FL 214 Principles of Life Insurance (units 7-17)

Decreasing Term

- A decreasing term life policy's face amount decreases over the term of the policy. For instance, a decreasing term insurance policy with a face amount of $100,000 and a 10-year term will provide the full $100,000 of coverage if the insured dies within the 1st year, $90,000 of coverage the 2nd year, and so on until the benefit amount reduces to zero at the end of the 10 years. This type of coverage is often purchased to protect against home mortgages, student loan debt or any situation in which the need for insurance is greater at the beginning of the policy, as opposed to the end of the policy.

Level Term

- A level term life policy's face amount remains constant, or 'level,' for the term of the policy. The only aspect that changes, if renewed, is the increase in premium due to the increased age of the policyowner.

Viatical Broker

- A licensed agent who solicits and sells viatical contracts between a life insurance policyowner and the viatical settlement provider.

Buyer's Guide

- A life insurance buyer's guide is a generic document that explains basic terms and definitions related to life insurance to better educate consumers when purchasing life insurance.

Interest-Adjusted Cost Comparison Method

- A life insurance cost comparison method that has emerged over time as more accurately comparing the true cost of similar life insurance policies because it takes into account the 'time value of money,' based on the insurer's projected rate of return in interest for the policy. The 'surrender cost index' is calculated using the interest-adjusted cost comparison method.

Primary

- A primary beneficiary is first in line to receive a policy's death benefits upon an insured's death. Although commonly a single individual serves as the primary beneficiary, any number of individuals can be named as the primary beneficiaries in a life insurance policy.

Interim Term

- A type of convertible term policy, referred to as an Interim Insuring Agreement, is commonly provided by insurers to ensure immediate temporary term life protection during the underwriting of a whole life policy. Referred to as 'interim term' coverage, an individual who wishes to purchase a whole life policy in the near future, or who is waiting for his or her whole life policy to be underwritten by the insurer, may be temporarily covered under a term policy which is then automatically converted to a whole life policy within a short period of time. An interim term policy is commonly issued for a period of 1 month up to 11 months, at which time the policy automatically converts to a whole life policy. As a result of this short period of time before conversion, premiums for the whole life policy are based on the age of the policyowner when the interim policy converts to the whole life policy, not the age of the policyowner at the time the interim term began.

Universal Life (Flexible Premium Policies)

- A type of permanent insurance that offers more flexibility than many other forms of insurance. It offers flexible premiums and a flexible death benefit allowing the holder to shift money between the insurance and savings components of the policy. This alternative allows a policyowner to build up savings to protect against inflation.

'Economatic' Policy (Whole Life Insurance Policies)

- Also known as Enhanced Ordinary Life or Extra Ordinary Life, this insurance option, offered by some mutual companies, allows a policyowner to maintain a higher insurance death benefit at a lower premium through the combination of a whole life and term life policy.

In force illustration

- An illustration furnished at any time after the policy that it depicts has been in force for one year or more.

Per Stirpes Rule

- Death proceeds from an insurance policy are divided equally among the named beneficiaries. If a named beneficiary is deceased, his or her share then goes to the living descendants of that individual.

Guaranteed Elements

- Include premiums, benefits, value, credits or charges under a life insurance policy that are guaranteed and determined at policy issue.

Non-Guaranteed Elements

- Include premiums, benefits, values, credits or charges under a life insurance policy that are not guaranteed or determined at policy issue.

Estate Conservation (Retention)

- Income is derived only from interest gained on the principal. Income is indefinite and creates a legacy for next of kin or for charity.

Current Assumption (Whole Life Insurance Policies)

- Premium payments are flexible and can increase or decrease by the insurer (annually) based on current interest rate trends that result in higher or lower mortality rates or investment returns to the insurer. When an insurer experiences high rates of return, premium rates are generally reduced. When the insurer experiences lower than average rates of return, premium rates are generally increased.

Graded Premium Whole Life

- Similar to modified whole life with more affordable premiums for the initial years, graded premium whole life gradually increases for the next few years until finally leveling off at a slightly higher rate than standard whole life.

Juvenile Endowment

- This type of endowment is used to help fund college expenses and usually mature when a child turns age 18.

Types of Term Life Insurance Policies

In addition to the premiums paid for a term life policy, benefits provide from the policy can also vary. The policy's face amount can remain level, it can decrease, or it can increase over the term of the policy. In addition, term life policies can provide a policyowner with the option to renew, purchase additional coverage, or convert to a whole life policy in the future.

Time Value of Money

- A financial concept that states that receiving a dollar today is more valuable than receiving the same one dollar in the future. This is because, if invested today, the invested dollar will earn interest and increase in value over time, as opposed to receiving the same dollar in the future with no earned interest. -Essentially, time adds value in that interest builds over time, thus providing a larger return for money invested now. Using compounding interest, time increases the value of money exponentially, thus the more time money has to reinvest and grow, the larger its value will be in the future.

Traditional Cost Comparison Method

- A life insurance cost comparison method that accounts for the various cost factors of a whole life policy, except for interest earned over time, also known as the 'time value of money,' making the comparison less accurate. The 'net payment cost index' is calculated using the traditional cost comparison method.

Return of Premium (ROP) Term Life Policy

- A more expensive type of term life insurance that provides an 'end benefit' to the policyowner at the expiration of his or her policy's term by returning 100% of the premiums paid into the policy when the insured survives the policy's term. -For example, if an insured survives past a 35-year return of premium term life policy and the policyowner does not surrender it beforehand, the policyowner would receive 100% of the premiums paid into the policy upon the insured satisfying the 35-year term. Although a return of premium provides extra incentive to purchase, deciding to purchase an ROP term life policy should be considered carefully as the extra premium costs involved might be better invested in an interest-bearing retirement account, such as an IRA.

Renewable Term Policy

- A renewable term life policy does not require evidence of insurability at the time of renewal; however, premium rates increase according to the age of the insured at the time of each renewal. This type of premium rate increase is often called Step-Rate Premiums.

Cross-Purchase Plan (Few Partners) (Partnership Buy-Sell Agreements)

- A type of buy-sell agreement that is typically used if only a few partners exist within a company. Each partner purchases a life insurance policy on the other partners in the company with face amounts equal to each partner's share of ownership in the company. 2 partners x 1 policy on each other = 2 total policies 3 partners x 2 policies each = 6 total policies 4 partners x 3 policies each = 12 policies

Variable Life Insurance

- A type of permanent insurance in which separate accounts are used to allow a policyowner to deposit money and invest it as he or she prefers. As a result, the policyowner can direct funds towards investments that are considered more aggressive, with the possibility of a greater return. However, this option can leave the policyowner susceptible to financial risk in the event that the investment falls short of what is expected in return for the funds he or she invested.

Revocable Beneficiary Designation

- Allows the policyowner to change beneficiaries after the policy becomes in force, if he or she so chooses, without the consent of the beneficiary.

Whole Life Insurance

- Also known as Ordinary, Permanent, or Straight-Lifeinsurance. Whole life insurance provides coverage for an individual's whole life, rather than a specified term (provided he or she continues to make premium payments). An important feature of whole life insurance that is not associated with term life insurance is that a whole life policy includes an investment component which accumulates Cash Value and increases over time based on earned interest. -Whole life insurance policies also include a 'cash surrender' value, called the Nonforfeiture Value, allowing the policyholder to recover part of the premium invested in the policy if he or she stops making premium payments and forfeits ownership of the policy.

Family Protection Policy (Specialized Policies)

- Also known as a Family Plan Policy, this form of whole life insurance provides coverage on each family member with the breadwinner's amount of coverage being four times the spouse's and five times the children's coverage amounts. The children's coverage is usually written as term coverage expiring at age 18 with the ability to convert to long-term coverage without proof of insurability.

Binding Receipt

- Also referred to as a 'binder,' this type of receipt guarantees temporary coverage at the time of application for a specified benefit amount regardless of whether the insurer later approves or declines the applicant. A binding receipt is a type of Temporary Insurance Agreement. Even if the insurer later declines the applicant, any claims made during the temporary term must be paid by the insurer. Although it has been utilized in the past, most life insurers typically issue a conditional receipt, while binding receipts are more common with property and auto insurance contracts.

Guaranteed Universal Life (Term Life / Universal Life Hybrid) (Flexible Premium Policies)

- Also referred to as a Universal Term Life policy, this type of term life is relatively new to the insurance industry. It combines the flexibility provided through universal life insurance with the affordability and guarantee provided through term life insurance. -Essentially, it is universal life designed as term life insurance with guaranteed level premiums and a guaranteed death benefit upon the death of the insured during the contract's term; however, unlike permanent universal life insurance, a universal term life policy does not accumulate cash value over the policy's term.

Life Policy (Capital) Liquidation

- Also referred to as capital 'utilization,' income is derived by both interest and principal. Funds eventually disappear and could be of concern if the surviving spouse outlives the policy's death benefit if no additional income is derived.

Re-entry Option

- Although renewable term policies allow for renewal without requiring evidence of insurability, premium rates will increase upon each renewal. Because of this premium increase, some renewable term policies also offer a 're-entry option,' which provides the policyowner with the ability to maintain a lower premium rate if the policyowner passes a medical exam at periodic intervals (typically every 5 years). If/when at some point the policyowner no longer qualifies for the lower rate through re-entry, he or she will instead begin to pay the renewal rate based on his or her current age at the time of renewal.

Split-Dollar Plans (Business Uses of Life Insurance)

- An arrangement between the employer and employee to split premium payments for life insurance whereby the employer pays premium equal to the annual increase in the policy's cash value and the employee pays the premium equal to the death benefit minus the cash value of the policy.

Entity Plan (Several Partners) (Partnership Buy-Sell Agreements)

- An entity plan is typically used if several partners exist within a company. Instead of each partner purchasing multiple life policies, the company itself purchases a life policy on each partner and serves as the policyowner of each policy. Each partner's face amount is based on his or her share of ownership in the company.

Supplemental Illustration

- An illustration furnished in addition to a basic illustration that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.

Life Insurance Beneficiary

- An individual who receives a life insurance policy's death benefit proceeds upon the death of the insured. -A life insurance beneficiary is chosen by the policyowner when purchasing the life insurance contract. The amount of death benefit proceeds or distribution percentages, if multiple beneficiaries are listed, are also chosen by the policyowner and can or cannot be altered during the insured's lifetime, depending on the revocable designation status that the policyowner has chosen at the time of policy issuance. -A life insurance beneficiary can be an individual, an institution, or a charity. Unlike the requirement of insurable interest between the policyowner and the insured individual, insurable interest is not required between the policyowner or insured and the life policy's beneficiary; however, family members of the insured are usually named as a policy's beneficiary. -As a form of charity, an individual can purchase life insurance on him or herself and assign a church, school, or other charitable organization as the beneficiary upon the insured's death. Premium payments for charitable life policies are tax deductible.

