. Term insurance is only good for a limited period of time because it has a TERMination date. Term insurance is an inexpensive type of insurance, making it an attractive option for large policies. Term life is the CHEAPEST type of pure life insurance, and due to having a termination date and not having any cash value, it will ALWAYS be cheaper than a whole life policy with the same face value. It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.

Ordinary life

Multiple protection policies:

Pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after the period has expired, only the policy face amount is paid. The period may be for a specified number of years - 10, 15, or 20 years or to a specified age such as 65. These policies are combinations of permanent insurance and level term insurance.

Reinstatement:

Permits the policy owner to reinstate a policy that has lapsed as long as the policy owner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years. The Reinstatement provision specifies that if an insured fails to pay a renewal premium within the time granted, but the insurer subsequently accepts the premium, coverage may be restored. Under certain conditions, a policy that has lapsed may be reinstated.Reinstatement is automatic if the company or its authorized agent accepts the delinquent premium, and the company does not require an application for reinstatement. If it takes no action on the application for 45 days, the policy is reinstated automatically.To reinstate any policy, you need a reinstatement application, statement of good health, all back premiums.

Policy Loan Provisions:

Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is three years. Policy loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policy owner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds

Which of these characteristics is consistent with a Straight Life policy?

Premiums are payable for as long as there is insurance coverage in force

Reinstatement Provision:

Reinstatement is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policy owner to reinstate a policy that has lapsed as long as the policy owner can provide proof of insurability and pays all back premiums, outstanding loans, and interest

Term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability. Renewable Term provides temporary level coverage at the lowest possible cost for a limited period of time, but then allows the policyowner to renew the policy to maintain coverage past the policy's termination. When a term policy is renewed, the insured does not have to prove insurability. However, the premium price will rise because the insurance company will use the insureds current or attained age to determine the new premiums. If a customer wanted coverage at the lowest possible cost that was good for a limited period of time, but offered the ability to continue the coverage after the expiration, the customer would want a renewable term policy.

Renewable term

Modification Provision

Sometimes listed separately from the entire contract provisions, this provision states that any changes made to the contract must be in writing and endorsed or attached to the policy. It also states that only an officer of the insurer or authorized home office personnel possess the authority to make any changes or modifications or waive a policy provision. A producer or agent does not need to countersign any such modification.

Stranger / Investor-Owned Life Insurance (STOLI) / (IOLI)

Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a third-party with no insurable interest, who would therefore be unable to legally purchase the original policy. STOLI is a way to circumvent the insurable interest requirement when purchasing a life insurance policy. To legally purchase life insurance on someone else, the purchaser must have an insurable interest in that person's life. STOLI is prohibited in most states.

what type of insurance is often renewable and convertible?

Term

Increasing term

Term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

type of life insurance product which covers children under their parent's policy. Family plan policies usually cover the family head with permanent insurance, and the coverage on the spouse and children is term insurance in the form of a rider. A term rider is always level term. This is cheaper than every family member getting their own policy. For example, the main policy may be on Dad, then mom and the children are riding on (attached to) to dad's policy as term riders. Term riders allow for additional family members to be covered under one policy by attaching everyone to a main policy. Term riders can also allow an applicant to have excess coverage by adding an additional term rider for them to the main policy.

Term rider

Accumulate Interest Option:

The "accumulate interest" dividend option allows the policy owner to leave dividends with the insurer to accumulate interest. In turn, the policy owner will be required to pay taxes on any interest (profit) generated by the dividend.

Cash Surrender Option:

The "cash surrender" nonforfeiture option allows the policy owner to receive the policy's cash value. The policy owner no longer has coverage at this point. Usually, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is six months (Delayed Payment provision).

Cash Option:

The "cash" dividend option allows the policy owner to cash out the dividends they receive.

One-Year Term Option:

The "one year term" dividend option allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.

Paid-Up Additions Option:

The "paid-up addition" dividend option allows the policy owner to exchange the dividend for an additional single payment whole life policy.

Reduced Paid-Up Option:

The "reduced paid-up" nonforfeiture option allows the policy owner to reduce the policy's benefit amount and, in turn, cease making premium payments.

Reduced Premiums Option:

The "reduced premium" dividend option allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year's premium payments.

Accelerated Benefits Rider:

The Accelerated Benefit Rider allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

what is Accelerated Benefits Rider?

