Life Insurance Policies and Annuity Contracts

Joint Life Insurance

Any type of life insurance. -Based on two lives. -Life Insurance death benefit paid at the FIRST DEATH -Often used to fund buy-out agreements. **FIRST TO DIE LIFE INSURANCE

Survivorship Life Insurance

Any type of life insurance. -Life Insurance death benefit paid at the SECOND DEATH -Often used to pay estate taxes and legal expenses that occur at the death of the second spouse **SECOND TO DIE LIFE INSURANCE

Credit Life and Mortgage Life Insurance

Decreasing term life insurance set up so that the benefits will automatically be applied to pay off the unpaid loan balance at the insured's death

Pension (Retirement) Plan

-May be established by an individual for him/herself or by an employer for the benefit of the employer's employees 1. Formal written plan 2. Money contributed to plan/ funding 3. Investments must be made with the plans funds. (i.e cash value life insurance, life insurance company issued annuity contracts)

GLI - 2 year Incontestability provision

1. 2 year period after coverage takes effect 2. A claim cannot be contested (denied) after that time period *due to any type of misstatement* on the application

GLI - 31 days Grace Period

1. 31 day period after premiums were due during which coverage still exists. 2. Avoids covered members' coverage lapsing because the master policyholder's premium is in the mail on the due date.

GLI - Termination and Conversion

1. A 31 day conversion period after termination of group insurance

GLI - Enrollment Period

1. A 31 day enrollment period usually applies after a new member becomes first eligible. *New members can enroll without health questions* 2. If person doesn't enroll during period, may be health questions at later point to enroll.

Term Life Insurance

1. Can be issued as: separate policy or a rider. 2. Permanent vs Temporary Protection A. Cash Value life insurance = long term, permanent needs B. Term insurance = no cash values = short term, temporary needs

Group Life Insurance

1. Cost savings 2. Usually term life insurance 3. Policy issued to master policyholder; *certificates* issued to covered members 4. Must have 10 members

Variable Annuities

1. During premium pay-in period, contributions used to purchase *accumulation units*, which change in value according to a specified securities index or economic index, or the value of the specified portfolio of securities. 2. At pay-out, accumulation units converted to *annuity units*, which change in value. Each monthly annuity benefit amount varies as the value of the annuity values change. 3. Goal to provide policy owner and annuitant a rate of return that at least equals, exceeds, annual increase in cost of living. (*Inflation*) 4. *Insured company must keep variable annuity premiums and investments in a separate (segregated) fund. 5. Must have LIFE INSURANCE PRODUCER LICENSE and SECURITY REPRESENTATIVE LICENSE

GLI - Participation Requirements

A. Sponsor pays 100% of premiums - *All eligible members must participate* B. Members contribute - *75% of all eligible members must participate*

Individual Retirement Account (IRA)

1. Eligible person may contribute up to *100% of earned income* not to exceed max amounts under IRS rules. 2. Additional "catch up" contributions can be made by individuals *over 50* 3. *A plan can also be established by an eligible person for a non-working spouse. Same contribution rules apply* 4. Roth IRA - a special type of IRA, special tax laws apply 5. *Tax penalties apply on all amounts withdrawn prior to age 59 1/2* Sometimes tax penalties for not taking benefits by age 70 1/2 6. IRA plan funds can be invested in many forms of insurance plans and security investments *including life insurance company annuity plans*

Equity Indexed Annuities

1. Equity Indexed Investment: linked to stock market index. As stock market index goes up, value of investment goes up. 2. Policyowner is credited with contributions plus *interest.* 3. Interest rates change periodically based on the performance of a specified *stock market index/ equity index.* 5. *Percentage of contributions* (such as 80%) is guaranteed should the index decline and then the policyholder dies or withdraws annuity benefits. 6. Policyowner has benefit of participating in increased stock market values as the stock market goes up while risk of losing value is minimized. 7. Life insurance license, some require security representative license.

Joint and Survivor Life Annuity

1. Insurance company pays level monthly benefits over the life of the annuitant and spouse. 2. After one spouse dies, benefits continue to the surviving spouse for the rest of his/her lifetime. 3. At 2nd spouses death, benefits stop and no benefits to the beneficiary

Joint and 2/3 Survivor Life Annuity

1. Insurance company will pay a HIGHER level monthly benefit while annuitant and spouse are alive. 2. After 1 spouse dies, reduced monthly benefit = to 2/3 of original will be paid to surviving spouse. 3. At 2nd spouses death, benefits stop and none to beneficiary.

Annuity Options - Life Annuity Fixed Period (Life Annuity Period Certain)

1. Insurance company will pay level monthly benefits for annuitants life. 2. If annuitant dies before the fixed period of payments have been paid, benefit payments to beneficiary for remained of fixed period.

Annuity Options - Cash Refund Life Annuity

1. Insurance company will pay level monthly benefits for annuitants life. 2. If annuitant dies before total account balance has been paid, at annuitants death, benefit payments will continue to beneficiary until total account balance has been paid out.