Human Life Value Approach

- An individual's life in terms of earning potential is calculated to determine a life insurance value to replace such individual's earnings should he or she die prematurely. This value is paid out as benefit to the surviving family to replace what the breadwinner would have earned to support the family.

Viatical Settlement Provider

- An individual, company or legal entity that purchases ownership of a life insurance contract from a policyowner who in return receives compensation less than the policy's death benefit, usually 60% to 80% of the policy's proceeds. - Policyowners who enter into these agreements are often terminally ill and have less than a few years to live.

Insurable Interest

- An interest must exist between two parties where one party has the potential to suffer a loss in the event that a particular outcome occurs (which was covered by the insurance policy). - Insurance cannot be purchased on strangers, friends, associates of no financial significance, or the like where the potential for gain, instead of loss, were to occur. -When speaking of life insurance, insurable interest must exist at the time of application, but is not required to still exist at the time of an insured's death.

Endowment

- Another type of life insurance policy that pays out the policy's face amount to the beneficiary if the insured dies during the endowment period; however, unlike life insurance, an endowment is designed to pay out to the designated recipient, while living, once the endowment has 'matured' at the end of the defined endowment period. Endowments are no longer marketed, or rarely marketed as a result of the Tax Reform Act of 1984. This act defined the age of the insured before a life policy can be 'endowed,' or paid out. Policies that endow before the age of 95 are not considered to be life insurance, and as a result, they do not receive the same tax benefits associated with life insurance. Essentially, an endowment is not worth the cost of its premiums, nor does it receive the tax benefits of a life insurance policy; however, before the Tax Reform Act of 1984, various types of endowments marketed to consumers included 'retirement' endowments, 'pure' endowments, 'endowment life insurance' and 'juvenile' endowments.

Estate Creation and Conservation

- As a means of creating future wealth for one's descendants, life insurance policies are often used to create a family trust, naming one's estate as a designated beneficiary. Technically, a life insurance policy is the property of the policyowner and upon his or her death, ownership of the policy's proceeds (property) is transferred to the policy's beneficiary in the form of the policy's death benefit. In the event that the policyowner is not the insured, the policy will be included in the policyowner's estate or handled by his or her will.

Stock Cross-Purchase Plan (Few Shareholders) (Corporate Buy-Sell Agreements)

- As with a partnership cross-purchase plan, when only a few shareholders exist, corporate cross-purchase plan is purchased by each shareholder on the lives of the other shareholders.

Stock Redemption Plan (Several Shareholders) (Corporate Buy-Sell Agreements)

- As with a partnership entity plan, when several shareholders exist, an entity plan is purchased by the corporation on each shareholder. The amount of each policy is equal to each share in the corporation. Upon the death of a shareholder, his or her share is distributed to remaining shareholders, based on their ownership share in the corporation.

Facility of Payment Provision

- Associated with industrial life and group life insurance, this provision permits an insurer to appoint a new beneficiary in an attempt to facilitate the policy's death benefit due to an extenuating circumstance that warrants the need to designate a new beneficiary. Such circumstances include the inability of a beneficiary to accept benefits because he or she is a minor or if he or she is mentally incapacitated in a hospital, such as in the case of a coma. In addition, if the beneficiary is deceased or if the whereabouts of the beneficiary cannot be determined within a reasonable amount of time to collect the death benefit, regardless of whether or not insurable interest exists, the insurer can appoint a relative or similar significant individual of the insured, or an entity such as a funeral home that takes on the responsibility of paying the insured's final bills or funeral expenses to help alleviate such obligation.

Surrender Cost Index

- Based on the assumption that a policyowner will surrender a whole life policy in the future. A lower surrender cost index number equates to a less expensive policy in comparison to other policies, thus providing a higher cash value once surrendered, assuming the policyowner does not keep the policy in force until death. The focus is on the surrender value of the policy for the policyowner, as opposed to the death benefit amount for the beneficiary.

Whole Life Policy Maturity at Age 100

- Compared to term life insurance which provides coverage for a specified period of time, whole life insurance covers the whole life of the insured. However, whole life insurance matures at age 100, meaning that once the insured has reached age 100, his or her policy is considered to be paid in full and the insurer's obligation to provide coverage ends. Whole life premium rates are based on the policy's maturity at age 100, which is also the age in which the policy's cash value has accumulated to the face amount of the policy. Upon reaching age 100, the insurer provides the policy's full face amount (the policy's accumulated cash value) to the policy's owner or designated beneficiary.

Net Payment Cost Index

- If a policyowner intends to keep the whole life policy in force until the death of the insured, the net payment cost index is used to compare similar policies based on the death benefit provided to the beneficiary. As is the case for the surrender cost index, a lower net payment cost index number equates to a less expensive policy in comparison to other policies, thus providing a higher death benefit to the policy's beneficiary upon the death of the insured. The focus is on the amount of death benefits payable to the policy's beneficiary, as opposed to the surrender value of the policy for the policyowner.

Viatical (Life) Settlement

- If a policyowner is considered terminally ill, an option exists to sell the insurance policy after its contestability period has ended to a viatical settlement company who, in return, will pay anywhere from 60% to 80% of the face amount based on NAIC's Viatical Settlement Model Regulation, though state laws and insurer policies may differ. -Once the policy is sold, premiums are paid to the insurer by the viatical settlement company, and upon the death of the insured, the death benefit is paid to the viatical company. Essentially, it allows a terminally ill policyowner to relinquish a life policy in exchange for living benefits to fulfill some final comforts and expenses before death.

Joint Life Policy

- In addition to single-life policies, insurance can be purchased on multiple lives under a single contract. Most commonly, a joint life policy insures the lives of married or otherwise legally connected couples under the same amount of term or permanent life coverage, but at a lower premium than purchasing separate equal-amount policies. Dependent on the insurer, some joint life policies provide coverage for three or more individuals under a single policy; however, most commonly, these types of policies are purchased between married or otherwise legally connected couples. A joint life policy can either benefit the surviving spouse, or it can be used as a means of estate planning and funding for future generations. More common among younger working couples is the First-to-Die joint life policy, in which policy benefits are paid to the surviving spouse upon the death of the first spouse, regardless of which spouse deceases the other. This is beneficial when money is needed to replace the lost income of the deceased spouse and to maintain the lifestyle of the surviving spouse and any children. However, under a first-to-die policy, upon the death of the first spouse, the policy's coverage ends, leaving the surviving spouse without insurance. Dependent on the goals of the couple, often times a guaranteed insurability rider is added to such policies providing the surviving spouse with the option to purchase an individual life policy without requiring evidence of insurability upon the termination of the joint life policy. Under the Second-to-Die joint life policy, also referred to as a Survivorship or Last Survivor life policy, the policy's benefits are paid after the last surviving member of the contract dies. As a means of providing future wealth to a younger generation of the family, a survivorship policy pays its bene

Indexed Whole Life

- Includes a face amount that will adjust depending on the index to which it is fixed, often the Consumer Price Index (CPI). If the index to which the policy is tied increases, so too does the policy's face amount and premiums. It is decided at the time of the policy's inception who will absorb the additional amounts in premium if it is to occur, either the insured or the insurer. If the index rises higher than what the insurer allows for a maximum face amount increase (usually 5 %), no addition amount is added to the policy's face amount. If the CPI decreases, the policy's face amount and premium do not decrease. An important feature is the fact that evidence of insurability is not required when increases occur.

Stranger-Originated Life Insurance (STOLI)

- Initiated by individual investors and investor groups such as hedge funds, STOLI schemes are often advertised as 'zero premium' or 'no cost' life insurance, promoting premium-paid life insurance for two years, as well as a lump sum of cash after the two years, in exchange for future ownership in a life insurance arrangement. -Also referred to as an Investor-Owned Life Insurance (IOLI) arrangement, -a STOLI (or IOLI) arrangement is considered to be a scam because it involves inducing an elderly individual into agreeing to purchase a life insurance contract with the intention of naming the investor as the contract's beneficiary in exchange for 'free' insurance and future compensation. -the investor may promote paying a percentage of the policy's death benefit once transfer of ownership occurs to the insured as compensation for the arrangement. -Once ownership is assigned to the investor or investment group, it continues to pay the policy's premiums until the death of the insured, at which point it receives the policy's death benefit proceeds. -In addition to the unethical nature of the arrangement, a STOLI transaction is illegal because it undermines the insurable interest requirement when purchasing a life insurance policy. The intention to sell the contract to the stranger, who will ultimately collect the policy's death benefit, voids the contract.

Variable Universal Life (Types of Variable Life Insurance)

- Involves the combination of universal life and variable life policies, which contains a varying degree of death benefits, cash values and premium payments. Because it is a variable product, it also includes a separate account for the policyowner's investments.

Buy-Sell Agreements (Business Uses of Life Insurance)

- Life insurance can also be used to fund a partnership or corporation after the death of one of its partners or corporate shareholders. -A buy-sell agreement, also referred to as a 'buyout' agreement, is defined as a financial agreement or arrangement that protects business partners and corporate shareholders against financial loss by securing a predetermined fair market value for each partner or shareholder that, upon a predetermined event such as death, is sold to the remaining partners or shareholders in the business to ensure the continuation of the partnership or corporation.

Equity Indexed Life (Types of Variable Life Insurance)

- Life insurance largely based on the rate of market return. It offers its policyowners the ability to transfer funds from a fixed account to an indexed account. Cash value can only increase if the market is favorable, but cannot decrease when the market declines.

Types of Variable Life Insurance Equity Indexed Life

- Life insurance largely based on the rate of market return. It offers its policyowners the ability to transfer funds from a fixed account to an indexed account. Cash value can only increase if the market is favorable, but cannot decrease when the market declines.

Wholesale Insurance

- Life insurance provided for employee groups that are considered too small to legally be considered a group, according to most states' group life insurance regulation. These policies are similar provisions for each member, but with the ability to customize certain aspects of the policy to meet the needs of each employee.

Adjustable Life (Flexible Premium Policies)

- Life insurance that consists of both term and permanent insurance. The policyowner can, from time to time, change various aspects of the policy including increasing or decreasing the face amount, premium, or changing the period of coverage, to continue to be flexible for the policyowner's current needs.

Key-Person Insurance (Business Uses of Life Insurance)

- Life insurance that protects a company against the financial loss of its key members, such as its founder or other executives of the company.

Family Needs Approach

- More commonly used because it evaluates the specific financial needs of the client's family including medical deductibles and final expenses, surviving family maintenance income (mortgage, cost-of-living expenses), and future income needs such as college tuition and spousal retirement income.