The Accelerated Benefit Rider allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Guaranteed Insurability Rider (Future Increase Option):

The Guaranteed insurability rider permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability. It also includes specific events like marriage and births, without requiring proof of insurability. Usually, the benefit is allowed every three years, up to the original face amount of the policy

Misstatement of Age or Sex Provision:

The Misstatement of Age or Sex Provision allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefits payable if the age of the insured was misstated when the application for the policy was made. If the insured were older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application

what is Accidental Death Benefit (Multiple Indemnity) Rider?

The accidental death benefit rider pays an additional sum to the beneficiary if the insured dies due to a covered accident. The amount paid is a multiple of the policy face amount, such as double or triple the original benefit. Accident death life insurance provides the cheapest way to add a lot of coverage for a limited period.

Assignment clause:

The assignment clause allows the right to transfer policy rights to another person or entity.

Automatic Premium Loan Provision (or rider):

The automatic policy loan provision allows the insurance company to deduct the overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM if they don't receive payment when due. This automatic premium loan can continue until the policy owner resumes making payments, or the policy runs out of cash value. Your policy will lapse if you don't resume payments before you run out of cash value.

Incontestable Clause:

The clause in a life insurance contract that prohibits the insurer from questioning the validity of the contract after a certain period of time has elapsed. Typically, two years from the policy's issue date. If your state is different, we will cover that in the state law portion at the end of the course.

Consideration Clause:

The consideration clause states a policy owner must pay a premium in exchange for the insurer's promise to pay benefits. A policy owner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. "Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me."

Entire Contract Provision

The entire contract clause or provision is found at the beginning of the policy. It states that the entire contract consists of all included policy documents, the attached photocopy of the original application, and any attached riders or endorsements. Nothing may be incorporated by reference, meaning that the policy cannot refer to any outside documents as being part of the contract. Therefore, the insurer cannot deny a claim in the future by stating that it did not provide the policy owner with the entire contract.

Entire Contract:

The entire contract includes the actual policy and the application. It states that nothing outside of the contract (the contract includes the signed application and any attached policy riders) can be considered part of the contract. It also assures the policy owner that no changes will be made to the contract or waive any of the provisions after it has been issued, even if the insurer makes policy changes that affect all policy sales in the future. This, however, does not prevent a mutually agreeable change or modifying the contract after it has been issued. Any change to a policy must be made with the approval of an executive officer of the insurance company whose approval must be endorsed on the policy or attached in a rider. We can't send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you, and that makes up your ENTIRE CONTRACT. The execution clause states that the insurance contract will be executed when both parties (the insurer and the policy owner) have satisfied the conditions of the contract The privilege of change clause (or policy change provision) outlines the conditions under which the company will allow the policy owner to change the policy's coverage.

Entire Contract Provision:

The entire contract provisions (or clause) states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties.

Family plan policies usually cover....

The family head with permanent insurance, and the coverage on the spouse and children is term insurance in the form of a rider.

Free Look Period:

The free look period states the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid

Grace Period:

The grace period is a period after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy minus any required premiums. For life insurance, the grace period is typically one month.

Incontestable Clause

The incontestable clause or provision specifies that after a certain period of time has elapsed (usually two years from the issue date), the insurer no longer has the right to contest the validity of the insurance policy so long as the contract continues in force. Therefore, after the policy has been in force for the specified term, the company cannot contest a death claim or refuse payment of the proceeds even on the basis of fraud, a material misstatement, or concealment. The incontestable clause applies to the policy face amount plus any additional riders that are payable at death. Although the incontestable clause applies to death benefits, it generally does not apply to accidental death benefits or disability provisions if they are part of the policy. Because conditions relating to accidents vary and are often uncertain, the right to investigate them usually is reserved by the company. The insurance company may only challenge (contest) a claim during the policy's contestable period. Therefore, claims outside of the contestable period are generally incontestable. It should be noted that there are three situations to which the incontestable clause does not apply. A policy issued under any of these circumstances would not be considered a valid contract, which gives the insurer the right to contest and possibly void the policy at any time: Impersonation or Identity. For example, if the insurer finds out that one person completed the insurance application, and a different person signed the application or completed the medical exam, the insurer can contest the policy and its claim. Lack of insurable interest at the time of application. If no insurable interest existed between the applicant and the insured at the inception of the policy, the contract is not valid. As such, the insurer can contest the policy at any time. Intent to murder- If it is proven that the applicant applied for the policy with the intent of murdering the insured for the proceeds, the insurance company can contest the policy and its claim. Since the policy did not have a legal purpose from the start, the insurance company may simply deny coverage. The policy owner is powerless to enforce such a claim as no court of law will force an insurer to provide coverage under these circumstances. A company can always void or cancel a policy for nonpayment of premiums. Additionally, statements related to age and sex or gender can be contested at any time.