Annuity Options - Life Annuity

1. Insurance company will pay level monthly benefits for the annuitants life. 2. At annuitants death, benefits stop and there will be no benefits no beneficiary

Annuity Options - Fixed Period (Period Certain)

1. Insurance company will pay level monthly benefits for the fixed period of time. 2. If annuitant dies before fixed period of payments have been paid, benefit payments will continue at the annuitants death to beneficiary for remainder of fixed period.

Annuity Options - Fixed Amount (Amount Certain)

1. Insurance company will pay monthly benefits in the fixed amount until the principle and interest has been paid. 2. If annuitant dies before total account balance has been paid, at annuitants deathly monthly benefit payments will continue to the beneficiary until the total account balance has been paid out.

Franchise (Wholesale) GLI

1. Issued to groups not eligible for group insurance. 2. Individual policies to each covered person 3. Administered like groups

Limited-Pay Whole Life (Single Premium Life, 20 Pay Life, Life Paid-Up at Age 55)

1. Level amount of coverage until age 100. 2. Level premium rate for a shortened premium payment period. *Premiums are higher

Modified Whole Life (Modified 3, Modified 5; Graded Premium Whole Life)

1. Level amount of coverage until age 100. 2. The premium is reduced for an initial period and then level thereafter.

Endowment

1. Level amount of life insurance coverage until maturity which is PRIOR TO (BEFORE) age 100. 2. Level premium rate *Interest and premiums are HIGH

Interest Sensitive - Universal Life

1. Life insurance protection combined with cash values. 2. Premium charge for life insurance protection = "mortality cost". Increases each year with age. Policy owner can pay ANY premium amount as long as it =/exceeds mortality cost. 3. Premium payments exceeding mortality cost are added to the cash values. 4. Interest earned on the cash values is applied to mortality cost, offsetting the increased mortality cost as insured grows older. 5.*The cash value interest rate varies year to year, but guaranteed not to drop below a minimum guaranteed rate. 6. Must have LIFE INSURANCE PRODUCER LICENSE

Interest Sensitive - Whole Life

1. Life insurance protection combined with cash values. 2. *The cash value interest rate varies year to year, but guaranteed not to drop below a minimum guaranteed rate. 3. Cash values guaranteed to be no less than a stated minimum amount each year, but may exceed the stated minimum amounts as interest rates increase. 4. Interest on cash values is applies to offset increasing mortality rates as insured grows older. 5. Must have LIFE INSURANCE PRODUCER LICENSE

Combination Plans - Family Life Insurance Plan

1. Life insurance to everyone in family (husband, wife, and children) 2. Primary insured is often spouse with higher income. 3. WHOLE Life Insurance policy on the primary insured. 4. Provides TERM LIFE insurance on spouse -Term life rider coverage terminates when primary turns 65. -Primary dies prior to 65 = term rider (spouse) paid up at the insured's death until the primary insured would have been 65. 5. Provides automatic TERM LIFE insurance on children -Premium on the child rider is determined entirely by the face amount that the insured selects on each child. -Usually no additional premium per child/ no health questions -If more children are born post policy, each baby automatically coved at age 15 days. -Jumping Juvenile Provision: coverage terminates and is convertible to 5x face amount usually either at primary insured age 65 OR child turns 25, which ever happens first.

Business Life Insurance - Buy-sell Agreement

Agreement entered into by partners of a partnership or stockholders of a closely held corporation. -Each partner agrees to buy out the other, and each agrees to sell out each other at his/death -Each partner buys life insurance on the life of the other partner to furnish the purchase funds *Premiums usually cannot be tax deducted. Usually no tax on the benefits when paid at the insured's death (tax free)

Tax Sheltered Annuities (TSA or 403b)

1. May be established by non-profit educational, religious, or medical organizations. 2. Employer/ sponsor contracts with 1+ life insurance companies and/ or mutual fund companies to offer policies to employer's employees. Plan funds can be invested only in life insurance company issues annuity contracts and/or mutual funds. 3. Employer payroll deducts the employee's contributions and remits them to insurance company or mutual fund company 4. Tax penalties apply on all amounts withdrawn prior to age 59 1/2 in addition to tax on gain.

Fixed Annuities

1. Policyowner credited with contributions and interest. 2. Interest rate fixed periodically. 3. *When monthly annuity income benefits to the annuitant are to start, insurance company calculates what the monthly annuity income benefit is to be* 4. Monthly annuity income benefit amount paid to the annuitant is fixed entire time benefits are paid. 5. *Life insurance producer license only

Level Term Life Insurance

1. Provides a level about of life insurance protection for a specified period of time. 2. Level premiums 3. No cash values (cannot be borrowed against) 4. No nonforfeiture values 5. Usually convertible to permanent until specified age. 6. Sometimes renewable until specified age --Short Term Plans: 1 and 5 year plans, no evidence of insurability. The insured pays premium rate for his/her age at time of renewal. --Long Term Plans: 10 year+ plans usually cannot be renewed

Decreasing Term Life Insurance

1. Provides decreasing amount of life insurance protection for a specified period of time. 2. Level premium during the policy. 3. No cash values (cannot be borrowed against) 4. No nonforfeiture options 5. Usually only partially convertible 6. Usually NON renewable

Adjustable Life

1. Provides flexibility in premium amount, face amount and amount of cash value accumulation. The face amount can be increased or decreased within limitations. 2. Premium payments can be increased or decreased as long as it equals or exceeds minimum premiums stated in policy.