Conditional Receipt

- Most often, an insurer provides a conditional receipt upon receiving both the application and initial premium. Under a conditional receipt, the applicant is covered against loss, should it occur, before the policy becomes effective, on the 'condition' that the applicant is found to be insurable as applied for by the insurer's underwriting department upon completion of its underwriting process. If a standard risk application is issued as applied for by the applicant, such policy will also cover any loss that may have occurred during the underwriting of the policy. If, however, a standard risk application is declined, but the insurer counter-offers with a substandard risk offer, the applicant will not be covered for any loss incurred before the acceptance of the new offer and, if required, the submission of any increased premium associated with the substandard risk offer provided by the insurer.

Industrial Life Insurance

- Referred to as Burial Insurance, industrial life insurance provides minimal life insurance coverage (usually less than $2,000 and without requiring a medical exam) in the event the insured dies, providing the beneficiary with enough money to cover basic final expenses such as funeral costs. Also known as 'home service' life insurance because premium payments are often collected by the agent at the insured's home, usually on a weekly basis. Although this form of life insurance was more common throughout the labor and manufacturing sectors in the past, industrial insurance represents only a small percentage of life insurance sold today.

Credit Life Insurance

- Serves to protect both the debtor and creditor in the event that a debtor dies and is not able to finish paying of his or her debt. A credit life policy can be purchased by an individual who assigns the creditor as his or her policy's beneficiary, or it can be purchased by a creditor who serves as the master policyowner and assigns certificates of coverage to debtors in which it transacts business. -A credit life policy is a decreasing term life policy that is issued by an insurer associated with a bank or similar lending institution and covers the amount of debt owed by a debtor over the period of time in which he or she is paying off the debt. In the event of death, the policy pays the remaining difference of what is still owed by the debtor in order to pay off the debt. Coverage diminishes over time as the amount of debt decreases, eventually ending when the debt has been completely repaid. -A credit policy's face amount is regulated to ensure that such policy covers only the amount of debt owed by the debtor, and serves to fulfill the debtor's contractual obligations in the event of death. Simply put, the face amount of credit insurance cannot exceed the amount of debt incurred by the debtor.

Inspection Receipt

- Sometimes an applicant wishes to review, or 'inspect' a prospective policy before providing the initial premium to the insurer. When this occurs, an inspection receipt is provided to the applicant by the insurer. -An inspection receipt is proof that an application has been received by the insurance company and in return, a policy has been delivered to the applicant for inspection purposes only. An inspection receipt states that the insurance company is not legally obligated to cover any loss by the applicant until it also receives the applied-for policy's premium. -After inspecting the policy and upon accepting the policy's terms, the applicant then pays the initial premium to the insurer and the underwriting process begins. -An applicant is not protected against financial loss while inspecting a policy if the initial premium is not provided to the insurer with the application. Only once the insurer receives both the application and initial premium is 'consideration' given to the applicant for the applied for policy.

Cost Index

- Takes into account the various cost factors of a life insurance policy and computes an 'index number' to more easily compare similar whole life insurance policies. As an industry standard, cost index charts compare whole life policies based on each $1,000 increment of the policy's face amount for 10-year and 20-year time periods, using an average annual rate of return in interest of 5%. In determining the cost of a policy, the lower the index number, the less costly it will be to the policyowner. Regardless of whether the focus is on cash value (Surrender Cost Index) or the death benefit amount (Net Payment Cost Index), the lower the index number, the less costly the policy is in comparison to other similar policies, based on the same period of time (10-year or 20-year comparison period).

Sole Proprietor Business Continuation (Business Uses of Life Insurance)

- The death of a sole proprietor can create a large financial burden for surviving family members. Life insurance provides the financial assistance needed to maintain a standard of living for surviving dependents of a sole proprietor and to facilitate the potential sale of the business.

Continuous Premium (Straight Life) (Whole Life Insurance Policies)

- The most common type of whole life insurance sold. The policyholder stretches premium installments over the life of the policy (to age 100 or death, whichever comes first). Premium installments are both continuous and level throughout the policyholder's life.

Blackout Period

- The period of time in the family income cycle when a family's children are no longer dependent on the surviving parent, -thus ending social security survivor benefits for the surviving spouse until he or she reaches age 60, or 50 if he or she is disabled. -Upon reaching age 60, social security survivor benefits resume and are again paid to the surviving spouse.

Pure Endowment

- This type of endowment does not include a death benefit and only pays out to the insured if he or she survives the endowment period, at which point the endowment has matured and is distributed to the insured.

Endowment Life Insurance

- This type of endowment is a combination of a pure endowment and a term life policy so that the endowment pays out at its maturity, while the term policy pays the beneficiary if the insured dies during the pure endowment period.

Retirement Endowment

- This type of endowment matures when the insured turns age 65. If the insured dies before age 65, the endowment's designated beneficiary receives the endowment; if the insured survives to age 65, the endowment matures and is paid out to the insured.

Minimum Deposit Whole Life

- This type of whole life policy is based on an initial premium payment which allows for cash values to immediately build in the account. Subsequent premium payments are then paid by borrowing from the cash value for a portion of or the entire premium amount instead of contributing additional out-of-pocket premium.

Modified Premium Whole Life

- Usually more affordable than straight whole life policies in the first few years (often around 5 years) then becomes slightly higher than straight whole life for the remainder of its coverage. This type of plan is useful for college students just starting out in the work world, who cannot initially afford whole life insurance.

Juvenile Life Policy

- Usually written on children under the age of 15 and vary in type (term, whole life, limited benefit) depending on the family's needs. Jumping Juvenile policies 'jump,' or increase four to five times in value once the child turns 21 without increased premium or proof of insurability.

Living Benefits

- Whole life insurance policies generate a 'cash value,' which is a portion of the premium payment that accumulates over the life of the policy, and can be borrowed or used as collateral by the policyowner during his or her lifetime. Though a policy's cash value can be borrowed against or used as collateral, the policyowner is responsible for paying back the loan with interest. If the policyowner dies during the loan, the policy's death benefit would reflect any borrowed cash value and accumulated interest, and subtract it from the proceeds paid out to the policy's beneficiary.

Family Income Cycle

-Family Dependency Period -Pre-retirement Period (Blackout Period) -Retirement Period

Needs Analysis (Agent fact finding interview with client)

-Final Expense funds (funeral, doctor and hospital bills, etc) -Debt payment fund (credit cards, etc) -Home mortgage payments -Family income needs -Funds for children's college education -Retirement income needs -Health insurance needs - Both hospitalization and disability income coverage

Personal Uses of Life Insurance

-Financial protection against the loss of a family's breadwinner -Estate creation and conservation -Living benefits through loans made against the policy's cash value -Accelerated benefits payable to the policyowner in the event of terminal illness or other qualifying event -Ability to sell one's life policy to a viatical company in exchange for immediate payment of a percentage of the policy's death benefit. The viatical settlement company typically pays between 60-80% of the policy's death benefit back to the insured and keeps the death benefit when the insured dies. This type of settlement allows a terminally ill individual the ability to receive living benefits before death, while at the same time earning a 20-40% profit for the viatical company.

Agent Recommendations

-Type of coverage: permanent, term, or a combination of both -Monthly premium affordability -Type of Premium: level, increasing, decreasing -Insurability - Is the customer insurable based on his or her health and the type and amount of coverage requested ($10,000 vs. $1 million). The higher the benefit, the higher the premium payment, and the more scrutinized the client's health history is reviewed to prove insurability.

A Term Life insurance policy

is a basic type of life insurance that is lower in cost to a policyowner, is only in force for a specified period of time, and it does not accumulate cash value, nor does it provide the policyowner with any policy loan value. A term life policy's death benefit is payable only if the insured dies during the specified period of time stated in the policy. The 'term' of a policy is the number of years that the policy's insured is covered with a specific 'face amount,' or amount of principal payable to the policy's beneficiary in the event the insured dies within the policy's term. Policy terms can range from 10 years to 30 years, or longer. Term life coverage expires once the term has ended and can either be renewed for an additional term or be allowed to expire. Assuming death has not occurred, the policy simply ends and the insurer assumes no further responsibility to the policyowner or beneficiary. It's common for a term life policy to be renewed for additional terms, or converted to whole life or another permanent cash value policy.

Attained vs. Original Age Methods

- When converting a term life policy to permanent whole life policy, the policyowner can use either his or her current age, referred to as his or her 'attained age,' or the whole life policy can be written using the original age of the policyowner used at the beginning of the original term policy. If a policyowner's original age is used when converting to a whole life policy, he or she will pay a lower premium based on the younger age in comparison to his or her current age; however, the insurer will require interest to be paid, as well as an additional payment amount equal to the difference in age that the insurer would normally charge for a policy written using the current age of the policyowner. -Although both the current and original age methods of conversion seem to add up to the same amount for the policyowner, choosing the original age method increases the policy's cash value quicker as a result of the bulk payment and increased interest that is paid when converting the term policy.

Viewed as property, life insurance has many advantages:

It creates an immediate estate (an established fund for the insured's beneficiary). Even if the insured prematurely dies after just one premium installment, the policy will pay the beneficiary the policy's full death benefit. It also creates an emergency fund through which the policy's cash value can be withdrawn as a loan from the policy or the policy's cash value can be used as collateral to secure a loan outside of the policy.

Limited-Payment (Whole Life Insurance Policies)

Limited-Payment - Premium installments are paid for a limited period of time while guaranteeing coverage for the life of the policyowner. Since the premiums are paid over a shorter period of time, the premium payments will be higher than under an ordinary whole life policy. Cash values also build quicker than straight life policies.

Guaranteed vs. Non-Guaranteed Level Premiums

Term life policy premiums are based on the insured's age, tobacco use, and health at the time of application. Once issued, a term policy's premium rate is either guaranteed to remain constant, or 'level' for the entirety of the term; or the policy's premium rate is non-guaranteed, which enables the insurer to increase the premium rate during the contract period. A guaranteed level premium policy is most commonly purchased. This type of policy calculates the total premium payable for the term of the policy and divides payments evenly to keep the premium rate level over the policy's term. A non-guaranteed level premium policy might provide for a lower premium initially with the possibility of a rate increase after a set period of time within the policy's term.

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Illustration

- A presentation or depiction that includes non-guaranteed elements of a life insurance policy over a period of years.

Section 529 Plans

- Also known as Qualified Tuition Programs (QTPs), these plans are designed to save for college tuition as well as receive tax credits and deductions towards college expenses.

Per Capita Rule

- Death proceeds from an insurance policy are divided equally among only the living primary beneficiaries.