Incontestable Provision (Period):

The incontestable provision states that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years. Over the years, case law has established precedence that the Incontestable Clause applies to cases of fraud.

CAWL HIGH PREMIUM TYPE

The initial premium is relatively high. It possesses an optional pay-up or vanishing premium provision. This provision states that the policyowner may cease paying premiums once the policy's values are sufficient to pay-up the contract.

Insuring Clause (or Insuring Agreement) :

The insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. The insuring clause is the part of the insurance policy that identifies the specific type of benefits or services that are covered by that policy and the circumstances under which they will be paid. The purpose of the insuring clause in an insurance policy is to specify the scope and limits of the coverage provided. Any promises the INSURER makes will be in the INSURING clause.

Insuring Clause (or Insuring Agreement):

The insuring agreement is the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage, "We ensure to INSURE you for..."

Insuring Clause Provision

The insuring clause or agreement sets forth the company's fundamental promise to pay benefits upon the insured's death. This provision appears on the first page of the policy, referred to as the policy face or cover page. This provision identifies the insurer's promise, the scope and limits of coverage provided by the policy. In other words, it specifies the death benefit or face amount. Additionally, the insuring clause identifies the amount annual premium, the frequency with which the premium is paid, and the name of the beneficiary.

Payor Provision (Rider or Clause):

The payor provision waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled.

Physical Exam and Autopsy

The physical exam and autopsy provision entitles a company, at its own expense, to make physical examinations of the insured at reasonable intervals during the period of a claim, unless it's forbidden by state law. A physical exam would typically be done when determining the insured's level of disability, while an autopsy would help the insurer determine the cause of death.

Policy Loan (Cash Withdrawal) Provisions:

The policy load provisions apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is three years. These loans, with interest, cannot exceed the guaranteed cash value, or the policy is no longer in force. The policy owner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.

Free Look:

The policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

Under a Graded Premium Whole Life policy,

The premium increases each year during the early years of the contract and remains the same after that time

All of these statements about Equity Indexed Life Insurance are Correct EXCEPT:

The premiums can be lowered or raised, based on investment performance

Privilege of Change Clause (Policy Change Provisions)

The privilege of change clause, or policy change provision, outlines the conditions under which the company will allow the policy owner to change the policy's coverage. If the premium is increasing, but the face value remains the same, the insured would not have to prove insurability. However, the insured is required to prove insurability if the premiums are decreasing or the face value is increasing, as it could result in adverse selection

Return of Premium Rider:

The return of premium rider pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy. It may also return premiums to the insured at the end of a specified period.

Suicide Clause:

The suicide clause states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance. The primary purpose of a suicide provision is to protect the insurer from applicants contemplating suicide.

Waiver of Premium Rider:

The waiver of premium rider allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner. The insurance company is "waiving" the premiums." It's just as if the insured made the premiums every month

Minimum Deposit

This is a method of financing life insurance and not an actual type of policy. It is best suited for individuals in high marginal tax brackets. It allows the policyowner to use policy loans to pay premiums due each year. For example, the policyowner is allowed each year to borrow, subject to certain tax restrictions, that year's cash value increase and use it to pay the premium. The policyowner only pays the difference between the premium due and the amount borrowed (plus interest on the policy loan).

what is whole Straight life insurance?

This is basic whole life insurance with a level face amount and fixed premiums payable over the insured's entire life. Premium payments made until death of insured or age 100 (maturity of policy)

what is Limited Pay Whole life?

This is whole life insurance where the insured is covered for his entire life, but premiums are paid for a limited time. As the premium payment period shortens, cash values increase faster and the fixed premiums are higher. For example, under a life paid-up at 65 policy, premiums are only paid until the insured is 65 years old. With a 20-pay life policy, the insured only pays for 20 years. These policies are in effect until the insured's death or they reach age 100.

