Utah Life Insurance Test

If either one spouse should die within a specified time, the other one will receive benefits until the end of the specified time. This is known as

-Joint Life and Term Certain

Modified Endowment Contracts taxation...

-any distributions are taxable -including withdrawals and policy loans

Children's Term Rider

-if attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their covered to a new policy without issuing a proof of insurabliity.

Equity Indexed Annuities

-invest on an aggressive basis in order to yield higher returns

Insurer must respond to claimant communications within how many days?

15 days

Minimum Age to receive a license

18

License Requirements

18 years old at least.

Example of Whole Life Insurance

20-pay life means premium payments for 20 years but lifetime (to age 100) protection. Life paid up at 65 means premium payments up to age 65 but lifetime protection. A 20 pay life policy matures at age 100 or upon the death of the insured, whichever comes first. The principle difference with limited-pay policies is simply the length of the premium paying period.

Continuing Education Hours

24 Hours every 2 years (3 Hours must be in ethics)

Variable Policies have:

A level premium and Variable death benefit.

A stock purchase plan

A price is determined and each stockholder agrees to purchase a proportionate share of the deceased shareholder's stock.

Survivor-ship life policy

A variation of the joint life policy. Pays the insured amount, not upon the death of the first insured to die, but upon the death of last surviving insured. Joint life policies can be sold as term life.

Variable Life

AKA Variable Whole Life. also developed because of low returns earned by traditional cash value policies. Policy has 2 elements, Death protection and savings/investment element. Instead of cash values being linked to interest rates, they are backed by equity investments and securities that are not guaranteed. They have the following characteristics: guaranteed minimum death benefit (actual death benefit may be higher and will vary with the success of the investments.) They have cash values that are not guaranteed. Contracts are regulated as securities. For fully guaranteed contracts (such as whole life insurance), an insurer maintains a general account, also called a general asset, that consists primarily of safe and conservative investments (such as high grade bonds, real estate, and CDs.) The safety of those investments makes it possible for the insurer to guarantee its policies. In contrast, an insurer must establish a separate account, also called a separate asset, for its variable products. Premiums paid for variable life insurance must be put into the insurers separate account. There is considerable risk, and there are no guarantees as to its future value.

Adjustable Life Insurance

Adjustable Life insurance is a policy that offers the PO the option to adjust the policy's face amount, premium, type of protection, and/or length of protection, without having to complete a new application or actually exchange policies. The flexibility of adjustable life is accomplished by allowing conersion from one form of insurance to another, and by making appropriate premium adjustments, if necessary.

Appointments

All producers must be appointed by at least one insurer.

Convertible Term Policy

Allows a policy-owner to convert or exchange the temporary protection for some form of permanent protection without evidence of insurability. The conversion must be made prior to expiration of the term. When a policy is converted, the premium will be based on attained age.

Policy Loan

An insured may also borrow a portion of the cash value in this form. But it must be paid back (with interest) in order to restore policy values.

Backdating

And insurer may not backdate a policy for more than 6 months before the original application was made to preserve age and reduce premium. Premium must be collected for each month the policy is backdated.

Changes in the Application

Any changes made to an insurance applicant after it is completed must be initialed by the applicant.

Insurance Fraud:

Anyone who knowingly misappropriates insurance premiums, makes any material false statement of an insurance application, or makes a false insurance claim commits insurance fraud.

Index Linked Policies

As a hedge against high inflationary periods, many companies offer policies with face amounts that increase by the amount of inflation. 2 ways, either premium is increased every year to cover the increased insurance amount, or the life insurance company makes assumptions about what it expects the increases to be at policy inception. Insured pays same premium over the life of the policy.

Whole Life Cash Values Accumulation

As years go on, Cash Value accomodation increases and insurance protection goes up. Assume the Face Value of the above policy is $100,000. The first day the policy is in force, the insured has $100,000 in protection. If the insured should die one week, one month, one year, 10 years, or 50 years later, the insured's beneficiaries would be paid $100,000 at the time of death. The face amount policy remains the same throughout the life of the policy (and the insured).

More Whole Life

Because Whole life Policies include cash values in addition to net insurance protection, the premiums have to cover mortality costs, expenses, and the savings account. For this reason, whole life policies are more expensive than term life policies.

Third-Party Ownership

Businesses that own policies on key employees.

Family Maintenance Policies

Combines ordinary life insurance and level term insurance. It affords the payment of a monthly income during a stated period, as selected by the insured. Monthly income is payable from the date of death to the end of the preselected period.

The Family Policy (Family Protection Policy)

Consists of whole life on the breadwinner and convertible term on the spouse and children . Once issued, additional children are automatically included at no extra cost.

Gramm-Leach-Bliley Act (GLBA)

Consumer - An individual about whom a company collects information is a consumer. Customer - A customer is a consumer that has developed an ongoing relationship with a financial institution.

When must an IRA be completely distributed when a beneficiary is not named?

December 31 of the year that contains the fifth anniversary of the owner's death.

Credit Life Insurance

Designed to insure the lives of debtors for the benefit of the creditor (who is the PO) In the event that the insured debtor dies, it pays the outstanding balance of the loan.

Universal Life

Developed in response to the relatively low interest rates (generally 3-5%) earned by traditional whole life insurance cash values, which made the whole life product less attractive during periods of high inflation. Makes Whole Life option less attractive during periods of high inflation. These policies pay higher interest rates during inflationary times. Also have greater flexibility because they allow PO to adjust the death benefits and/or premium payments. Similar to Whole life that it has death protection and cash value, but instead of being fixed and guaranteed amounts, the death protection resembles one-year renewable term insurance and the cash amount grows according to current interest rates.

Human Life Vale Approach

Focuses on an individual's future stream of income. It considers such things as annual salary and expenses, years remaining until retirement, and future value of current dollars. (how much will the insured make?)

Coercion

Forcing a person to buy insurance through a particular company or producer.

Whole Life Insurance

Gets its name from the fact that the policy is designed to provide coverage for the whole of life (usually up to age 100, although some mortality tables have been adjusted to age 120).

Commissioner Powers and duties include:

Imposing penalties, including fines, suspensions, and revocations. All insurance forms (riders, policies, applications, endorsements, and contracts) must be filed and approved by the Commissioner.

Consumer Reports

Information on a person's credit, character, reputation, or habits.

Amendments

Insurer may amend (make changes) the policy's terms depending on the results of the underwriting process.

IRC

Internal Revenue Code

Replacement

Is for the purchase of one life insurance policy to replace another.

False Advertising

It is illegal for any producer to formulate or use an advertisement or statement that is untrue, deceptive, or misleading regarding any insurance company or persons associated with that company.

Misrepresentation

It is illegal to make any written or oral statement, sales presentation, or comparison that; misrepresents the dividends, benefits, advantages, conditions, or terms of any policy. Example: uses a name of any insurance policy that misrepresents its true nature.

Unfair Discrimination

It is illegal to unfairly discriminate between individuals of the same class and equal life expectancy in the rates, dividends, benefits, or terms of any life or life annuity contract. Unfairly discriminate between neighborhoods within a municipality and of essentially the same hazard. Use sexual orientation in the underwriting process or in the determination of insurability.

Current assumption whole life policies

Known as Interest sensitive whole life. Offer flexible premium payments that are tied into current interest rate fluctuations. Insurance company reserves the right to increase or decrease the premium within a certain range depending on interest rate fluctuations.

Buy -Sell agreement

Legal document outlining the business continuation plan.

Defamation

Making any statement, written or oral, that is false or maliciously critical of the financial condition of an insurance company or a producer representing that company is illegal.

Per Stirpes

Means by the root or by the way of branches. A per stirpes distribution means that a beneficiary's share of a policy's proceeds will be passed down in equal shares should they predecease the insured.

Per Capita

Means per person, or *by the head*. Policy proceeds are paid only to the named beneficiaries who are living.

Continuous premium Whole Life

Most common type of Whole life insurance sold. These policies stretch the premium payments over the whole life of the insured. Often referred to as Straight life insurance.

Family income policies

Not commonly sold, but sometimes appear on state license exams. combines whole life insurance with decreasing term coverage. Provides an income to be paid upon the death of the bread winner.

Notice to Applicant

Notifies the applicant that a report will be ordered concerning their past credit history and any other life or health insurance for which they have previously applied.

Rebating

Offering valuable consideration, other than that which is offered in the contract as an inducement to purchase a policy is illegal.

Advantages and Uses of Term Insurance

One of the most common uses is to provide a substantial amount of coverage at a minimum cost.

Capital Retention

Only take out the interest of the policy and conserve the principal.

Two options available regarding the death benefit payable under a universal Life Policy

Option 1 (or A): Provides a level death benefit equal to the policy's face amount. Policy's cash value increases, net death protection actually decreases over the life of the policy, making the structure similar to a whole life contract. Option 2 (or B): provides for an increasing death benefit equal to the policy's face amount plus the cash account. In terms of policy structure, this contract this contract

Joint Life Annuity

Payments continue to two annuitants for only as long as both live. On the death of either one, payments stop.

Fiduciary

Person in a position of financial trust. It is the producer's duty to accurately and thoroughly complete all applications for insurance, collect initial premiums, and promptly submit them to the company.

Level Premiums

Premiums for permanent insurance policies are designed to remain level during the entire period the policy is in force. In the early years of the contract, the insured actually pays in more premium than is needed to provide the current year's insurance protection, whereas in later years less than is needed is paid in. The net result is that the premium remains the same for the entire life of the contract. In addition, the company has the opportunity to invest the money at a favorable return, which helps reduce the cost of insurance.

Premium collection

Producer is encouraged to collect the insitial premium with the application. The coverage is not effective until the policy is delivered and the initial premium has been paid.

Endowments

Provides for the payment (to the beneficiary) of the face amount upon the death of an insured during a specified period or the payment of the face amount at the end of the specified period if the insured is still alive, whichever comes first. Not as popular today as they used to be. premiums are higher than traditional whole life contracts because their savings features and premium levels depend on the endowment period selected.

Medical Information Bureau

Reports issued by the MIB are another source of information which may aid the underwriter in determining whether or not to accept a risk. This is a non-profit trade association that maintains medical information on applicants for life or health insurance. Applicants or are denied coverage due to information in an MIB report must be given explanations and an opportunity to challenge information about their medical history that may be inaccurate.

Fair Credit Reporting Act

Responsible for the opt-out opportunity, but the privacy notice must inform the customer of this right under the GLBA.

SEC

Securities Exchange Commission

A domestic insurer issuing variable contracts must establish one or more

Separate Accounts

Level Premium

Set amount premium with out increasing or decreasing over the policy

Premium Mode

Simply the frequency with which a policy premium will be paid.

Equity Indexed Life insurance

Some companies offer policies with face amounts that are linked to an equity index, for example S&P 500. The insurance company may simply increase the premium when it increases the coverage, or it might make advance assumptions about the rate of inflation and charge a slightly higher premium from the original inception date.

A producer cannot share commissions with:

Someone that is not a life insurance agent. Monies may not be commingled with the producer's personal funds.

Classifications of Risks

Standard Risks - Reflects average exposures and fall into a normal range. These risks can be insured for standard rates and premiums. Substandard Risks - Higher risked people that can still receive insurance for a higher premium. Preferred Risks - Below average risk and pay lower premiums Declined Risk - Insurer company has decided not to insure the applicant.

Incontestability Clause

States that after a specified period of time, (two years), the insurer may not dispute or contest the validity of the contract or the statements. After the contract has been in effect for a specific length of time, the insurance company agrees not to challenge any statements made by the applicant on the application.

Non forfeiture Value

The cash value in the policy belongs to the policyowner. If the PO wishes, some or all of the cash value may be withdrawn from the policy. Any withdrawal of cash value will reduce both the Face Value of the policy and the amount of cash value available.

Unconditional and Binding Receipts

The company liable for the risk from the date of application, regardless of the applicant's insurability. This coverage lasts for specified time, or until the insurer issues the policy.

Stock redemption plan

The corporation is the owner, beneficiary, and premium payor of the life insurance policies and the corporation agrees to purchase the deceased's stock

McCarran Ferguson Act

The fed govt had the right to regulate the business of insurance but only to the extent that such business is not regulated by state law (which most are) They did this with the intent of not having to regulate them against the provisions of the fed antitrust laws.

Morality Rate

The number of deaths per 1,000 people.

Advantages and Uses of Whole Life Policies

The principal advantage of whole life is that it is permanent insurance and can be used to satisfy permanent needs such as the cost of death, dying and final burial expenses. The level premium allows the PO to know exactly what the cost of insurance will be and offers a form of forced savings. Whole life builds a living benefit through its guaranteed cash value, which enables to PO to use some of this cash for emergencies, as a supplemental source of retirement income, and for other living needs.

In an Adjustable Life insurance policy the policy owner can change ALL but what thing?

The type of investment

What is the major problem with naming a trust as the beneficiary of a life insurance policy?

They are expensive to the administrator

Which of the following statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary.

Grace Period

This is the period of time following the date that each premium is due during which the insurance policy remains in force and coverage is provided, even though the premium has not yet been paid. Generally grace period is 31 days.

Variable Universal Life

This product blends a combination of the variable and universal life insurance concepts. The policy has elements of variable life insurance because it is backed by equity investments.

Needs Approach

This technique focuses on the needs of survivors. It considers such things as funeral expenses, final illness, continuing family income needs, children's education, retirement income etc. (How much will the survivor need?)

Insurance Consultants

To become licensed as an insurance consultant, a producer must have been licensed and actively transacted inurance for at least three of the four years immediately preceding the application for a consultants license.

What Life insurance policies are considered interest sensitive?

Universal Life

Conditional receipt

Usually makes the coverage effective as of the date of application.

benefits are not guaranteed

Variable annuity

Retirement Endowment

Was one of the most commonly sold endowment contracts. Issued to mature at age 65 when the insured planned to retire. Face value was payable as a death benefit if the insured died before the maturity date. At maturity the full face amount became payable, usually in the form of monthly installment income.

Privacy Notices must explain:

What info the company gathers about the customer. Where that info is shared How the company safeguards that info

Suicide Clause

When this is inserted in a life insurance contract, death by suicide is not covered during the policy's first two years. If suicide occurs in this initial 2 year period, premiums are refunded but no face amount (death benefit) is paid. Following the 2 years period, coverage is provided.

Joint Life Policies

Whole Life contract written with two or more persons as named insureds. The policy is issued on two lives with the insured amount payable on the death of the first insured.

Permanent Insurance

Whole life is also called this because the maturity date is beyond the life expectancy of most individuals. However a whole life policy actually consists of a combination of a savings element (the advancing cash value) and a decreasing amount of net insurance. When a whole life policy reaches its maturity date (age 100), the cash value would equal the face amount.

Guaranteed Cash Value

Whole life policies include a savings element that is guaranteed to accumulate and earn a specified rate of interest. usually the policy has little or no cash value during the first couple of policy years. In the third year, cash values begin to accumulate.

Roth IRA

allows contributions to continue beyond age 701/2 and does not force distributions to start at age 701/2

401(k) bonus/ thrift plan

an employer will contribute certain amount or percentage for each dollar contributed by the employee. There is no specific rules as to how much the employer much contribute

When an annuity is written, whose life expectancy is taken into account?

annuitant

Mortgage Redemption policy or rider

decreasing term insurance. Benefit amount of the term element is intended to be sufficient to pay off the unpaid remainder of the mortgage loan if the insured dies before paying it off.

What is more risky, Equity indexed annuities or variable annuities?

equity indexed annuities and they earn higher interest rates than fixed annuities.

Juvenile Life Insurance

form of coverage written on the lives of minors. One type of policy is commonly called the jumping juvenile because it automatically increases in the face amount at a given age, usually 21, but the premium remains level.

If an insured surrenders his life insurance policy...the cash value is affected how tax wise?`

it is only taxable if the cash value exceeds the amount paid for premiums.

SIMPLE Plan

made for small businesses that employ no more than 100 people receiving at least $5000 in compensation form the employer during the previous year.

Under the SIMPLE PLAN...

taxation is deferred on both contributions and earnings until funds are withdrawn.

A deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined?

the surrender charge is a percentage of the cash value and decreases over time.