Single Premium (Whole Life Insurance Policies)

- A type of limited-payment whole life policy with a single lump-sum premium payment which is payable at the time the policy is issued.

Dual Benefit Provision

- If a Social Security recipient is eligible for both Social Security benefits as well as his or her spouse's benefits, only the larger of the two benefit funds are paid to the recipient.

Family Income Policy (Specialized Policies)

- A combination of whole life insurance and decreasing term insurance to provide both temporary and permanent family protection. The purpose of family income coverage is to provide benefits to the surviving family if a breadwinner prematurely dies.

Group Life Insurance

- A contract that provides life insurance protection for members of a particular group, such as an employer group, multiple employer trust (MET), an association or labor group that meets the requirements set forth under state law for group life insurance.

Indeterminate Level Premiums

A term life policy can also include an 'adjustable premium' schedule which is indeterminate at the time of policy issuance and can fluctuate over the term of the policy. The policy's premium rate is determined by the insurer's current mortality rates, interest earned from premium investments, and company expenses. Policy premiums are guaranteed to never exceed a certain amount; however, if the insurer's profits are greater than at the time of policy issuance, the 'current' premium will be lower than at the time of issuance. If profits are lower, the premium will be higher than at the time of issuance, but the premium will not exceed the policy's guaranteed maximum rate.

Credit Unions

Two or more credit unions can group together and form a trust for the purpose of providing insurance for members of each participating credit union. Similar in structure to other group trusts, credit union trusts are managed by trustees who serve as the master policyowner of the group plan, issuing certificates of insurance to credit union members. All members of participating credit unions, or all of any class of members, are eligible for group coverage under the trust, which serves the purpose of benefiting members of the credit union, not the trust's organizers. Policy premiums are paid by the trust, which is funded by premiums paid by each member covered under the group plan.

Payor Ride

r- This valuable tool can often be found in juvenile insurance. If a guardian who is responsible for paying premiums for a child's insurance dies or becomes disabled, this rider will waive all premiums until the child reaches a certain age (which is often from the ages of 21 to 25), or the guardian is once again able to make payments, respectively.

Convertible Term Policy

- A convertible term life policy provides an option to convert the term policy at the end of its term for a permanent whole life or other cash value policy without requiring evidence of insurability. The option to convert is provided to the policyowner who may or may not elect to convert to a permanent life policy in the future.

Individual vs. Group

- A credit life policy can be purchased by an individual who assigns the creditor as his or her policy's beneficiary, or it can be purchased by a creditor who serves as the master policyowner and assigns certificates of coverage to debtors in which it transacts business. Group credit insurance is more commonly maintained by larger customer groups and creditors who acquire several new debtors each year as a way of insuring against the inability of debtors to pay back the debt owed to the creditor through contractual agreements.

Pension Benefit Guaranty Corporation (PBGC)

- A federal organization that was created under ERISA to guarantee payments of pension benefits in 'defined benefit' plans that terminate due to a lack of funding to cover benefit payments.

Annuity

- A financial vehicle that provides income at a future date in an individual's life and is commonly used to save up for higher education costs or as a retirement savings fund. An annuity is considered to be a form of insurance that provides future income to an individual while still alive, instead of when he or she dies. As a financial product offered by financial institutions and insurance companies, money is deposited either as a lump sum or as a series of payments by the owner of the annuity to a financial institution which then invests the money, tax-deferred, in order to earn interest and accumulate value for the investment. -Later in the annuity owner's life, payments are distributed back from the financial institution along with the investment's earned interest. An insurance company is able to offer annuities because of its ability to guarantee annuity payments for the entirety of the annuitant's life, regardless of the age of the individual.

Fixed vs. Variable Annuity

- A fixed annuity provides an annuitant with a guaranteed, predetermined distribution amount once the contract annuitizes, but because payments are fixed, over time the value of the annuity decreases due to rising inflation. A variable annuity ties the investment to non-guaranteed equity markets in order to provide higher returns to the annuitant in an attempt to hedge inflation over time.

Conversion Privilege

- A group life insurance policy must allow an employee to convert his or her policy into an individual plan with the same insurer upon leaving the group due to termination of employment or termination of the group's master policy without requiring the individual to provide proof of insurability. The conversion period is usually 31 days from the time of group policy termination, during which time the individual continues to be insured by the group life policy.

Basic Illustration

- A ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements.

Annuitant-Driven Annuity

- A more common type of annuity structure involves the owner and annuitant being the same individual, and at the point of annuitization, payments are made back to the owner/annuitant or the designated beneficiary in the event that the owner/annuitant dies within the contract's annuity period

4 Parties Involved in an Annuity

Insurance company (or other financial institution) Owner of the annuity Annuitant Beneficiary

Credit Report

- An insurance company has the right to review an applicant's credit report in determining approval and offered rate of premium. An insurance company wants to make sure an applicant will be able to maintain premium payments for the life of the policy.

Ownership Clause

- A life insurance policy is a legal document that creates ownership for the policy's owner as long as insurable interest exists at the time of application between the policy's owner and the insured individual for which the policy is underwritten, whether it be the same person or two different people. A life insurance policy is not a 'personal contract' between the insurance company and the insured individual. Life insurance is considered legal property of the policyowner and the policyowner has the right to designate the policy's beneficiary and any contingents, as well as decide the revocable or irrevocable status of the beneficiary.

Assignment Provision

- A life insurance policy is the property of the policyowner, and as such, he or she can 'assign,' or transfer, ownership to another individual in which the policyowner chooses. The process of transferring ownership of a life insurance policy from one policyowner to another is known as policy Assignment. The transferring policyowner is referred to as an 'assignor,' and the individual receiving the policy is known as the 'assignee.'

Viator

- A life insurance policyowner who sells his or her policy to a viatical settlement provider in return for an amount less than the death benefit, often 60% to 80% of the policy's proceeds. This individual is often terminally ill and is in need of funds to pay for healthcare costs.

Salary Reduction SEP Plan (SARSEP)

- A more simplified version of a 401(k) plan which incorporated a salary reduction approach in which employees elected to have a portion of their pay directed into the SEP's IRA fund. This type of salary reduced SEP was reserved for small business owners consisting of 25 or fewer employees and has been prohibited from being issued since 1996.

Taft-Hartley Trust

- A multiemployer plan is established through a Taft-Hartley trust which is specific to employers who are associated through a common bargaining agreement. The name of this trust refers to the two Congressmen who spearheaded the Labor Management Relations Act of 1947, also referred to as the 'Taft-Hartley Act' which set forth regulation for such trusts to provide safeguards against unethical mismanagement of employee funds and plan benefits. Such regulation includes appointing a joint employer-union board of trustees to serve as the plan's sponsor. Responsibilities include establishing and maintaining the trust, as well as regulating funds within the trust.

Multiple Employer Trust (MET) (Non-Union Employers)

- A multiple employer plan is established through a multiple employer trust in which each employer joins and pays premiums in order to participate in the multiple employer plan. The trust is established and managed by trustees who serve as the master policyowner and sponsor of the trust. As a small employer joins the trust, its employees receive certificates of insurance under the group life plan paid for through the trust.

Defined Benefit Plan

- A retirement plan that guarantees, and specifies in an employee's contract, the amount of benefits or percentage of employment income that a retiree will receive once pension benefits are payable. -The specified monthly benefit amount is expressed as either a fixed-dollar income amount, or more commonly, by calculating each retiree's benefits based on his or her salary and years of employment with the company. -Defined benefits plans are insured by the Pension Benefit Guaranty Corporation (PBGC) to guarantee pension funds are available to qualified retirees if the financial institution becomes insolvent.

Single-Premium Deferred Annuity (SPDA)

- A single, lump-sum premium is deposited to the annuity which then builds interest on a tax-deferred basis.

401(k) Plan

- A type of defined contribution retirement plan that allows an employee to take a reduction in his or her salary and instead, contribute this amount into his or her 401(k) retirement fund. -The contributed amount is not regarded as gross income, and any earnings credited grow tax-free until they are withdrawn. -These plans often involve a 'matching component' by an employer, which is not taxed to an employee at the time of deposit. This 'match' is often a portion of what is deposited by the employee.

Employee Stock Ownership Plan (ESOP)

- A type of defined-contribution plan that is invested primarily in employer stock in which qualified employees receive ownership upon retirement.

Qualified Plan

- A type of retirement plan designed to provide certain tax benefits such as tax-deductible contributions and tax-deferred earnings growth to allow for greater earning on the investment. -In order to receive these tax advantages, a qualified plan must provide the following: Disclosure of the investment's performance to all participants Allow participation of every eligible employee into the plan, although not every employee is eligible to participate in a retirement plan Provide vesting rights to the employee (immediate, cliff or graded) Retirement benefits must be equally provided to all qualified participants, regardless of income levels

Thrift Savings Plan (TSP)

- A type of retirement plan enacted by Congress to provide retirement pension for federal civil service employees and members of the armed forces.

Nonqualified Plan

- A type of retirement plan that does not meet IRS guidelines to receive tax advantages. Contributions and benefits are taxable as ordinary income when contributed or received by the retiree and cannot be deducted when contributed by the employer. -Due to the participation requirements associated with qualified retirement plans, nonqualified plans are restricted to top executives and key people within a company's leadership structure. -Deferred compensation, executive bonus plans, and executive retirement pensions are types of nonqualified plans.

Quarters of Coverage (Credits)

- A unit of FICA taxation that accumulated throughout an individual's working years to qualify the individual for Social Security benefits upon become eligible at retirement. One credit can be earned for each quarter in the calendar year that an employee pays FICA payroll taxes, with a maximum annual accumulation of 4 quarters of coverage, or credits, per calendar year, beginning after an individual turns 21 years old.

Variable Annuity

- A variable annuity can vary in both the rate in which it accumulates during its accumulation period and the rate it pays out during its annuity period. Unlike fixed annuities that conservatively invest in bonds, variable annuities invest in the stock market to provide the potential for a higher rate of return for the variable annuity. Similarly, the potential for loss is greater with variable annuities due to fluctuations in the stock market, in comparison to the bond market. -Due to the uncertainty and risk of loss associated with a variable annuity, the Securities and Exchange Commission (SEC) regulates variable annuities as 'securities sales,' not insurance sales because variable annuities are based on non-guaranteed equity investments such as common stock.

Retirement Benefits

- A worker will receive 100% of his or her PIA once he or she reaches his or her full retirement age (normal retirement age). The spouse and dependent children are also eligible for 50% of the worker's PIA upon the worker's retirement. -A divorced spouse can still receive OASDI benefits from a fully insured former spouse's Social Security if he or she: Was married to the former spouse for at least 10 years Is age 62 or older Is still unmarried -A divorced spouse must also be entitled to receive his or her own Social Security benefits and cannot receive benefits from a former spouse's Social Security if he or she is already receiving or is entitled to receive a higher Social Security benefit on his or her own accord.