Variable/ Universal Whole Life (VUL)

This plan combines some characteristics of variable whole life and universal life insurance. VUL offers the policyowner a combination of investment options with a flexible premium payment / expense deduction method and a guaranteed minimum death benefit. It is the equivalent of a variable whole life policy with a flexible premium payment. It also possesses a guaranteed minimum coverage amount. It may also be referred to as Universal/Variable Whole Life. It is an insurance and investment product with a flexible or variable premium.

Accidental Death and Dismemberment (AD&D)

This policy can provide financial benefits if an insured is killed, loses a limb, suffers blindness, or is paralyzed in a covered accident.

CAWL LOW PREMIUM TYPE

This type includes an indeterminate premium that is low initially. It also contains a redetermination provision which states that after a specified period, the insurance company can re-figure the premium

What term life policy is normally used when covering an insured's mortgage balance?

decreasing

credit life insurance typically issued with which of the following types of coverage?

decreasing

what is Graded whole life?

Under a typical graded premium life insurance policy, the premium increases yearly for a stated number of years, then remains level. Premiums continue to stay level for the remainder of the policy. For example, a policy can start out low in a graded whole life and increase a small amount every year up until the fifth year, then levels off for the remainder of the policy.

Universal Life Death Benefit Options are....

Universal life insurance offers two death benefit options. Under Option One (sometimes called Option A), the policyowner may designate a specified amount of insurance. The death benefit equals the cash values plus the remaining pure insurance (decreasing term plus increasing cash values). This level death benefit is composed of the increasing cash values and the remaining pure insurance (decreasing term).

this type of insurance takes the risk from the insurance company and it puts it on you...

Universal life insurance. insurance companies can make more money if they turn around and put the risk on you.

A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n):

Variable Universal Life policy

Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?Universal lifeVariable lifeFixed annuityModified endowment contract

Variable life

what type of life insurance does not make any promises as to either interest rates or minimum cash values....

Variable life insurance

what type of polices are also known as sensitive policies

Variable life insurance policies. The policies usually have a fixed level premium, but the cash value and death benefits of a Variable Life policy can fluctuate according to the performance of its underlying investment portfolio.

Nonforfeiture Options:

When a policy owner decides he does not want his life insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining, the policy owner must use one of the following nonforfeiture options. Cash Surrender : allows the policy owner to receive the policy's cash value. The policy owner no longer has coverage at this point. Usually, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is six months (Delayed Payment provision). Extended Term Option : permits the policy owner to use the policy's cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy. Reduced Paid-Up Option : the policy owner pays no more premiums, but the face amount is decreased. You are closing your account (surrendering your policy); what do you want us to do with your cash (so you don't forfeit it)?

At what point does a Whole Life Insurance policy endow?

When the cash value equals the death benefit

insurance that provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.

Whole life:

who is whole life insurance compared to like buying a house?

You can pay the house off slowly or quickly, but once it's paid for, you still own the house. There are several types of whole life All whole life has the same type of benefits. The only difference in "types" of whole life is how the policy is paid. Some will be paid straight until death or age 100, some will be paid for after a few years or by a specific age, some may give you a little discount in the early years to help you get started, etc. All whole life lasts until death or age 100, has a fixed premium, and level benefit with cash value accumulation, regardless of how it is paid.

under the scale of term insurance, what is the one year renewable term (OYRT)?

You have a death benefit that you're purchasing, and you have premiums. and the premiums rise based on your age and based on the amount of coverage. so, if you are young, you will get in at a low rate. as you get older, the premiums go up accordingly. when you buy the policy, you have a certain fee for that year. and the next year, if you want to renew, you have a premium that you have to pay and its higher this year. so you're always paying on a stair step pattern.

what is an example of a Convertible term?

a $25,000 policy on a healthy 7-year-old boy will cost substantially less than a $25,000 policy on a 57-year-old man. Whether converting an individual or group term insurance policy, although your insurability is guaranteed, your age is typically reevaluated to your current (attained) age, not left at the age you were when you applied for the original term policy. Convertible Term would allow you to take your temporary coverage and change it to permanent coverage without evidence of insurability or good health, but your premiums will increase due to using your attained age.

who can not get term insurance?

a child. they can get what is called (Guaranteed Insurability option). as they age you can add more insurance onto their policy or you can buy a new one.

