Life Insurance licensing

To prevent excess profits, how much does the credit life policy HAVE to pay out?

50% for credit life, 60% for credit disability If not, they will return a portion of the premiums

Limit on suicide clause of Credit Life is .....

6 months, also sometimes age restrictions of 65 yrs

If Group Life is contributory, how many must participate?

75%, to prevent adverse selection.

For how long must an agent maintain records of annuity transactions?

8 yrs

Family Term Rider

Provides a fixed amount of Whole life on the wage earner and convertible term on the spouse and children.

How are interest and earnings taxed in annuities?

They are tax deferred or taxed at time of distribution as income.

regular annuities are regulated by State Dept of Insur

True, Variable annuities regulated by FINRA and SEC

How do you compare Life Insurance Policies?

- Interest-adjusted Net Cost Method or Surrender Cost Index (emphasis on client cashing in policy in either the 10th or 20th year) -Comparitive Interest Rate method or Life Insurance Net Payment Cost Index (emphasis on death occurring in 10th or 20th year)

Sources of life policy underwriting:

- agent as front-line underwriter - Completed application - Agent's report - General practitioner (APS- attending physicians statement) - Investigative Consumer Reports - MIB, Medical Information Bureau

What is included in a life insurance "illustration"?

-A narrative summary - how things vary based upon interest rates and market performance -A numeric summary (3 sets of numbers - high, low, and expected values) -A Tabular detail (first 10 yrs, every 5 yrs, until 120)

What must agents give policy buyers besides the "illustration"?

-a buyers' guide -a policy summary

Name several types of Whole Life insurance...

1- Continuous Premium (Ordinary/Straight Line) 2- Limited Payment and Single Premium

Name two approaches to determining the amount of life insurance that is needed

1- Human Life Value 2- Needs Approach (Debts + Survivors Income)

Parties to the Life Insurance contract

1- Insurance Company 2- Insured 3- Owner

Name the options to the Underwriter;

1- Issue policy (standard risk) 2 - Issue with a discount (preferred risk) 3 - Issue with a surcharge (rated risk) rated up age flat additional premium tabular rating (higher premium class) graded death benefit (starts low and gradually incr) 4 - Issue with an exclusion 5 - Not issue/reject

Name some prohibited provisions in Ohio:

1. Cancelling a policy for nonpayment, have to allow 30 days after notice mailed to last known address 2. Allowing policy to mature at less than face value plus dividends 3. Limiting action at law to less than 5 yrs 4. permitting only certain policies to participate in dividends 5. Allowing a policy to have advantages not available to policies purchased at future dates (no discrimination against older policies)

Minimum number of lives for Group Life policy

10

How long is Ohio's free look?

10 days for non-replacement, 30 days for replacement

Define the Joint Life or First-to-Die policy

2 people named as insureds, using an "average age" between them...usually for husband and wife or business partners.

Non-forfeiture Options

30 day grace period OR 1- surrender for cash value or 2- convert to immediate annuity and payout begins within 60 days or 3- converted to Paid-up deferred annuity

What is free look on replacement policies?

30 days

Grace period for Group life

31 days

How long for reinstatement to automatically take place?

45 days

How long does the replacing company have to notify the replaced company of the policy change?

5 days

Define ART

Annual Renewable Term life insurance. Cost starts low, and increases with age.

Life expectantcy benefits are based upon whose life

Annuitant

How many days does a viator have to rescind a viatical contract?

At least 15 days AFTER the receipt of the proceeds.

When is insurable interest required?

At time of application and any subsequent changes to the policy.

CDSC charges

Contingent Deferred Sales Charge - decreases in % over several years to discourage early cash in

Requirements for face page of policy

DICE - Described, Insuring, Consideration, Execution: Type of policy, what conditions to pay, maturity date, how long premiums must be paid,

Dividend tax treatments

Dividend from a stock company is TAXED at Capital Gains rate. Dividends from Mutual company is a return of excess premium so it is NOT TAXED.

Flexible Premium Deferred Annuity

FPDA - at owners discretion, pays in premium. Interest and earnings are tax deferred.

Define Fixed life insurance.

Fixed whole life and fixed annuities have a fixed and guaranteed rate of return.