Section 1035 (Policy Exchanges)

- According to Section 1035 of the Internal Revenue Code, the IRS does not levy an income tax against an individual when he or she exchanges one policy of similar nature with another since neither loss nor gain occurs as a result of such transfer. All of the policy's funds are exchanged from one investment vehicle to another. Neither the policy's principal nor any accumulated interest is taxable as a result of such exchange since the contract's funds were not distributed to the individual.

Incontestable Clause

- After a specific period of time (usually 2 years, but in some states only 1 year), as long as a policy remains in force, an insurance company cannot contest the validity of a policy and must pay its death benefit, even in the event that a policyowner intentionally concealed material facts or committed other forms of fraud, with the exception of the following:

Section 457 Deferred Compensation Plan

- Allows employees of state and local governments, as well as for employees of nonprofit organizations, the ability to defer compensation similar to a 401(k) or 403(b) plan. Plan contributions and earning are not included in gross income and grow on a tax-deferred basis until the funds become available upon retirement. An employee contributes through a deduction in income that is deposited into the retirement fund.

NAIC Model Group Life Insurance Provisions

- Also adopted by the states, certain provisions of a group life contract must be followed by the insurer and employer: Grace Period - 30 or 31 day grace period for premium payments Incontestability - Policy cannot be contested after a period of time (usually 2 years) Entire contract - Similar to individual life (application plus contract) Representations, not warranties, are given regarding an individual's health Evidence of insurability - Required after the enrollment period ends (after 30 or 31 days) Misstatement of age or gender - Premium or benefits are adjusted to correct age or gender, depending on if the insured is living or deceased Facility of payment - Death benefits can be paid to a close relative or friend of the insured employee in the event no beneficiary is named or living, or if the named beneficiary is a minor Conversion - The ability for an employee to convert his or her policy if they are terminated from the group or if the group terminates the master policy

Self-Employed 'Keogh' (H.R. 10) Plans

- Also known as 'H.R. 10' Plans, theses plans were established through the Self-Employed Individuals Retirement Act of 1962, Keogh Plans provide a retirement plan for self-employed and small business owners who do not qualify to create or participate in a qualified company pension plan. -Most Keogh plans are considered to be structured as defined contribution money-purchase or profit-sharing plans; however, they can also be structured as a defined benefit plan based on the goals of the self-employed individual.

Accidental Death Benefit Rider

- Also known as Double Indemnity, this rider will offer an additional amount of life insurance equal to the face amount of the primary insurance plan if the insured's death is that of an accidental nature.

Accelerated Death Benefit Rider

- Also known as a Living Need, Terminal Illness, and/or Critical Illness Rider, this rider allows a terminally ill policyowner to collect the death benefit while still alive to pay for medical expenses and the cost of living. The policy's death benefit is paid to the designated beneficiary, but it is reduced by the amount spent during the final period of time before the policyowner's death.

Straight Life Income Annuity -

- Also known as a Pure Life annuity, this type of annuity payment option provides an annuitant with a guaranteed income for the entirety of his or her life; however, if the annuitant dies before the principal sum is depleted, distribution payments stop and any remaining amount is forfeited to the insurer instead of being paid to a beneficiary.

403(b) Plan

- Also known as a Tax-Sheltered Annuity (TSA), this tax-favored retirement plan is provided to eligible employees of the public schools' system and certain non-profit organizations that are considered to be 'tax-exempt' organizations.

Cost of Living Rider

- Also known as a cost of living (COL) or cost of living adjustment (COLA) rider, this rider is typically tied to the Consumer Price Index or CPI and its face amount will automatically increase with a corresponding increase in an inflation index, such as the CPI.

Money-Purchase Pension Plan

- Also known as an 'individual account' plan, this type of defined-contribution plan requires the employer to deposit a fixed monetary contribution into an employee's pension fund, instead of sharing in company profits or issuing shares of the company's stock.

Rider

- Also known as an Endorsement, is a benefit that can be added to an insurance policy to provide extra protection dependent on the type of rider added. While a policy rider typically requires additional premium, the benefits provided by such rider can greatly benefit the policyowner or beneficiary in the future.

Graded Vesting

- Also referred to as 'graduated' vesting, occurs over a number of years where a larger percentage of ownership is gradually transferred to the employee, who eventually gains ownership of 100% of the employer's contributions.

Tax-Sheltered Annuity (TSA)

- Also referred to as an Internal Revenue Code 403(b) Plan, this type of fixed annuity is often utilized by schools, universities, charities, and religious organizations. A TSA is an annuity reserved for non-profit organizations that aid in their employees' retirement by contributing to an annuity with pre-tax dollars and allowing it to grow tax-deferred. Upon retirement, these contributions are paid out, and although they will be taxed as ordinary income on an individual's current annual income report, they are usually taxed at a lower amount because of the individual's lower tax bracket during retirement.

Insurance Aspects of an Annuity

- Although an annuity contract is not the same as a life insurance policy, both contracts can create similar protection depending on the structure of the annuity. It is important to realize that an annuity is not life insurance, and each is treated and taxed differently. Most commonly, an annuity provides living benefits for the contract's owner, who is also the contract's annuitant; however, some annuities are designed to be similar to the type of financial protection provided by a life insurance policy. An annuity owner can pay the contract's premiums and taxes on earned interest and designate another individual as the contract's annuitant, who receives the distributed funds during the contract's designated annuity period.

Accelerated Endowment Option

- Although not an option in today's market, mutual policies issued before 1985 were provided the option to use dividends to reduce the remaining term of an endowment each year, thus shortening the endowment's premium-paying period.

Fixed Annuity

- An annuity that accumulates and pays out at fixed rates with returns that are guaranteed by the insurer based on conservative investing (typically through bonds) during the accumulation period.

Average Indexed Monthly Earnings (AIME)

- An average, which is computed over a 35 year period of time, reflects changes in wage levels and more accurately accounts for inflation when determining an individual's benefits. This average is used within a formula to determine the individual's 'primary insurance amount,' or 'PIA.'

Immediate Vesting

- An employee is immediately and fully vested in all employer contributions deposited into the employee's retirement account.

Equity Index Annuity

- An equity index annuity is a unique type of fixed annuity that provides a minimum guaranteed rate of interest return on the annuity while also providing an opportunity for a return in interest higher than the guaranteed minimum, based on the performance of interest (earned beyond the guaranteed rate specified in the annuity) that is invested in an equity-indexed market, such as the Standard & Poor 500 (S&P 500). -Essentially, this type of annuity provides a safety net against the loss of the annuity's principal resulting from its poor performance in the stock market, while also providing a greater than minimum return if the interest above the minimum guaranteed return is greater as a result of its favorable performance in the stock market. If the market is favorable, the rate of return will be higher than the minimum payout guaranteed in the policy; if the market is unfavorable, the annuitant will receive the guaranteed minimum return stated in the contract.

Currently Insured

- An individual is partially insured under Social Security if he or she has accumulated at least 6 quarters of coverage within the last 13 calendar quarters. The minimum requirement for individuals under age 24 to obtain currently insured status is 6 credits in the last 3 years. Beginning at age 24, additional credits are required to obtain currently insured status based on the individual's age at the time of disability. Limited benefits are available if an individual is currently insured in comparison to full benefits when the individual is fully insured. If a worker is 'currently' insured at his or her time of death, benefits would continue to be payable to dependent children of the deceased recipient.

Insured Status

- An individual must be insured under the Social Security program prior to receiving benefits for retirement, survivorship, or disability benefits. Three types of qualified Social Security status include fully, currently, or disability. This status is dependent on how many Quarters of Coverage or Credits a worker has accumulated during their working years.

Fully Insured

- An individual needs to obtain at least one credit for each calendar year after turning age 21, and the earliest of the following: -The year before attaining age 62, -The year before death, or -The year an individual becomes disabled Any year (all or part of a year) that was included in a period of disability is not included in determining the number of credits needed to be fully insured.

Modified Endowment Contract (MEC)

- An over-funded life insurance policy that according to its premium contributions within the first 7 years of the policy, has disqualified itself from the IRS tax advantages of a life insurance contract, and is no longer considered to be life insurance by the IRS. The tax consequences of a policy that is determined to be a MEC affect a policy's cash distributions. -The tax consequences of a policy deemed to be a MEC affect its cash distributions including policy loans, surrender value, withdrawals, or the use of the policy as collateral on a loan. Unlike that of a life insurance policy, a MEC is subject to ordinary income tax on any gains earned on the invested premium, as well as a tax on the return of premium to the policyowner. -However, a MEC still provides a policy's beneficiary with a tax-free, lump-sum death benefit, just as with traditional life insurance, if the beneficiary chooses to receive a lump-sum death benefit.

Non-Qualified Annuities

- Annuities that are funded with non-deductible, after-tax dollars (income that has already been taxed) and are purchased by individuals and the self-employed.

Qualified Annuities

- Annuities that are funded with pre-tax dollars paid through an employer-based IRA or other qualified retirement plans such as Keogh or TSA plans on behalf of the employee. In regards to contributions paid into an annuity, pre-tax dollars provide an annuitant with greater fund growth in comparison to after-tax dollars.

Market Value-Adjusted Annuity

- Another unique type of fixed annuity, called a market value-adjusted annuity, is also referred to as a 'modified guaranteed' annuity because it provides a minimum guaranteed rate of return unless it is surrendered by the annuity's owner before it matures. -Essentially, if an MVA annuity is surrendered early, its cash surrender value no longer remains fixed and before its actual value is payable, a 'market value adjustment' is made to the annuity and a surrender charge is applied by the insurer. The Market Value Adjustment (MVA) is an interest rate adjustment based on whether the current rate of interest is higher or lower than the rate in which the annuity was guaranteed. This is important because if current rates are higher, the insurer incurs a loss as a result of the early withdrawal by having to sell its investments at a discounted rate in order to refund the annuity prematurely, and therefore the annuity's cash surrender value is adjusted downward to account for this loss. The reason why an annuity owner might surrender an MVA annuity early with this type of consequence is that he or she can earn a higher return on current market rates in comparison to maintaining an older annuity with a lower guaranteed interest rate. -Although a surrender charge is still applied by the insurer, if the current rate is less than the minimum guaranteed rate of interest, the insurer adjusts the annuity's cash surrender value upward, providing for a higher return than the minimum guaranteed return. This is because the insurer can sell the invested annuity funds at a higher rate than the current market, and will, therefore, earn a higher return than the rate in which the annuity was purchased. The insurer shares these earning with the annuity owner, thus providing a higher return than the guaranteed minimum.