Absolute assignment of an insurance policy involves...

a complete transfer of the policy to another.

what does level term provide?

a fixed, low premium in exchange for coverage which lasts a specified time period.

why must a person assume all of the investment risks and the rate of return is not guaranteed, what must a person do?

a person must have proper FINRA securities registration in addition to an insurance license to sell any variable contracts.

what is an insurer

a person or company that contracts to indemnify another in the event of loss or damage; underwriter. a person or thing that insures. a person who sells insurance.

Target premium is....

a suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.

A Term Rider is...

a type of life insurance product which covers children under their parent's policy.

The execution clause or provision specifies that...

after a certain period of time has elapsed (usually two years from the issue date), the insurer no longer has the right to contest the validity of the insurance policy so long as the contract continues in force.

Free-look Provision

allows the policy owner to return the policy for a full premium refund without giving a reason to the insurer.

The conversion privilege of a group term life policy allows....

an individual to leave the group term (temporary) plan and convert his or her insurance to an individual (permanent) policy without providing evidence of insurability.

The accelerated benefits provisions, also known as living benefits or terminal illness rider, allows...

an insured to "accelerate" the death benefit of a life insurance policy if certain conditions are met.

The reinstatement period allows....

an insured to reinstate a lapsed insurance policy. Typically, this must be done within three years of the policy lapse, but in some state, may be allowed as long as seven years. If the insurer does not accept or reject the reinstatement within 45 days, coverage will be automatically reinstated as if it had never lapsed.

he incontestable clause allows....

an insurer to contest a claim during the contestable period. However, statements related to age and sex or gender can be contested at any time. The company reserves the right to the premium adjust if the age of the insured is misstated

Under a Graded Premium policy, the premiums:

are lower during the policy's early years

Dividend Options:

are the options a policy owner has when receiving dividend payments from an insurance policy.

Credit policies

are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Since Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid, credit policies can only be purchased for up to the amount of the debt or loan outstanding. For example, if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would use a 5-year decreasing term life insurance policy with an initial face value of $20,000. You will pay the same level premium every month for the 5-year term of the policy. The face value will start out at $20,000 and change according to a schedule (the decreasing balance of the auto loan). After 5 years, the car will be paid for and the insurance policy will no longer be needed.

when do premiums increase?

at each renewal

The entire contract clause or provision is found

at the beginning of the policy.

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?

decreasing term

why is term insurance called term insurance?

because it is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" of years.

why do the premiums go up so much in a universal life insurance policy?

because it is based upon a one year renewable term, which is the most expensive that you can possibly purchase. the premiums for the coverage increase every year.

Whole Life - Modified Endowment Contract (MEC)

best described as a policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract. you have put more money into the policy in the first few years than more than what it would be to pay the policy off. then, this becomes similar to a taxable write off or a 401k or an IRA.

Adjustable life policies are also known as...

blended or combination policies, are distinguished by their flexibility that comes from combining term and permanent insurance into a single plan. The policyowner determines how much face amount protection is needed and how much premium the policyowner wants to pay. The insurer then selects the appropriate plan to meet those needs. Another option would be the policyowner may specify a desired plan and face amount.

A whole life insurance policy owner does not have the right to

change the grace period

Equity Index Universal Life Insurance

combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index. Unlike, a traditional whole life plan, this plan allows policyholders to link accumulation values to an outside equity index like S&P 500. 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index.

A face amount plus cash value policy is a

contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value.

A Joint Survivor or Last Survivor Life Policies

cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the death benefit upon the death of the last insured person.

what is A Joint Life policy?

covers the lives of 2 individuals and save on premium cost by averaging the ages of the two insureds. Joint Life policies pay the face amount after the first person covered on the policy dies. This is similar to a Joint Checking account. The policy is shared between two people, and when one person dies, the other receives the entire account. If B and M were insured under a joint life policy and B were to die, M would receive the entire benefit and would also no longer be insured. A policy that promises to pay the face amount on the death of the first of 2 lives covered by the policy is called a Joint Life Policy.

Because Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid

credit policies can only be purchased for up to the amount of the debt or loan outstanding.

what does whole life insurance provide?

death benefits for the entire life of the insured. It also provides living benefits in the form of cash values.

Credit policies are typically purchased using...

decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.

Cash Value is the

equity amount or "savings" accumulation in a whole life policy.

Exclusions:

features of an insurance policy stating that the policy will not cover certain risks.

In alternative life policies, premium payments must be large enough and frequent enough to.....

generate sufficient cash values. If the cash value account is not large enough to support the monthly deductions, the policy terminates. A specific percentage of all premiums must be used to purchase death benefits or the universal life policy will not receive favorable tax treatment on its cash value.