Whole Life Insurance (Straight Life/ Ordinary Life)

1. Provides level amount of life insurance coverage until age 100. 2. Preimums stay the same (level) 3. Cash values = face amount at age 100 maturity -As insured ages, mortality rate increases, cash values become greater and greater requiring continuously LESS pure insurance. -Cash values earn interest and/or earnings. -Policy owner can borrow against cash values during life of the policy. -Tax deferred interest and or/ earnings. No tax on cash value interest. Cash values taxable at withdrawal only to the extent that they EXCEED PREMIUMS that have been paid (GAIN) -Interest and/ or earnings paid to beneficiary at death, tax free.

Other Stock Market (Equity) sensitive plans

1. Variable Whole Life Insurance 2. Equity - Indexed Life Insurance 3. Variable Universal Life Insurance

Combination Plans - Family Income Plan

1. Whole Life policy with a DECREASING TERM RIDER 2. Whole Life face amount is paid whenever insured dies. 3. Monthly income benefit paid to beneficiary from the DECREASING TERM insurance rider until what would have been the end of the rider term. 4. Insured must die during the rider term for the income benefit to be payable.

Combination Plans - Family Maintenance Plan

1. Whole Life policy with a LEVEL TERM RIDER 2. Whole Life face amount is paid whenever insured dies. 3. Monthly income benefit paid to beneficiary from the LEVEL TERM insurance rider for a period EQUAL TO THE TERM OF THE RIDER

SS Blackout Period

10, 15, or 20 year period from the time the youngest child has 16th birthday until the widow achieves full old age benefit age.

Social Security Death or Survival (OASDI) Benefits

Eligible if contributed to SS enough quarters to achieve fully insured or currently insured status. *Fully insured = at least 40 q (10 years) *Currently insured = at least 6 quarters in the last 13 quarters immediately prior to death --Lump sum death benefit of $255 will be paid to qualifying surviving spouse. --Monthly survivor benefit will be paid to: 1. Dependent under age 18. 2. Widow with dependent children under 16

GLI - Adverse Selection

Insuring too many health conditions insureds have before the policy is issued, causing premium rates to be inadequate to pay claims.

Business Life Insurance - Split dollar

It is cash value life insurance (such as whole life) on the life of a key employee. THE EMPLOYER is the owner of the POLICY. -The employer and employee split the premiums. -At the insured employee's death, the EMPLOYER is paid either the premiums the EMPLOYER has paid or cash value (whichever is greater). The insured EMPLOYEES beneficiary is paid the difference between face amount and payment to employer. *Premiums cannot be tax deducted. No tax on the benefits when paid at the insured's death (tax free)

Variable Life Purpose

Keep both the insured and the policy owner at least equal to, if not ahead of, the annual increase in cost of living (inflation) -Insurance company must keep its variable life insurance premiums and cash value investments in a separate (segregated) fund.

Business Life Insurance - Key Employee

Life insurance purchased on the life of a key business employee. *Business is both the policy owner and the beneficiary *Purpose to keep the business going at the death of the key employee. *Premiums usually cannot be tax deducted. Usually no tax on the benefits when paid at the insured's death (tax free)

Annuities

Protects against the financial risk of out living a normal life expectancy -No tax on interest/earnings until withdrawn (tax deferred) Classifying: 1. How premiums are paid: Single, Level, Flexible 2. How soon monthly annuity income benefits start out of plan after last premium payment: Immediate (within 30 days); Deferred (>30 days)

Whole Life/ Endowment - Surrender

Surrender Cash Values: 1. Cash 2. Paid Up Insurance Policy (Face amount decreases, but stays at insurance company whole life) 3. Extended Term Insurance Policy (Have to die during term, but policy remains at face value)

Lower Premium Rate

Term Life Insurance which have no cash values and no nonforfeiture options will have lower premium rate per 1000 dollars face amount than cash value options *Attraction to term life

Stock Market (Equity) Sensitive Life Insurance

Variable Life: --The life insurance death benefit and cash value growth rate varies according to the performance of either a specified portfolio of securities managed by the insurance company of a security market index or another economy index. --Equity investments = plans based on stock market performance --Must have LIFE INSURANCE PRODUCER LICENSE and SECURITY REPRESENTATIVE LICENSE

Servicemembers Group Life Insurance (SGLI)

When person enters the service, becomes eligible for group term life insurance. *Face amount is minimum of $50,000 and can be increased in increments of $50,000 up to max $400,000. (Premiums low and usually payroll deducted) *Face amount can be reduced or the benefit can be eliminated by written request. *Within 1 year and 120 days of separation from service, member may convert SGLI to Veterans Group Life Insurance (VGLI) in an amount up to the amount the SGLI carried. *If conversion within 240 days of discharge, no health questions. If over, underwriting required. *VGLI is term life insurance coverage until 60. Veteran may convert VGLI into individual life insurance policy (ex: whole life policy)