Traditional IRA

- Any individual under the age of 70½ who has earned income can participate in an individual retirement account. Contribution levels allow up to 100% of an individual's annual income, but cannot exceed the annual $6,000 or $7,000 contribution limits set by the federal government. Any contribution that exceeds annual limits will be subject to a 6% 'excise' tax. -Under a Traditional IRA, an individual's contributions are deposited into the IRA using 'pre-tax' dollars. This means that contributions and earned interest grow on a tax-deferred basis and are taxed when funds are withdrawn. -IRA distributions before the age of 59 ½ are subject to a 10% penalty tax, in addition to the ordinary income tax levied on the account. -A few exceptions prevent a penalty tax from being imposed such as withdrawal of funds due to IRA contract owner's death, disability, or payment of qualified medical expenses, as well as withdrawal to cover certain higher education expenses or funding to pay for an individual's first home purchase. -The IRS also mandates withdrawal from an IRA account to begin no later than April 1st following the year an individual reaches 70½ years old. From this time on, a minimum amount must be withdrawn every year from the IRA to avoid a late withdrawal penalty tax.

Cash Surrender Option (Nonforfeiture Options)

- As a basic surrender option, the cash surrender option allows a policyowner immediate access to his or her whole life policy's cash value; however, many states permit insurers to postpone surrender payments for up to 6 months after the surrender of a whole life policy. Another common requirement is that before a cash surrender of a whole life policy can occur, most insurers require that the policy be in force for at least 3 years after it is issued.

Guideline Premium Test (GPT)

- As an alternative to the CVAT, the GPT focuses on premium limits in relation to the death benefit. Premium paid into the policy is limited by the death benefit amount purchased, as well as the age of the individual and health status.

Annuity Riders

- As with a life insurance policy, riders can be added to an annuity to provide additional benefits for the annuitant. While an annuity rider typically requires an additional premium, the benefits provided by such rider can greatly benefit the annuitant in the future. Annuity riders commonly added to an annuity include long-term care riders, guaranteed monthly income riders, and death benefit riders, each providing extra benefits to the owner of the annuity as well as extra financial protection for the annuitant.

Policy Amendments

- Benefit limits, exclusions of certain risk or additional premium that the insurer adds to a policy for any applicant underwritten as substandard risk.

Policy Loan Provision

- Cash value life insurance policies include a provision allowing the policyowner to borrow against the policy's cash value in the form of a loan from the life insurer, or use it as collateral on a loan, after it has been in force for a period of time, typically 3-5 years after policy issuance. Loans made against a policy's cash value cannot exceed the amount accumulated and is not intended to be taken out in order to pay the policy's premiums. Although the insurer charges interest on loans taken by the policyowner, unlike a typical bank loan, the policyowner is not required by law or by the insurer to pay back the loan to the insurer. Instead, the loan is considered to be an advance on the policy's cash value which is ultimately paid out to the policyowner upon surrender, or to the policy's beneficiary upon the death of the policyowner, or named insured, if not the same individual.

Annuity Sales to Senior Citizens

- Considered anyone over the age of 65, each State addresses the ethical standards required of selling, transferring, or forfeiting an annuity contract. Licensed agents are regulated according to replacement standards through a reasonable assessment of the individual's situation and financial intentions, as well as making the individual aware of the liquidity limitations and any surrender charges that might be assessed to the individual.

Credit Life Insurance

- Covers an insured's debt to a creditor upon his or her death. A credit life policy is a decreasing term life policy that is issued by an insurer associated with a bank or similar lending institution and covers the amount of debt owed by a debtor over the period of time in which he or she is paying off the debt. In the event of death, the policy pays the remaining difference of what is still owed by the debtor in order to pay off the debt. Coverage diminishes over time as the amount of debt decreases, eventually ending when the debt has been completely repaid. -A credit policy's face amount is regulated to ensure that such policy covers only the amount of debt owed by the debtor, and serves to fulfill the debtor's contractual obligations in the event of death. Simply put, the face amount of credit insurance cannot exceed the amount of debt incurred by the debtor.

(SIMPLE) IRA and 401(k)

- Created by the Small Business Job Protection Act of 1996, 'Savings Incentive Match Plan for Employees,' k known as 'SIMPLE' plans are marketed towards small businesses with fewer than 100 employees, as well as tax-exempt companies and government and are beneficial to smaller employers because they are less restrictive in establishing a plan and require less administrative costs.

Simplified Employee Pension Plan (SEP)

- Created to overcome the usual costs associated with establishing qualified plans. Essentially, this plan sets up an individual retirement account (IRA) to which an employer contributes funds on a tax-deductible basis. As with a money-purchase plan, SEPs do not require employers to make annual contributions but do require contributions to be made on a continual basis.

Death Benefit Proceeds

- Death benefit proceeds are paid income tax-free to a policy's beneficiary if proceeds are paid out as a lump-sum amount. -If the beneficiary elects to receive continual income payments, or 'installments,' from the death benefit instead of a lump-sum amount, only the interest that accrues from the principal is taxed as ordinary income to the beneficiary, but not the actual death benefit amount.

Retention

- Defined as maintaining an insured's current life policy as the policy matures over time. Often, the retention of an insured's policy is preferred over its replacement due to the cash value accumulation over the life of the policy. Replacing a policy often reduces or forfeits the current policy's cash value, so careful consideration should be given to the accumulated cash value of a policy in determining whether to replace or retain the life insurance plan.

Replacement

- Defined as replacing a life insurance policy using its cash value to purchase a larger face amount or to obtain a new policy, either from the same insurer or through a new insurer. -It is unethical and illegal for an agent to replace an existing policy in an attempt to earn first-year commissions if the replacing policy is not in the best interest of the insured. -NAIC has adopted a Model Life Insurance Replacement regulation that many states have adopted to ensure the proper replacement of life insurance. The purpose of this regulation is to create a standard in which each state can follow that requires life insurers and agents to abide by in soliciting insurance in a replacement situation. -Essentially, the NAIC model applies to individual life insurance solicitation and requires a replacing insurer and agent to fully acknowledge and communicate this replacement with the insured and replaced insurer. The overall goal is to adopt a fair and safe replacement of individual life insurance with the focus on the insured's long-term interests. -Life insurance replacement is considered to be either Internal, meaning that it is replaced with another policy by the same insurer, or External, meaning it is replaced with another policy by a different insurer.

Single-Premium Immediate Annuity (SPIA)

- Designed as a means of spreading out a lump-sum of money over a specified period of time, an Immediate Annuity begins to distribute funds immediately after the first payment period depending on the payment frequency: monthly, quarterly, semi-annually, or annually. When purchasing a single premium immediate annuity, the first (and only) premium payment must be made within twelve (12) months of the contract date.

7-Pay Test

- Determines the policyowner's cumulative premium payment limit that can be paid into a life insurance policy within the first 7 years of being in force to ensure that the contract is intended as life insurance and not a short-term, tax-sheltered investment vehicle. -A life insurance policy is deemed to be a MEC in any year within the first 7 years of the contract when a policyowner pays into the life contract more than the 'sum of the net level premiums' that would have been paid into the policy on a guaranteed 7-year whole life policy.

Dividend Returns

- Dividends paid out to participating policyowners in a mutual life insurance contract are considered to be a reimbursement of premium paid to the insurer and are paid back on a tax-free basis; however, any interest paid to policyowners in addition to the premium reimbursement is considered to be income and is taxable.

General Account vs. Separate Account

- Due to the low-risk nature of fixed annuities, an insurance company accounts for invested funds within its 'general' account. Since variable annuity premium deposits are tied into a more volatile equity marketplace, an insurance company accounts for these funds in a 'separate' account to allow the contract owner to invest accordingly to his or her individual financial goals.

Special Questionnaires / Inspection Reports

- Due to the nature of risk, insurance companies evaluate applicants according to their lifestyle which often includes questions about an applicant's hobbies, finances and occupation. When underwriting life insurance, an insurance company might also require an inspection report. These reports often have the same types of questions as in the special questionnaire, but are more extensive and are usually only required when larger amounts of life insurance are being requested.

Annuity Period

- During the annuity's payout period, the contract begins to distribute the premium deposits and earned interest to the annuitant named in the contract. Both the owner's premium deposits and earned interest define an annuity payment from the insurer during the annuity period. Again, premium payments are deposited by the contract owner on an after-tax basis, so only the interest earned from the annuity is taxed as it is distributed to the annuitant. When the annuity matures it 'annuitizes,' meaning that the contract begins to distribute both the Invested Principal and Earned Interest to the annuitant to serve as future income. If the annuitant dies before the contract is annuitized, the contract's beneficiary becomes the receiver of the contract's payout.

ERISA Applicability towards Pension Plans

- ERISA protects employee retirement plans by establishing rules that 'qualified' plans must follow in order to ensure that insurers and plan administrators do not misuse plan funds. -The act mandates qualified plans to provide participating employees with important plan information regarding the features and benefits of the retirement plan, as well as how the plan is funded. -ERISA also determines the required period of time that an individual must be employed before becoming eligible to participate in a retirement plan, as well as the required accumulation of employee contributions and the nonforfeitable right to those contributions. -It also establishes detailed funding rules and fiduciary responsibilities for plan administrators to follow in order to ensure proper handling of plan contributions and management of employee retirement plans.

Group Life Plan Sponsors

- Employer groups, unions and labor groups, associations, and fraternal benefit societies, among other plan sponsors, establish group life plans with the intention of providing members with life insurance as a benefit of employment or membership in the group. Acting as a fiduciary, these plan sponsors are responsible for administering the group's life insurance plan, and in most states, participating in the plan's premium payments. Plan sponsors are also responsible for defining the 'class' structure within the group, as well as maintaining the group's enrollment persistency with the insurer. In an employment-based group, class structure is based on tenure or the job description of the company's employees. For instance, benefit levels may vary between hourly and salaried employees, management, and company executives; benefit levels are based on this structure to avoid employee discrimination within the same class or level of employment.

USA PATRIOT Act / Anti-money Laundering Compliance

- Enacted by Congress in 2001, the USA PATRIOT Act, more formally known as the 'Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act,' requires financial institutions, including life insurance companies, to establish anti-money laundering and suspicious activity reporting programs in an attempt to prevent criminal money laundering. -Commonly referred to as 'The Patriot Act,' this federal law provides for enhanced security and surveillance of both domestic and international financial activities linked to terrorism. It mandates a more in-depth monitoring of suspicious financial transactions and the disclosure of such activity to government anti-terrorism agencies that monitor the funding of terrorism. -As mandated by this Act, each financial institution must maintain anti-money laundering and suspicious activity reporting programs, provide company training for such programs, and comply with a self-assigned audit of company records using a non-company auditing agency.