Term life insurance

gives you the greatest amount of coverage for a limited period of time. Term insurance is only good for a limited period of time because it has a TERMination date. Term insurance is an inexpensive type of insurance, making it an attractive option for large policies. Term life is the CHEAPEST type of pure life insurance, and due to having a termination date and not having any cash value, it will ALWAYS be cheaper than a whole life policy with the same face value. It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.

Catastrophic illness coverage covers only....

identified or listed diseases in the policy, such as cancer, heart disease, renal failure, stroke, etc.

what is an example of a renewable term?

if you have a 10-year renewable and convertible term; After the 10 years are up, the policy terminates or you can renew it. If you renew it the premium price will go up, and you will have the policy for another 10 years. This cycle continues until you are too old to renew or it's too expensive. All TERM insurance has a final TERMINATION date where you can no longer renew it.

what is an example of term insurance?

if you have a 10-year renewable and convertible term; After the 10 years are up, the policy terminates or you can renew it. If you renew it the premium price will go up, and you will have the policy for another 10 years. This cycle continues until you are too old to renew or it's too expensive. All TERM insurance has a final TERMINATION date where you can no longer renew it. If the policy is CONVERTIBLE, you can CONVERT it to whole life (think rent to own) at any time. Any time you renew or convert ANY type of insurance, you do not have to worry about your health, is your insurability is locked in. However, the price will always go up, because your attained (or current) age is used for your new policy. Term is typically thought of as "renting" -- you have a roof over your head, but they're going to raise the price and until it no longer makes sense for you to keep it or at some point they TERMINATE the contract and kick you out.

what is an example of credit policies

if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would use a 5-year decreasing term life insurance policy with an initial face value of $20,000. You will pay the same level premium every month for the 5-year term of the policy. The face value will start out at $20,000 and change according to a schedule (the decreasing balance of the auto loan). After 5 years, the car will be paid for and the insurance policy will no longer be needed.

what is an example of the Modified Endowment Contract (MEC)?

if your annual premium for a policy was $1,000 and you paid $20,000 in the first five years, you will have failed the 7-pay test by exceeding $7,000 (7- years times one year of premium). Said differently, you have exceeded the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract.

level premium term insurance

it takes an average of the amount of term that you want. so if you want 10 or 15 years, its going to average the amount of premiums that you'll pay and then give you a little discount.

Universal life insurance policy

incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policy owner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a Universal Life Policy. Universal policies use gains to fund the cash value and give the policy owner options for flexible premiums and adjustable death benefits.

Death caused by suicide is excluded during the...

initial period of time after the policy becomes effective.

The automatic premium loan provision allows the...

insurance company to automatically take a loan against the policy's cash value to pay the premium due if the required premium is not paid by the end of the grace period.

Group Life Insurance

insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.

who has the option to a renewable term policy?

insured

NONTRADITIONAL LIFE POLICIES

interest-sensitive whole life, adjustable life, universal life, variable life, and variable universal life.

The Endowment Policy

is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period.

what is the whole life modified policy?

is a policy where the premium stays fixed for the first 5 years, and then increases in year 6 and stays level for the remainder of the policy. Modified whole life has all of the same features of any other whole life except the insurance company cuts you a break on premium for the first few years.

Convertible term

is a provision that allows policy owners to convert their term insurance into permanent policies without showing proof of insurability.

Ordinary Life Insurance

is life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Renewable term

is term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.

Decreasing term

is term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection. A decreasing term policy is a type of life policy which has a death benefit that adjusts periodically (according to a schedule) and is written for a specific period of time. Decreasing term policies are usually written for a mortgage or other debt that typically decreases over time until it is paid off. For example, a 15 year decreasing term policy could protect a 15-year mortgage. As the mortgage balance reduces each year, the face value of the insurance policy will adjust accordingly to match. After the mortgage is paid off, the insurance policy will expire.