What is the difference between Gross premiums and Net premiums?

Gross Premium - expenses = Net premium so Gross premium includes expenses.

Life income annuity with certain period

Guarantees payment for at least a certain amount of time.

Grace periods:

Industrial Life - 28 days Group Life - 31 days All other - one month (28-31 days)

Name the 4 parties of an annuity contract:

Insurance Co Owner Annuitant Beneficiary

If a term life has "Renewable" in name....what?

Insured must prove insurability at the end of each time frame. Sometimes if pass a physical exam, the policy will renew with a lower premium.

Define Term Life Insurance

Lasts for a specific time (20 yrs) or until a specific age, builds no cash value, has either a level premium or an annually increasing premium, and does not pay out at the end. Lower initial premium than permanent life insurance.

Define "Convertible Term" life insurance

Most level and decreasing term life insurance policies are convertible to Whole Life without a physical exam. Conversions are done at "attainable" age, not at the age of the original contract.

Life insurance proceeds - taxable?

NO

Accidental Death Benefit ADB or Double/Triple Indemnity

Pays the beneficiary double or triple the amount if the death is accidental (within 90 days of the accident)

Per capita vs per stirpes

Per capita - divide by the number of people Per Stirpes - buy the branch, so a smaller share to the ones under the same branch

Guaranteed Insurability Rider GIR

Permits insurer at specified intervals to buy additional insurance without evidence of insurability

Why is Whole Life more expensive the term?

Person who had convertible term and is now sick can convert to whole life when they would be unable to buy it outright because of illness.

When comparing Life Insurance policies, a smaller index means...what?

Policies with a smaller index is generally a better buy than a comparable policy with a larger index.

If there is a gap between the application and UW acceptance and premium payment, what does insured sign?

Statement of Continued Good Health

Collateral assignment

Temporary assignment where client pledges proceeds of the policy to a creditor

Cash Value Corridor approach to insurance means...

The insurance company must automatically increase the benefit to continue to provide for an amoount of insurance risk, and it keeps the policy from becoming a modified endowment contract.

Incontestability length of time?

To protect insuring companies, they can be contested for the first 2 years, which voids the coverage. After 2 yrs, only fraud will come into play.

Credit life can be group or individual?

True

Riders are sometimes called endorsements

True

ONLY policies with cash value can give loans or withdrawal options

True - cash loans, or automatic premium loans (APL)

A conditional receipt is never given unless....what?

Unless the premium is collected.

How long is free look?

Usually 10 days, starts from when policy is MAILED or when policy is delivered if delivered by hand.

LivingBenefit Rider

accelerate benefit due to terminal illness, as an option in lieu of viatical settlements. NOT intended as LTC insurance.

Return of Premium rider

allows insured to buy increasing amounts of term insurance that equals the premium paid to date.

Define the "No-lapse guarantee" in Universal Life policies

as long as the minimum designated premium, the policy will stay in force to age 100, however this won't build much cash value.

Spendthrift clause

doles it out in monthly increments and creditors cannot attach to it

Ohio Guaranty fund pays out if Insurance Co is insolvent

pays up to: $300,000 for Life policies on a death benefit $100,000 for Life policies on a cash surrender $250,000 for Annuities present value $100,000 for claims on Health policies $300,000 aggregate cap for all policies to an individual

Refund Life Annuities

refunds entire account balance

The more often or higher the mode....

the higher the premiums for the year

If owner quits paying premiums, choices are:

1-cash surrender value with no right of reinstatement 2-Extended term (automatic option) - no cash value, can be reinstated- the provides THE MOST INSURANCE 3-reduced paid-up Insurance, provides the longest period of protection - to age 120

To qualify as life insurance (rather than just as an investment vehicle), to what age must a Universal Life policy contain insurance at risk?

95 yrs old, when the accumulated cash value can equal the death benefit.

If age was misstated...will policy void?

No, premiums or benefits will change. Math problem possible: amount pd / amount should have been pd * original face for recalculating benefits to be paid out.

If the insurance company orders an investigative report for underwriting a life policy, what form is required by the Fair Credit Reporting Act?

Notice regarding Insurance information Practices.