Multiemployer Plan (Labor Unions)

- Established by two or more employers within a related industry who are also part of a collective bargaining agreement. Unions and similar labor organizations establish multiemployer plans for the benefit of employees who may transfer between employers within the same union. Because a collective bargaining agreement exists between these employers, the group is categorized and treated as a single entity. Group size is based on whether the plan covers local members-only or if it provides coverage on a larger national or international scale.

Multiple Employer Plan (Non-Union Employers)

- Established by two or more similar employers within a related industry, but who are not part of a collective bargaining agreement. The purpose of a multiple employer plan is to provide smaller employers, who are related based on the type of business or industry, with the opportunity to group together in purchasing life insurance to increase the size of the group in order to provide life insurance for employees at a more affordable rate. Although multiple employer plans are purchased by related employers within the same or similar industry, they are not related in the sense that they do not share a collective bargaining agreement, nor are they members of the same association or union and are not taxed as a single employer.

Social Security Act of 1935

- Federal legislation designed to provide a minimum amount of protection for working Americans in the event of retirement, disability, or death. Titled as Old Age, Survivors and Disability Insurance (OASDI) by the Social Security Administration, this federal program provides monthly income for qualified retirees and their spouses, monthly survivor benefits to the spouse and family of a deceased OASDI recipient, and financial protection to OASDI recipients who become disabled.

The Technical and Miscellaneous Revenue Act (TAMRA)

- Federal legislation that helped define the tax consequences associated with misusing life insurance primarily as an investment vehicle, instead of its purpose of providing financial protection against possible loss. -Under TAMRA, flexible premium life insurance contracts are regulated by placing a limit on an individual's premium contributions and monitoring the contract to ensure that it is not 'over-funded' within the first 7 years of the policy. In order to deter short-term investments from being tax shelters, the IRS monitors the funding of life insurance through what is known as the '7-pay test.' If life insurance fails the 7-pay test, it no longer represents a life insurance policy, and instead, is classified as a 'modified endowment contract,' at which point the policy's living benefits become taxable as ordinary income, in comparison to non-taxable living benefits found in life insurance.

Dual Licensing Requirement

- Fixed annuities can be sold by licensed insurance agents holding only a life insurance license; however, in order to sell variable annuities, an agent must be 'dually licensed,' meaning he or she holds both a state life insurance license and is registered with the Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities products and companies in the U.S. -Although MVA annuities are a type of fixed annuity, they are classified as 'securities' because they involve a chance of risk and financial loss; therefore, individuals selling MVA fixed annuities must also be dually licensed as a life agent by a State's insurance department, as well as registered by the Financial Industry Regulatory Authority (FINRA).

Defined Contribution Plan

- Focus is on the contributions paid into the plan instead of the benefits distributed out of the fund. Both the employer and employee deposit fixed contributions into the employee's pension account. The funds are then invested on the employee's behalf, and all contributions invested, plus interest and possible dividends earned, will represent the total accumulation of funds available at the time of his or her retirement.

Accumulation Units

- In a variable annuity, funds deposited into the annuity are converted into 'accumulation units' and are credited to an annuitant's account. The number of accumulation units continues to increase as additional funds are deposited into the annuity; however, the value of each accumulation unit is tied to the performance of the stock in which the annuity is invested and can increase or decrease in value. -When funds are deposited into the annuity, the number of accumulation units purchased is determined by the amount deposited and the current value of the annuity. -When the unit's value decreases, the annuity owner's deposit can purchase a larger number of units; -when the value of the unit increases, the deposit purchases fewer units.

Reinstatement Provision

- If a life insurance policy does lapse, either by accident or on purpose, the policyowner has, within a specified amount of time, the right to reinstate his or her contract as of the date that the policy lapsed. Under policy 'reinstatement,' once the policy is reinstated by the insurer, the original provisions of the life insurance contract continue to apply as if coverage never lapsed. Although the policyowner is responsible for fulfilling certain requirements in order to reinstate a lapsed policy, it is often wiser to reinstate a long-term policy than to purchase a new policy. In the case of a long-term life policy, one benefit of policy reinstatement is that a policy issued years ago, or at a younger age, would generally be issued at a lower premium rate than what would be available for a similar policy purchased today. Maintaining the original policy's lower interest rate on policy loans may also be beneficial in comparison to current rates associated with a new policy. In the case of a policy issued recently that has lapsed, it might prove to be more beneficial to attain a new policy if a lower premium rate is offered in comparison to the original lapsed policy's rate; however, it is never advised to repeatedly allow life policies to lapse as the underwriting and issuance of a life insurance policy is costly to the insurer. -In order to reinstate a lapsed policy, the policyowner must satisfy the following requirements: Any missed premiums must be paid with interest Any outstanding loan(s) must be paid back to the insurer Evidence of insurability is often required to reinstate a life policy A time limit is enforced when reinstating a policy of 3 to 7 years depending on the insurer If the reinstated policy has already satisfied the original contract's incontestability period, it can only be contested on fraud

Pre-MEC Refund Period

- If a life insurance policy reaches the status of being a MEC within any of its first 7 years in force, the policyowner has the remainder of the 'contract year,' meaning the 12-month period of time from the policy's effective date in which the policy is in violation of the 7-pay test, to request a refund of the over-funded premium amount from his or her insurer in order to avoid the contract becoming a MEC. -The IRS provides an additional 60 days after the contract year in which MEC status occurs to reverse such status back to a life insurance contract. Once a policy is classified as a MEC and has maintained its MEC status for more than 60 days after the end of the policy year in which the overpayment was deposited, it cannot be reversed in the future.

Grace Period Provision

- If a policyowner fails to pay his or her life insurance policy's premium by the date stated in the contract, the policy's grace period will prevent the policy from lapsing. Typically, a life insurance policy's grace period extends for either 30 or 31 days after the date in which the premium is normally due.

Incontestable Clause Exceptions Impersonation

- If an insurance plan is completed by one applicant but signed by another. No insurable interest at time of application - In order for an insurance contract to be valid, insurable interest must be present at the time of application. Intent to murder - The life contract would not have legal purpose; therefore it would be considered to be a void contract.

Waiver of Premium Rider

- If an insured is unable to earn an income due to an illness or disability and is unable to pay his or her insurance premiums, this rider will prevent the policy from lapsing due to the lack of payments. In order for this to take effect, the insured must be unable to work, usually for a period of 90 days to 6 months. During this waiting period, the insured must continue to pay premiums. If at the end of this period the insured is still unable to work, all premiums paid during the 'waiting period' will be refunded and the insured will not have to pay premiums until they reach a specific age, which is usually 60 to 65.

Spendthrift Clause

- If established by the policyowner, this life policy clause protects the proceeds of a life insurance policy from the beneficiary's spending habits or any redirection of proceeds to any of the beneficiary's creditors. Under this clause, the beneficiary cannot receive a lump sum benefit or assign proceeds directly to a creditor, nor can a beneficiary surrender benefits for a present value lump sum. Essentially, this clause ensures that the intentions of the policyowner are carried out when the policy's death benefit is distributed to the policy's beneficiary.

Collateral Assignment

- In a collateral assignment, the policyowner assigns his or her policy to a creditor as collateral for a debt. This approach is often taken in the event that the policyowner or insured dies. The debt owed to the creditor can be paid from the policy's death benefit proceeds. Any death benefit proceeds remaining after the creditor's debt is paid are then paid out to the policy's beneficiary.

Policy Loans

- In a life insurance contract, a policyowner can withdraw funds in the form of a policy loan without being taxed. - Since a loan must be paid back, including accrued interest, it is not taxed; however, if the policyowner surrenders his or her policy, an income tax is levied against any gain in the policy's loan value amount. - If the policyowner dies before repayment of the loan, the policy's death benefit is reduced by the amount of outstanding loan and accrued interest, with the remaining lump sum being tax-free for the beneficiary (unless a recurring payment option is selected).

Absolute Assignment

- In an absolute assignment, the assignee gains full control of the policy and acquires all rights of the policy upon transfer. This approach prohibits the assignor from any further control after such transfer.

Group Life Insurance Beneficiary Designations

- In an employer-based group life policy, each employee has the right to choose anyone he or she wishes as to the beneficiary of his or her life insurance policy. While most employees choose a family member, such as a spouse or child as the policy's beneficiary, it is not uncommon to designate the employee's estate, a will, or a family trust, or for a charity or similar institution to be named as the employee's beneficiary. As an exception, defined by the NAIC and adopted by the states, an employer cannot be named as a beneficiary on an employee's life policy in a group life contract since the employer is also the group contract master policyowner. Employer group life insurance contracts must be established for the benefit of the company's employees and their dependents, not for the benefit of the company.

Temporary Annuity Certain Option

- In comparison to the 'life with period certain option,' under a 'temporary annuity certain,' payments are only paid for the specified period stated in the contract. Although payments to the annuitant are guaranteed during this period, payments stop once this period has ended. Unlike the 'life with period certain option,' payments do not continue for the life of the annuitant if he or she survives beyond the expiration of the annuity period.

Accidental Death and Dismemberment Rider

- In comparison to the Accidental Death Benefit rider which only indemnifies upon the death of the insured, in the event that an insured survives an accident, but still loses a limb or eyesight, this rider provides half of the death benefit amount to the insured.

Fixed-Amount Option

- In comparison to the fixed-period option which pays out a policy's death benefit proceeds and accumulated interest over a pre-determined fixed period time, under the fixed-amount option, the amount of each installment is fixed and is continually paid to the policy's beneficiary until the policy's proceeds are exhausted. The period of time in which this occurs is dependent on the designated amount of each payment chosen by the beneficiary. -Both the fixed-period and fixed-amount options are based on the amount per installment payment relative to the period of time in which installments are paid to the policy's beneficiary. Under the fixed-period option, the longer the payout period, the lower the installment payment, and vice versa. Similarly, under the fixed-amount option, the lower the installment payment, the longer the payout period, and vice versa.

Exclusion Ratio

- In order to determine the taxable portion of the payment, the IRS utilizes an Exclusion Ratio, defined as the 'investment' in the contract divided by the 'expected return'. Investment / Expected return = Exclusion ratio This ratio, expressed as a percentage, determines the amount of principal repayment in comparison to the interest paid in an annuity distribution payment.

Early Withdrawal Penalty

- In the event an annuitant decides to partake in a partial or early withdrawal from his or her annuity, not only will it be taxed as ordinary income, but it will also incur a 10% penalty tax if the withdrawal occurs prior to reaching 59 ½ years old. Withdrawals made after age 59 ½ are not subject to the 10% tax penalty.