Investor-Owned Life Insurance (IOLI

is where an investor pays a person to take out a considerable life insurance policy for that person. The investor pays the person's premiums in exchange for the person's life insurance benefits. An IOLI transcation is somewhat similar to a STOLI transaction, the only difference is that an IOLI is always initiated by an investor.

dividends are paid from a life insurance policy are

issued by the insurer

what does the cash in the policy have to do in whole life insurance?

it has to rise at the time the policy endows. (age 100 or 121 based on the tables the company uses to write the insurance policy)

what is participating whole life insurance?

it is a mutual company and you can particpate in the mutual earnings of the company. some companies are stock hold companies and they can make earnings and show profit, and they share it with all their stock holders. mutual companies own a profit and they share it with all their owners, the owners of the insurance company. As a policy owner, you are a part owner in the insurance company, meaning you can share in their profits.

what is the basic structure of whole life insurance

it is permanit insurance. as long as you pay the premium each year, you have the coverage for life.

Collateral assignment

it is temporary. it is like going to the bank asking for a loan and them saying "How do we know you'll pay us back?' and then you saying "I have a life insurance policy that will pay you back if I die"

The grace period in a life insurance policy is....

meant to protect the policy owner against the unintentional lapse of the policy.

CAWL policies are either.....

of the low premium or high premium variety. Both possess several characteristics including but not limited to:The use of an accumulation account which is made up of the premium, less expense and mortality charges, and credited with interest based on current rates.Minimum guaranteed cash value and rate of return.Maximum annual premium.Use of a surrender charge, fixed at issue, which is deducted from the accumulation account to derive the policy's surrender value.Use of a fixed death benefit and maximum premium level at time of issue.

what are the two types of term insurance?

one year renewable and level premium

The privilege of change clause (or policy change provision)

outlines the conditions under which the company will allow the policy owner to change the policy's coverage.

An Adjustable Life

owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policy owner can make adjustments to the premium and/or face amount of an Adjustable Life insurance policy. Adjustable life policies are able to provide these features by combining whole life and term life into a single plan. There typically are no dividends involved with adjustable life policies. Increasing the face amount may require a policy owner to provide proof of insurability. Usually, a customer with an Adjustable life policy has a special need for flexible premiums.

By placing their policy values into separate accounts, policyowners can....

participate directly in the account's investment performance, which will earn a variable (as opposed to a fixed) return.

The long-term care rider will generally....

pay benefits when the insured cannot perform at least two activities of daily living (ADLs).

A Family Maintenance policy

pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period.

there are two types of life insurance... what are they?

permanent and term

Level term is also called...

premium level term.

With Whole Life - Straight Life insurance

premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death. premiums are payable as long as coverage is in force.

Mode of Premium states that....

premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policy owner to select the mode of premium.

Non-Medical Life Insurance typically does not...

require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant's medical history and lifestyle

Variable life insurance policies

require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities.

what is suicide provison designed to do?

safegaurd the insurer from an applicant who is complimenting sucide

variable insurance products are considered...

securities contracts as well as insurance contracts. Therefore, they fall under the regulatory arm of both state offices of insurance regulation and the Securities and Exchange Commission (SEC). To sell variable insurance products, an individual must hold a life insurance license and a Financial Industry Regulatory Authority (FINRA) registered representative's license (FINRA was formerly known as the National Association of Securities Dealers, or NASD)

Owner's Provision or Rights of Policy Ownership...

states that the policy owner possesses all rights contained in the policy. The primary rights of a policy owner include: The right to assign and change the policy's beneficiaries. The right to determine how proceeds will be paid (settlement options) The right to terminate the policy and select a nonforfeiture option. The right to determine and change the premium payment schedule. (Not necessarily the amount of the premium but whether the premium is paid monthly, quarterly, annually, etc.) The right to assign ownership of the policy to someone else. The right to decide what happens with dividends paid out from a participating policy. The right to convert or renew a term policy if such option exists within the contract.

The spendthrift clause....

stipulates that a settlement option may be selected by the policy owner at the time of application.

what does convertible term provide?

temporary coverage that may be changed to permanent coverage without evidence of insurability.

products/commission are highest on the one that pose less of a threat on the insurance company, which are...

term and universal life

Annual renewable term is....

term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.

Increasing term is...

term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

The primary advantage of a policy loan is...

that it provides ready cash for the policy owner without having to apply or qualify for the loan.

Extended Term Option

the "extended-term" nonforfeiture option permits the policy owner to use the policy's cash value to buy level, extended term insurance for a specified period. No further premium payments are made. The coverage provided with the extended-term nonforfeiture option is equal to the net death benefit of the lapsed policy.

this person gets the check upon the insureds death...

the beneficary

Irrevocable beneficiary means....

the beneficiary cannot be changed.

The insuring clause or agreement sets forth...

the company's basic promise to pay benefits upon the insured's death and specifies the amount and frequency of premium payments.

Term insurance always expires at...

the end of the policy period

Another factor that distinguishes universal life from whole life is....

the fact that partial withdrawals can be made from the policy's cash value account. (Whole life insurance allows a policyowner to tap cash values only through a policy loan or a complete cash surrender of the policy's cash values, in which case the policy terminates.) Also, the policyowner may surrender the universal life policy for its entire cash value at any time. However, the company probably will assess a surrender charge unless the policy has been in force for a certain number of years. The company must disclose the policy's surrender charges.

The extended term insurance option provides...

the insured with the most life insurance protection in the event of a voluntary policy surrender or nonpayment of premium.

A Family Income policies pay an income beginning at....

the insured's death and continues for a period specified from the date of policy issue. For example, G purchased a Family Income policy at age 40, with a 20-year rider period. If G were to die at age 50, G's family would receive an income for 10 years.

the policy owner does not have to be...

the insurer

When it comes to life insurance, the insured is the individual whose death will trigger....

the life insurance company to pay out the policy's death benefit to the beneficiaries.

what all does universal life insurance offer?

the low cost protection of term insurance, with a cash or savings element that provides access to cash. it is a type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element, which is invested to provide a cash value pop up.

what is an example of term rider?

the main policy may be on Dad, then mom and the children are riding on (attached to) dad's policy as term riders. Term riders allow for additional family members to be covered under one policy by attaching everyone to a main policy. Term riders can also allow an applicant to have excess coverage by adding an additional term rider for them to the main policy.

the higher the premium is...

the more cash value can grow in the policy

what is a policy owner?

the person who has ownership rights in an insurance policy, usually the policyholder or insured. The policy owner is the person who buys and owns an insurance policy. That individual may be the insured, meaning they bought life insurance on themselves, but people can also take out life insurance policies on others. In those cases, the policy owner and the insured are two different people.the individual who gets control over and responsibility for the life insurance policy. That means they're the one who needs to pay the premiums to keep the policy active, but they're also the person who can make changes to the policy — or even terminate it.

Variable Universal Whole Life, (VUL)

the policy owner controls the investment of cash values and selects the timing and amount of premium payments. Variable Universal Life policies give a policy owner the best of both Variable Life and Universal Life. If a policy owner was looking for a policy that allowed them to control how much and when premium was due, what investment accounts were used for funding, and where the returns from those investment accounts went, they would be looking for a Variable Universal Life Policy. The policy owner can control the timing and amount of premium payments, as well as the investment of cash values with a Variable Universal Life Policy.

Nonforfeiture options prevent....

the policy owner from forfeiting a policy's cash value if they decide to terminate the policy. There are three nonforfeiture options:Cash Surrender,Reduced Paid-Up Option, andExtended Term Option

Premiums tend to be higher than annual renewable term because....

they are level throughout the policy period.

how do ratings work?

they take a group of people and assess them and there are different levels that they qualify for and they get chosen for those levels and they can either move up or down in ratings over time.

If a policy owner or applicant was looking for a policy to offset inflation, where would they look?

they would want to look into a variable policy

what are paid-up additions in whole life insurance?

this increases the amount of cash value available to you. because with traditional cash value policies, they typically start with no cash value at all.

ownership

this is the person who makes decisions about the policy, that can make payments, and they can name a beneficary, and they can pay a premium

how does the typical life variable life insurance grow?

through mutual funds, stocks, and bonds. This includes Variable Life, Universal Variable life, Variable Whole Life, and Variable Annuity. This includes Variable Life, Universal Variable life, Variable Whole Life, and Variable Annuity.

Variable Life products require a producer

to hold a Life Insurance license and a Securities license.

In order to sell a(n) ______________ Life policy, a producer is required to register with the Financial Industry Regulatory Authority (FINRA).

variable

how exactly do the universal life policies exist?

you pay your premiums and those premiums go into your cash account inside the policy. from the cash account, the money is taken out and put into different investments. especially if it's index, this is exactly what it is doing. When it goes to these investments, the investments make a return, and when they make a return, they return back to the cash account. however, this investment is capped and so you might be capped at 7% but the investment might still be growing at be going up to 15% once the money comes back into the cash account, they take premiums to the death benefit. it also takes the fees and surrender charges the policy may have.