Types of Life Policies Chapter 2
Agents selling variable life insurance products must:
1. Be registered with FINRA 2. Have a securities license 3. Be licensed by the state to sell life insurance
Universal life death benefit options
A and B
Interest Sensitive Whole Life
A whole life policy that provides a guaranteed death benefit to age 100. Insurer sets the initial premium based on current assumptions about risk, interest and expense. Provides a minimum guaranteed rate of interest
Universal life death benefit option b
At any point in time, the total death benefit will always be equal to the face amount of the new policy plus the current amount of cash value
Renewable Term Insurance
Can be renewed without evidence of insurability and premium cost is based on insured's attained age
Ordinary whole life
Continuous premium while life
Whole life insurance cash value
Credited to the policy on a regular basis and have a guaranteed interest rate
Interest Sensitive Whole Life
Current assumption life
Universal life death benefit option b
Death benefit includes annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.
limited-payment life insurance
Designed so that the premiums for coverage will be completely paid up well before age 100
Single Premium Whole Life
Designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash
Cash value in whole life
Does not usually accumulate until the third policy year
Variable life insurance are ___ by the ___ and the ___. Therefore, variable life insurance are regulated by the ____ and the ____.
Dually regulated State and federal government Securities and exchange commission Financial industry regulatory aunthority
Indexed life insurance
Equity index while life
Joint Life Policy
First to die
Variable life
Fixed premiums and guaranteed minimum death benefit, but cash value is not guaranteed and fluctuates with the portfolio Im which premiums have been invested by the insurer.
Universal Life Insurance
Flexible premium adjustable life
Universal life death benefit option b
Increasing death benefit option
Universal life death benefit option a
Level death benefit. Death benefit remains level while cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years.
Level Term Insurance
Level refers to the death benefit that does not change throughout the life of the policy
Types of Term Policies
Level, increasing, decreasing
Universal life death benefit option a
Must be a "corridor" or gap maintained between cash value and death benefit
Return of Premium
Not taxable because the amount returned is equal to the amount paid in
Variable life
Policy owner bears the investment risk (asserts on separate account)
Universal Life Insurance
Policy owner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. Policy owner may skip payment as long as there's enough money in the cash value. If cash value is too small, policy expires
Indexed life insurance
Policy's gave amount increases annually to keep pace with inflation without requiring evidence of insurability. Guaranteed minimum interest rate S&P500 If policy owner assumes risk, policy premiums increase the the increase in face amount. If insurer assigns the risk, the premium remains level
Variable Universal Life Insurance
Provides policy owner with flexible premiums and an adjustable death benefit Policy owner decides where net premius (cash value) will be invested Cash values are not guaranteed and death benefit is not fixed Cash value and or death benefit may increase or decrease over the life of the policy depending on the investment performance of the underlying si account Death benefit cannot decrease below initial face amount Producer must have life and securities license
Convertible Term Insurance
Provides policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability. Premium will be based on insured's attained age
Term Insurance
Provides the greatest amount of coverage for the lowest premium
Universal life death benefit option a
Pure insurance decreasing as time passes, lowering expenses and allowing for greater cash value in older years
Term Insurance
Pure life insurance
Term insurance policies are ___, ___, or ___ and ___
Renewable, convertible or renewable and convertible
Survivorship life
Second to die
Universal life death benefit option b
Since pure insurance with the insurer remains level for life, the expenses of this option are much greater than those for the other option, thereby causing the cash value to the lower in the older years
Ordinary Whole Life
Straight life
Adjustable Life Insurance
Term and permanent coverage
Minimum premium in universal life
The amount needed to keep the policy in force. Paying the minimum premium will make the policy perform as an annually renewable term product
Target Premium in a universal life policy
The recommended amount to keep the policy in force throughout its lifetime
permanent life insurance
Whole life insurance
Adjustable Life Insurance
a policy that offers the insured the option to adjust the policy's face amount, premium, and length of protection without ever having to complete a new application or have another policy issued. Requires proof of insurability when increasing DB or changing to lower premium
Renewable Term Insurance
allows the policyholder to continue term insurance for one or more terms without evidence of insurability
The insurance component of a universal life policy
always annually renewable term insurance
Nonforfeiture Values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Liquidation of an Estate
converting a person's net worth into a cash flow
Joint Life Policy
designed to insure two or more lives Can be in the form of term or permanent insurance Premium would be less than for the same type and amount of coverage in the same individuals Functions similarly to an individual whole life policy with 2 major exceptions: 1. Premium based on joint average age between ages of insureds 2. Death benefit is paid upon the first death only
Return of Premium
increasing term insurance that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid
Two components of universal life
insurance component and cash account
Survivorship life
insures 2 or more people premium based on joint age of insured benefit paid on the last death lower premium Often used to offset the liability of the estate tax
decreasing term policy
level premium and a death benefit that decreases each year of the policy. Most commonly used with mortgage
Whole life insurance characteristics
level premium, death benefit, cash value, living benefits
Variable Whole Life Insurance
level, fixed premium, investment based product
permanent life insurance
life insurance that provides a death benefit plus a savings plan and lasts for the policyholder's lifetime or until age 100
Endow
the cash value of a whole life policy has reached the contractual face amount
straight life insurance
the policy owner pays the premium from the time the policy is issued until the insureds death or age 100 (whichever occurs first). lowest annual premium.
Annually Renewable Term
the purest form of term insurance. The death benefit remains level, and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases.
Deferred
withheld or postponed until a specified time or event in the future
