Types of Life Policies
Universal life polices allow the ____________________________ of the policy cash value. However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.
Partial withdrawal (partial surrender)
A partial surrender from a universal life policy is not the same as a....
Policy loan
In a Indexed Whole Life Policy, how will it effect the premiums if the policyowner vs the insurer assumes the risk?
Policyowner - the policy premiums increase with the increases in the face amount Insurer - The premium remains level
Regardless of what type of term insurance is purchased, what remains level throughout the term policy?
Premium
Joint Whole Life functions similarly to an individual whole life policy with two major exceptions:
1. The premium is based on a joint average age that is between the ages of the insureds 2. The death benefit is paid upon the first death only
In adjustable life insurance policies, the policyowner also has the option of converting from term to whole life or vise versa. However, increases the death benefit or changing to a lower premium type of policy will usually require......
Proof of insurability
What does term insurance provide?
Pure death protection
What is an annuity?
A contract that provides income for a specified period of years, or for life.
Variable Universal Life Insurance, like Universal Life itself, has what features and characteristics?
A flexible premium that can be increased, decreased or skipped as long as there is enough value in the policy to fund the death benefit. Increasing and decreasing the amount of insurance Cash withdrawals on policy loans
Because annuities are based on life expectancy of an annuitant, the annuitant must be ___________________________, regardless of who owns the policy.
A natural person
What is Universal Life?
A policy where the policyowner has the flexibility to increase the amount of the premium paid into the policy and to later decrease it again
What is straight whole life insurance?
A policy where the policyowner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever occurs first)
What is a Qualified Plan?
A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.
What is level term insurance?
A term policy where the death benefit does not change throughout the life of the policy
In what life policy does the cash value only develop when the premiums paid are more than the post of the policy?
Adjustable Life Insurance
What is Indexed Whole Life also referred to as?
Equity Index Whole Life
True or False : Term insurance has cash value
False
What is a generic name for Universal Life Insurance?
Flexible premium adjustable whole life
On adjustable life insurance policies, as the insured's needs change, the policyowner can make adjustments in his or her policy. Typically, the policy owner has the following options...
Increase or decrease the premium or the premium paying period, Increase or decrease the face amount, or change the period of protection
What two components does a Universal Life policy have?
Insurance component and a Cash Account
During the accumulation period, the payments earn _____________________.
Interest on a tax-deferred basis
Random Fact
Interest-Sensitive Whole Life provides the same benefits as other traditional whole life policies with the added benefit of current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period.
Level term insurance provides what two things?
Level death benefit and level premium during the policy term
What are the three basic types of term coverage available?
Level, Increasing, and Decreasing
What whole life policy has a shorter premium-paying period than straight life insurance which causes the annual premium to be higher?
Limited-Pay Whole Life
In Universal Life policies, since the premium can be adjusted, the insurance companies may give the policyowner what two types of premiums?
Minimum Premium - the amount need to keep the policy in force for the current year Target Premium - a recommended amount that should be paid on a policy in order to cover cost of insurance protection and to keep the policy in force throughout its lifetime
What two death benefit options does Universal life offer to the policyowner?
Option A - Level death benefit option Option B - Increasing death benefit option
What is straight whole life also referred to as?
Ordinary life or continuous premium whole life
Who are the parties of an annuity?
Owner - The purchaser of the annuity contract but not necessarily the one who receives the benefits. The of the annuity has all the rights such as naming a beneficiary and surrendering the annuity. Annuitant - The person who receives the benefits or payments from the annuity and whose live is taken into consideration. Beneficiaries - The person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever is greater)
What is Survivorship Life also referred to as?
Second-to-Die or Last Survivor policy
Due to the element of investment risk, the federal government has declared that variable contracts are securities are are thus regulated by the ____, ______, and _______
Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD), and the Insurance Department
What whole life policy is completely paid-up after one premium and generates immediate cash?
Single premium whole life
Of the common whole life policies, which will have the lowest annual premium?
Straight whole life
What are the three basic forms of whole life insurance?
Straight whole life, limited-pay whole life, and single premium whole life; However, other forms and combination plans may also be available
What type of policy of often used to offset the liability of the estate tax upon the death of the last insured?
Survivorship Life Policy
What is the major difference between Survivorship Life and Joint Life?
Survivorship life pays on the last death rather than upon the first death
Regarding the length of coverage, all life insurance policies fall into what 2 categories?
Temporary and Permanent protection
Who are Variable Life Insurance products dually regulated by?
The State and Federal Government
What is the annuity income amount based upon?
The amount of premium paid or cash value accumulated, the frequency of the payment, the interest rate, and the annuitant's age and gender
What is not guaranteed with a Variable Whole Life policy?
The cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in these policies
In a Survivorship Life policy, since the death benefit is not paid until the last death this means...
The joint life expectancy in a sense is extended which will result in a lower premium than that which is usually charged for joint life.
What is the accumulation period known as?
The pay-in period
What are the characteristics of living benefits in whole life insurance?
The policyowner can borrow again the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered
True or False : In Universal Life policies, the policyowner may skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for the cost of insurance.
True
True or False : Premium rates on a joint life policy are determined by averaging the ages on both insureds
True
True or False : Term insurance provides the greatest amount of coverage for the lowest premium
True
True or False : Whole life insurance provides lifetime (permanent) protection and accumulates cash value.