Pure Life Annuity

Riskiest option, also highest income available

Single Premium Deferred Annuity

SPDA - client must sign disclosure form

Single Premium Immediate Annuity

SPIA - after tax purchase generating an immediate income stream, or could start later (deferred annuity)

Premium "mode" refers to the number of times the premium is paid.

True, if just one payment up front, there is no "mode".

If a settlement is paid out over years, when is interest on the proceeds taxed?

When it is earned, even if not paid out.

Define Permanent Life Insurance

Whole life insurance, lasts until age 120 when it endows, has a level premium, builds cash value, and pays out an amount at the end. Lower net cost than Term life.

Name several types of Limited Payment/Single Premium

1- LP65, or Life Paid Up at 65 2- 20-Pay Life/30-PayLife 3- Single Premium Life

Name variations on Level Premium Life

1- Modified Whole Life - first 3-5 yrs has lower premium, then goes up 2- Step-Rate Whole Life - premium increases every yr for 5-10 years, then levels out

What are the factors in Premium calculations?

1- Mortality tables 2- Interest 3- Expenses (includes commissions to agents)

Reasons to purchase Life Insurance

1- Survivor Protection 2- Estate Creation 3- Cash Accumulation 4- Liquidity (pay estate costs) 5- Estate Conservation (pay taxes) 6- Cross Purchase of Business 7- Entity purchase of business (trust method) 8- Key Person Life Insurance for business 9- Executive Bonuses for a company 10- Viatical Settlements

Name parties to a Viatical Settlement

1- Viator - owner of a Life Insurance policy that is being assigned/transferred/sold 2- Terminally ill patient (24 months or less) 3- Viatical settlement provider 4- Viatical settlement contract, also called a life settlement contract or a senior settlement contract

Disability Riders

1- WP waiver of premium - DI insurance attached to Life insurance, if disabled for 6 months, premium then paid retroactively and continues while disabled 2- Waiver of cost of insurance - in Universal Life or Variable Universal life - this pays the cost of the term insurance if disabled for 6 months 3- Disability income benefit 4- Payor Benefit Life/Disability - for children's policies, pays the premium if the parent is disabled

2 options for death benefits:

1- level death benefits, the sum of the accumulated cash values plus the amount of risk or insurance protection. 2- Increasing death benefit, policy face amount PLUS the cash value amount (understand graphs to illustrate).

Rights of Ownership

1- to name a beneficiary 2- to pay the premium 3- to take a loan or cash surrender 4- to make changes

Name several types of Flexible Premium Policies

1-Adjustable Whole Life, where premiums change based upon ability to pay. Face amount, frequency of payments, or premiums themselves change as needed. 2- Universial Life or Flexible Premium Adjustable Life Insurance - accumulates cash value

Mutual Co dividends can be taken several ways:a

1-cash 2-reduction of premium payments 3-Accumulation of Interest -dividends kept in account and accrue interest- and the interest is TAXABLE 4-One yr term addition (but its gone after 1 year) 5-Paid up Additions (small whole life policies) with no physical exam requirement, so good for people in poor health. 6-Paid up Insurance

the two phases of an annuity:

Accumulation phase and annuity period

What are the additional requirements when replacing an existing policy?

Agent must give buyer the "Ohio Notice Regarding Replacement" and a "Policy Proposal or Outline of Coverage". You could be trading 3 years of no cash value and suicide clause and incontestability periods start over. This all has to be sent to the replacing company's home office.

Define Universal Life Insurance.

Also known as Flexible Premium Adjustable Life insurance. Guarantees a minimum rate of interest, flexible premium and face amount, accumulates cash value, could pay a higher interest rate. Since only the fixed rate is in the contract it is considered a type of Fixed Life Insurance.

Absolute assignment

Irrevocable assignment of all rights....common with 3rd party insurance ownership - when owner wishes to transfer rights to insured

If a viator dies during the 15 day rescission period, what happens?

It is deemed to have been rescinded , all proceeds are repayed to the provider, ownership of the life insurance policy reverts to the estate.

Define "Decreasing Term" life insurance

The premium stays the same, but the amount of coverage decreases yearly. Often purchased for mortgage coverage.