Life Insurance Basics
Limit that Life and Health Insurance Guaranty Association will cover up to
$300,000
Deferred annuity surrender charge after 10 years
0%
Graduated vesting up to year 1
0%
Graduated vesting up to year 2
0%
How many QCs do you need to be fully insured?
1 per year from the age 21 until dying, before becoming disabled, or before turning 62
Two types of life insurance assignments
1. Absolute assignment: permanent 2. Collateral assignment: temporary
Minimum number of employers for MET
10
Graduated vesting for year 7
100%
What percentage of member must be covered for a non contributory group life plan?
100%
Exchange of a life insurance or annuity contract without an gain being recognized or taxed
1035 exchnage
How long is the common disaster provision?
120 hours (5 days)
Cash values from and equal face value at what age?
120 or 95 for universal life
Min age to buy life insurance or annuities in NC
15
What year did endowment tax benefits end?
1986
Minimum number of employers for MEWA
2
Graduated vesting for year 3
20%
How long does the bring back rule apply for?
3 years
Conditions of a SIMPLE retirement plan
3% match 2% for everyone regardless of match
Deferred annuity surrender charge for years 7-10
3% of amount withdrawn
How long is the free look period?
30 days
How many days after mailing the notice can an insurer cancel a life policy?
30 days
Grace period of a life policy in NC
31 days
How long is the grace period for group life policy?
31 days
How many QCs do you need to be permanently insured?
40
Graduated vesting for year 4
40%
Pension plan available only to non profits
403(b)
Retirement plan available only to employees of state and local governments
457
Terminally ill means a life expectancy of no more than ______ to _____ months
48 to 60
Deferred annuity surrender charge for years 4-6
5% of amount withdrawn
Accelerated benefits rider pays how much?
50 to 80 or f death benefit
How much does a viatical settlement typically sell for?
50 to 85%
How much does the face value of s juvenile life insurance policy increase to and at what age?
5x at age 21
You need ______ QC's in ________ quarter period to qualify as currently insured for social security benefits
6 in 13
What is the mix I'm in amount of time most states allow insurers to delay paying cash surrender values?
6 months
Graduated vesting for year 5
60%
Deferred annuity surrender charge for first 3 contract years
7% of amount withdrawn
At what age do RMDs start?
72
Most policies allow for how much to be paid out through a long term care rider?
75%
What percentage of members must be covered for a contributory group life plan?
75% of eligible members must elect participation
Graduated vesting for year 6
80%
How long must chronic illness persist?
90 days within the past 12 months
What does the group sponsor receive in a group life insurance policy?
A master policy
2 phases of an annuity
Accumulation Payout (annuitization)
How much of a qualified annuity death benefit is taxable?
All of it
Employers can deduct premiums when:
At least 70% of all employees participate At least 85% of plan participants are rank and file employees
When is the only time insurance interest must exist for a life policy?
At the time it is ISSUED
What is the average of a workers lifetime earning on which FICA taxes were imposed?
Average indexed monthly income (AIME)
Rule that causes the proceeds of a life insurance policy to be "reincluded" in an individuals estate
Bring back rule
The five divided options (CRABB)
Cash payment Reduce future premium Accumulate at interest Buy paid up additions Buy one year term
What does the participants of a group life insurance policy receive?
Certificate of coverage
Long term care assistance with at least 2 activities of daily living
Chronically Ill
Vesting where an employee requires an employee to have 5 years of service in order to become 100% vested and they have 0 prior to that
Cliff vesting
Provisions that states the beneficiary must outlive the insured by a specified amount of time
Common disaster provision
Two common types of premium receipts
Conditional Binding (temporary insurance agreement)
What type of life insurance does credit life insurance use?
Decreasing term life insurance
Annuity that accumulates a sum of money over time. Can be funded with a large single payment or be funded over time
Deferred annuity
Act that protests the rights of the employees covered under an employee sponsored plan by stipulating minimum participation and funding requirements
Employee Retirement Income Security Act of 1974 (ERISA)
The insurer's cost of doing business. May include taxes and fees
Expense
Term Policy that pays monthly payments for the remainder of the term
Family income policy
Term policy that pays a monthly payment equal to the same length as the term
Family maintenance policy
When one year term life insurance equal to the policies cash value is purchased each year
Fifth dividend option
Age at which social security retirement benefits are payable
Full retirement age (FRA)
Two types of annuities
Immediate and deferred
Annuity purchased with large single premium
Immediate annuity
Replacement regulations only apply to ________ policies
Individual life insurance
The amount the insurer can expect to earn on invested premiums. It is a credit
Interest
Any permanent life insurance policy that fails the 7 pay test (heavily funded in first 7 years)
Is a modified endowment contract (MEC)
First to die policy is also known as what?
Joint life insurance
A whole life policy with higher premiums that are paid over a shorter period of time that allows the cash value to grow more quickly
Limited payment whole life
Group who's purpose is to reduce adverse selection by identifying applicants who have previously applied for insurance and may shop around for insurance without fully disclosing pre existing medical conditions
MIB Group Inc (MIB)
What does MEC stand for?
Modified Endowment Contract
The risk of death posed by the applicant. It is a charge
Mortality
Components of traditional whole life
Mortality charge Expense charge Interest credit
What does MEWA stand for?
Multiple Employer Welfare Arrangement
WhT does MET stand for?
Multiple employer trusts
An association of insurance commissioners in various states
National Association of Insurance Commissioners (NAIC)
Most common approach used to determine life insurance amount
Needs approach
Mortality charge minus the interests credit equals what?
Net premium
Can a cash withdrawal be paid back in a universal life policy?
No
What portion of a a non qualified annuity death benefit is taxed?
Only what exceeds the amount the owner paid
What are the parties to an annuity
Owner Annuitant (may or may not be owner) Beneficiary
What is a cash withdrawal called for a universal life policy?
Partial sureender
If a beneficiary dies before the insured the other beneficiaries get their portion when the insured dies
Per capita
If a beneficiary dies before the the insured their beneficiaries (children) would get their portion when the insured dies
Per stirpes
What policies qualify for a 1035 exchange?
Permanent life and deferred annuities
The amount of retirement benefits the worker will receive when he or she reaches full retirement age
Primary Insurance Amount (PIA)
What two conditions can an insurer not increase premiums or refuse coverage because of?
Sickle cell and hemoglobin C
Clause that keeps death benefits away from creditors
Spend thrift clause
Benefits for currently insured social security eligibility
Survivors benefits
Second to die policy is known as what?
Survivorship life insurance
How is the deferred compensation plan handles for the employer and employee when it comes to taxes?
Taxable for employee Tax deductible for employer
joint and 100% survivor
The survivor continues to receive the same amount for his or her life.
Joint and 1/2 survivor
The survivor income is reduced to one-half of what it was when both were alive
How are annuities handle for taxes?
They are tax deferred
How long does a joint life income plan pay out?
Until the first person dies
What is the typical payout of death benefits for a living benefits rider?
Up to 50%
When is the only time that an entity owned annuity's growth is tax deferred?
When it is owned by a trust for the benefit of a person
When are life insurance death benefits usually only taxed?
When they are sold
Life insurance policy can be reinstated within 5 years if:
You prove insurability You pay all overdue premiums and interest
Joint and 2/3 survivor
the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive