Chapter 2 Types of Life Policies
joint life
A single policy that is designed to insure two or more lives. premium based on joint average age between the insureds death benefit is paid upon first death only
fixed annuity
Guaranteed minimum rate of interest to be credited to the purchase payment Income (annuity) payments that do not vary from one payment to the next The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.
indexed annuities
Interest rate tied to an index. Earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds has guaranteed minimum interest rate
Adjustable Life
Life insurance which permits changes in the face amount, premium amount, period of protection, and the duration of the premium payment period. Could convert to whole life/Convert to term requires proof of insurability , may face higher premiums
Classification of annuities
Premium payment method: single premium vs. periodic When income payments begin: immediate vs. deferred How premiums are invested: fixed vs. variable Disposing of proceeds: pure life, annuity certain, or life refund annuity
interest sensitive whole life
Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors. added benefit of current interest rate
Most term insurance policies are
Renewable, Convertible or Renewable and Convertible (R&C)
regulations of variable products
SEC and FINRA Securities and Exchange commission Financial Industry Regulatory Authority 1. registered with FINRA 2. licensed by state to sell life insurance 3. received securities license
Beneficiary
The person who receives annuity assets if the annuitant dies during the accumulation period
annuitant
The person who receives benefits or payment from the annuity consider life expectancy Must be a natural person
owner
The purchaser of the annuity contract, but not necessarily the one who receives the benefits
the accumulation period
The time before an annuitant's retirement during which the annuitant is making payments or investments in an annuity.
Survivorship life
Two or more insureds. Pays upon death of the last
single premium life
When the entire premium is paid in a lump sum at the time of purchase and creates immediate cash value. Face amount remains level to age 100.
Cash value
a policy's savings element or living benefit
variable universal life
a universal policy where the premiums are invested in variable rate earning assets flexible premium increasing and decreasing the amount of insurance cash withdrawals or policy loans
Universal Life
a whole life policy that combines term insurance and investment elements flexible premium adjustable life could increase amount of premium paid and decrease it later option 1: pay minimum premium 2. pay target premium
Interest Sensitive Life Products
adjustable life, universal life
producer evaluate these factors for annuities
age income financial situation & experience needs and objectives intended use of annuity risk tolerance tax status
renewable
allow policyowner to renew the coverage at the expiration date without evidence of insurability premium for new term policy based on the insured's current age
option B
allows the beneficiary to collect both the death benefit and cash value upon the death of the insured death benefit increase by the amount of increase in cash value total death benefit= face amount + current cash value
Level benefit payment amount (annuities)
annuitant knows the exact amount of each payment received
Nonforfeiture values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Annuity
contract- payment received every year protects individuals against outliving their money do not pay face amount upon death of the annuitant
Liquidation of an estate
converting a person's net worth into a cash flow
Securities
financial instruments that may trade for value (for example, stocks, bonds, options)
option A
gradually increasing cash value and a level death benefit
Term insurance
greatest coverage, lowest premium no cash value
2 types of universal life interest rate
guranteed and current
short life expectancy=
higher benefit
term insurance provides pure death protection (temporary)
if the insured dies during term, policy pays death benefits to the beneficiary if policy canceled/ expires prior to death, no payment no cash value or living benefits
income payment begin
immediate = within 1 year (single premium) deferred= after a year
Policy maturity
in life policies, the time when the face value is paid out
increasing term insurance
level premium death benefit increases each year ideal to handle inflation and increasing cost of living
Variable Life Insurance
level premium investment based guaranteed minimum death benefit cash value is not guaranteed Owner bears investment risk assets are not kept in insurance company's general account, held in separate accounts
Decreasing Term Insurance
level premium death benefit decreases each year used when amount of needed protection is time sensitive not renewable as death benefit ultimately reaches $0
3 types of coverage
level, increasing, decreasing
permanent life insurance
life insurance that provides a death benefit plus a savings plan and lasts for the policyholder's lifetime Whole life insurance
whole life insurance provides
lifetime protection and accumulates cash value
long life expectancy=
lower benefit
Other uses of annuities
lump-sum settlement when you got a lot of money qualified retirement plans education funds
I fan insured skips a premium payment on universal life policy
missing premium deducted from policy's cash value Policy will NOT lapse
level term insurance
most common death benefit does not change premium is the same during term, if term ends and renew, the premium base on attained age at the time of renewal
premium payment method
one time lump-sum payment periodic payment over time
2 options of universal life
option A, option B
Endowments
permanent level death protection accumulated cash value matures at an earlier age (before 100)
convertible
policyowner can convert the policy to a permanent insurance policy without evidence of insurability premium based on insured's attained age at the time of conversion
Limited-pay Life
premiums are paid for a specified number of years or to a specified age of the insured. Protection continues for the entire life of the insured.
Ordinary (Straight) Life
premiums are payable over the whole life of the insured to age 100 lowest annual premium
Whole life insurance
provides lifetime protection, includes savings element (cash value) Endow at the insured's age 100 (cash value = face amount) level premium, death benefit, cash value, living benefits
main use of annuities is to provided
retirement income
3 forms of whole life insurance
straight, limited-pay, single premium
2 categories
temporary protection = only provides coverage for a specific period of time, aka pure life insurance greatest coverage for lowest premium permanent protection
Face amount
the amount of benefit stated in the life insurance policy
Endow
the cash value of a whole life policy has reached the contractual face amount
Attained age
the insured's age at the time the policy is issued or renewed
annuity period
the payout period of an annuity
Level premium
the premium that does not change throughout the life of a policy
annually renewable term (ART)
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 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
variable annuities
- Payments fluctuate according to the value of an account invested primarily in common stocks - provides conservative to aggressive investments that are not guaranteed protect against inflation doesn't guarantee minimum interest rate require securities license + life insurance license
annuity income amount is based upon
- The amount of premium paid or cash value accumulated - The frequency of the payment - The interest rate - The annuitant's age and gender