True
When is decreasing term insurance primarily used?
When the amount of needed protection is time sensitive , or decreases over time
What is permanent life insurance?
a general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid
What is Variable Whole Life Insurance?
a level, fixed premium, investment-based product. These policies have fixed premiums and a guaranteed minimum death benefit.
What is cash value on a policy?
a policy's savings element or living benefit
What is Suitability?
a requirement to determine if an insurance product is appropriate for a customer
What is Joint Life?
a single policy that is designed to insure two or more lives. Joint policies can be in the form of term or perm insurance
What is Variable Universal Life Insurance?
a type of insurance that combines many features of the whole life with the flexible premium of Universal Life and the investment component of variable life, making securities version of the universal life insurance.
What is interest-sensitive whole life?
a whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest, and expense.
What is decreasing term insurance?
policies that have a level premium and a death benefit that decreases each year over the duration of the policy term.
Most term polices are...
renewable, convertible, or renewable and convertible
Unlike universal life, most of the investment vehicles in variable universal life policies do not guarantee..
return
What is limited-pay whole life designed for?
so that the premiums for coverage will be completely paid-up well before age 100.
What is term life?
temporary protection that only provides coverage for a specific time period
What does endow mean?
the cash value of a whole life policy that has reached the contractual face amount
What was adjustable life insurance developed for?
in an effort to provide the policyowner with the best of both worlds (term and permanent coverage). A adjustable life policy can assume the form of term insurance or permanent insurance.
What is Policy Maturity?
in life policies, the time when the face value is paid out
Who are limited-pay whole life policies best suited for?
insureds who do not want to be paying premiums beyond a certain point in time
What is the purpose of Indexed Whole Life Insurance?
is that cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability
What is a Survivorship Life policy?
it is much the same as a joint life in that is insured two or more lives for a premium that is based on a joint age.
Since pure insurance is actually decreasing as time passes under a Option A Universal Life option, what happens?
it lowers the expenses and allows for greater cash value in the older years
What does whole life insurance provide?
life time protection, and includes a savings element (or cash value).
How long may the annuity period last?
for the lifetime of the annuitant or for a specified period, which could be longer or shorter
What is annually renewable term insurance?
Annually renewable term (ART) is the purest form of term insurance in which the death benefit remains level; the policy may be guaranteed renewable each year without proof of insurability, but the premium increases annually according to the attained age.
What is the annuity period known as?
Annuitization period, Liquidation period, or pay-out period
Agents selling variable life insurance products must:
Be registered with the FINRA, Be licensed by the state to sell life insurance, and have received a securities license
What are the living benefits are whole life insurance?
Cash values, policy loans, Nonforfeiture values
What is Fixed Life Insurance?
Contracts that offer guaranteed minimum or fixed benefits
What is interest-sensitive whole life also referred to as?
Current Assumption Life
What is Return of Premium insurance?
an increasing term insurance policy that pays an additional death benefit to the beneficiary that is equal to the amount of the premiums paid
The insurance component of a Universal Life policy is always....
annually renewable term insurance
When do whole life insurance polices endow?
at the insured's age 100, which means cash value created by the accumulation of the premium is scheduled to equal the face amount of the policy at age 100.
What is Nonforfeiture values?
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or laspes
What is Variable Life Insurance?
contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
What is a Liquidation of Estate?
converting a person's net worth into cash flow
What is Securities in life insurance?
financial instruments that may trade for value (example: stocks, bonds, and options
What are the characteristics of the cash value in whole life insurance?
the cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policyowner. Note: cash values are credited to the policy on a regular basis and have a guaranteed interest rate
What happens under a Option B Universal Life option?
the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases
What are the characteristics of a the death benefit in whole life insurance?
the death benefit is guaranteed and also remains level for life
What happens under a Option A Universal Life option?
the death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years
Since the pure insurance with the insurer remains level for life under Option B Universal Life option, what happens?
the expenses of this option are much greater compared to Option A, thereby causing the cash value to be lower in the older years (all else being equal)
What is attained age?
the insured's age at the time the policy is issued or renewed
What are Return of Premium polices structured to consider?
the low risk factor of a term policy but at a significant increase in premium cost, sometimes as must as 25% to 50% more
What happens during the accumulation period?
the period of time over which the owner makes payments (premiums) itno an annuity.
What does the renewable provision allow?
the policyowner the right to renew the coverage at the expiration date without evidence of insurability
What does the convertible provision provide?
the policyowner with the right to convert the policy to a permanent policy without evidence of insurability
What are the characteristics of a level premium in whole life insurance?
the premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy
What is a Level Premium?
the premium that does not change throughout the life of the policy
The cash value, also called nonforfeiture value in whole life policies does not usually accumulate until....
the thirst policy year and it grows tax deferred
What is the annuitization date?
the time when the annuity benefit payouts begin (trigger for benefits)
What happens during the annuity period?
time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.
What is single premium whole life (SPWL) designed for?
to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment.
How are indexed whole life policies classified?
whether the policyowner or the insurer assumes the inflation risk
What does deferred mean?
withheld or postposed until a specified time or event in the future