Misstatement of Age or Sex Provision

- In the event that a misstatement of age or sex occurs on the application for life insurance, the insurer will adjust the amount of future premiums and request payment of the additional premium that the policyowner should have paid. If a misstatement of age or sex is found by the insurer upon the insured's death, the death benefit will be adjusted to reflect premiums paid corresponding with the correct age or sex of the insured.

Policy surrenders

- In the event that a policyowner surrenders his or her policy to the insurer, proceeds to equal the premium paid into the policy are tax-free, while policy surrender proceeds that exceed the cost of the policy are taxable by the IRS. -Any pre-tax premium payments and interest earned before forfeiting the plan are taxable as earned income.

Policy Interest Accumulation

- Interest earned on a life insurance policy is part of the policy's 'cash value accumulation,' and is considered deferred income, taxed only when policy funds are distributed from the investment. Allowing interest to grow at a compounded rate without taxation over the policyowner's lifetime provides a much greater return on the invested funds.

Group Paid-Up Life

- Involves a combination of both term and whole life policies where the employer pays for the term portion and the employee pays the whole life portion. Contributions are not taxable income to the employee and are tax-deductible business expenses for the employer. In the event of termination or retirement, the employee is granted the paid-up portion or cash value of the policy.

Delivering and Servicing the Policy

- Legally, the policy is considered delivered and the sale completed when the policy is mailed to or personally handed to the insured.

General Exclusions in a Life Contract

- Life insurance policies also included provisions and exclusions to protect the insurer in the event of likely death or illegal activity that might affect a life insurance policy's proceeds. -The following are a few common life policy exclusions: False pretense or information provided on the application for life insurance with the intent to deceive and defraud the insurer If the policyowner dies as a result of a felonious act (death occurring while committing a crime, NOT the victim of a crime), death benefits will not be given to a beneficiary Private aviation (flying a private airplane) is often excluded due to the elevated risk level associated with such profession or hobby. This exclusion normally pertains to private aviation, and not if death occurs during commercial aviation, such as being a passenger on a commercial airline Hazardous occupations or hobbies that are considered dangerous, such as structural metal workers, miners, heavy-equipment operators, stuntmen, race car drivers and other 'hazardous' occupations or hobbies are usually excluded from applying for coverage, though employers of these occupations often provide special protection for their employees Death resulting from military service is typically excluded from coverage. Death benefits will not be paid if the policyowner's death is the result of participation in war. Military personnel receive governmental coverage under the rules and regulations of the U.S. military

Entire Contract Provision

- Located at the beginning of an insurance contract, this provision details the policy's documents, including the policy application and any attached riders that may have been added to the policy. This provision also prohibits the insurer and the insured from making any changes to the contract, whether by outside documents or by oral statements (parol evidence rule).

Standard Nonforfeiture Law

- Mandated by most state legislatures, the Standard Nonforfeiture Law requires insurers to pay any accumulated cash value in a whole life policy to the policyowner if he or she stops paying policy premiums to the insurer. -If the policyowner fails to select a nonforfeiture option, the insurer will automatically issue a 'paid-up' term life insurance policy with the same face value as the original whole life policy and a term length based on the amount of cash value that the forfeited whole life policy can purchase using the available cash value funds from the original (forfeited) whole life policy.

Disability Income Rider

- Monthly income that is paid to the insured if total and permanent disability occurs.

Policy Funding

- Neither life insurance nor annuity premiums are tax-deductible for any type of life insurance policy or annuity, except for a percentage of an individual's contribution in an individual retirement account or individual retirement annuity.

Cliff Vesting

- Occurs when an employer requires a certain number of years of plan accumulation and then provides 100% vesting to the employee.

Business Uses of Annuities

- Often set up by employers as part of a retirement compensation package, a qualified annuity is often used to fund pension plans, 401(k) plans, 403(b) plans, SEPs, and other retirement plans on a tax-deductible basis. Based on the tax-deferred eligibility of the group, funding into the plan by the employer is paid with pre-tax dollars.

Personal Uses of Annuities

- On the individual level, an annuity is used to provide a future stream of income for the individual to serve as retirement income, or as a source of funding for higher education, such as through an Individual Retirement Annuity (IRA).

Annuity Units

- Once a variable annuity enters its annuity period and begins to pay out to the annuitant, the total number of accumulation units in the individual account is converted into 'annuity units.' As the variable annuity pays out to the annuitant, the number of annuity units will remain 'fixed,' or constant, but the value of each unit will fluctuate due to the variable annuity's underlying stock investment. -Again, the goal of a variable annuity is to increase the investment in conjunction with rising inflation. Even though a variable annuity fluctuates in the short term, over a longer period of time, as inflation rises, so does the payout of the variable annuity. -Keep in mind that despite long-term favorable stock market trends, an annuitant's performance in an annuity is highly dependent on payout requirements and market timing factors, which may be highly volatile.

Group Life Insurance

- Premiums paid by the employer are tax-deductible for the employer as a form of a business expense. Employee premium contributions are not tax-deductible; however, employees do not need to report their employer-paid premiums as income as long as their policy coverage is $50,000 or less. Group policy death benefit proceeds are similar to individual policies where the benefit is tax-free if taken as a lump-sum by the beneficiary. If installment benefits are chosen by the beneficiary, any interest earned on the principal is considered earnings and is taxed accordingly.

Profit-Sharing and Stock Bonus Pension Plans

- Provide retirees with shared profits from the company; however, employers are not required to contribute to such plans every year. -Though risk is involved with profit sharing and stock bonus plans, it also provides retirees with the potential for a larger retirement income payment based on a company's financial strength.

Last In, First Out (LIFO)

- Regarding the taxation of non-qualified annuities, after-tax deposits are considered to be deposited into the account first and any interest that was earned is deposited into the account last. Under the LIFO rule, the interest is considered the 'first out' of the annuity and is taxed as ordinary income. Each annuity payment will be taxed accordingly until all earned interest has been distributed from the account, at which point all taxation on the annuity ends, leaving the after-tax principal disbursement as a means of reimbursement to the annuitant or beneficiary.

Fully and permanently insured

- Requires an individual to work approximately 10 years to obtain the maximum of 40 credits. Once an individual has earned 40 quarters of coverage, he or she is fully insured and permanently eligible for Social Security retirement benefits once he or she retires, disability benefits if he or she becomes disabled, and premium-free Medicare Part A benefits and eligibility for Medicare Part B, regardless of whether or not he or she continues to work in the future.

Roth IRA

- Roth IRAs work in an opposite manner to traditional IRAs in that they use 'post-tax' dollars instead of 'pre-tax' dollars for contributions. -While the maximum amount of $6,000 or $7,000 in annual contributions is the same as with a Traditional IRA, a Roth IRA does not have restrictions on participant status if an individual is also covered by an employer's plan, or already owns a traditional IRA. They accumulate, build interest, and upon withdrawal, funds are not taxed. -Withdrawals from Roth IRAs can be either Qualified, in which earnings are distributed tax-free, or Non-Qualified, in which earnings are subject to tax. -Qualified withdrawals are allowed for individuals over age 59½, disabled individuals, or beneficiaries of IRA individuals who have died, though funds must be held in the account for a minimum of five years. -IRA funds can also be withdrawn without penalty for first-time homeowners. -Non-qualified withdrawals are similar to traditional IRAs and the interest, or earnings portion of the fund is taxed as income, as well as assessed a 10% penalty tax for premature withdrawal.

Roth Individual Retirement Annuity

- Similar in structure to a Roth individual retirement account in that annuity premiums are not tax-deductible by the annuity's owner; however, annuity benefit payments are paid to the annuitant on a tax-free basis.

Individual Retirement Annuity

- Similar in structure to an Individual Retirement Account, an annuity IRA (also known as an IRA) is a type of fixed annuity that is combined with a decreasing term death benefit. If the annuitant dies before the annuity matures (usually at retirement), the beneficiary will receive benefits from both the value of the annuity and the decreasing term death benefit. The decreasing term policy usually expires when the annuity matures and is paid out to the annuitant. -Contribution levels allow up to 100% of an individual's annual income, but cannot exceed contribution limits set each year by the federal government. Any contribution that exceeds annual limits will be subject to a 6% "excise" tax. Individuals who are 50 years or older are allowed to make "catch up" contributions that exceed normal annual limits. -An individual's IRA contributions must be made with cash and deposited into the IRA using either pre-tax or after-tax dollars. Contributions and earned interest grow on a tax-deferred basis, meaning that taxes are only imposed on pre-tax contributions and earnings when funds are withdrawn.

Refund Life Annuity Option

- Similar to a straight life annuity, this distribution option pays out for the life of the annuitant. If the annuitant dies before receiving at least the principal amount invested, the annuity 'refunds' a lump-sum or pays out refund installments up to the purchase amount to the contract's designated beneficiary.

Group vs. Individual Annuities

- Similar to an individual annuity, a group annuity provides monthly income to members of the group. Each member of the group is provided with a certificate that defines his or her participation rights in the group annuity. A group annuity is often purchased to fund 'defined benefit' pension plans in which an employer establishes to provide future pension to company employees. Likewise, individuals purchase annuities to provide a structured future stream of income.

Waiver of Monthly Deduction Rider (Universal Life Policies)

- Similar to the 'waiver of premium' rider, this rider waives monthly deductions on a universal life policy while the insured is disabled, typically after a 6-month waiting period. Unlike the waiver of premium rider, it does not waive the full premium due, only the monthly deductions, and it does not add to the policy's cash value.

Flexible-Premium Deferred Annuity (FPDA)

- Some insurers provide additional flexibility by offering a multiple-premium, deferred annuity that allows the contract owner to control the premium deposit amounts and frequency within certain limits stated in the contract.

Free-Look Provision

- Specifies a period of time in which a policyowner has the right to review and reject his or her insurance policy if not completely satisfied with its coverage. Although it varies based on each states' laws, this period extends 10-14 days from the date of receiving a new policy from the insurer.

Consideration Clause

- Specifies the premium amount and date on which payments must be received to maintain the life policy. A policyowner can pay on a monthly, quarterly, semi-annual, or annual basis.

Consideration Clause

- Specifies the premium amount and date on which payments must be received to maintain the life policy. A policyowner can pay on a monthly, quarterly, semi-annual, or annual basis. -The most common option for paying life insurance policy premiums is by 'automated bank draft' on a monthly basis. Using this method of payment, an automatic withdrawal is made directly from the consumer's checking or savings account and is withdrawn on a specified date, as prescribed in the policy. -Although not as common, policy premiums can also be made by mailing a personal check to the insurer; however, most insurers include a service or handling fee, in addition to the premium amount.

The 'Non-Natural Person' Rule

- The IRS further defines its requirements in providing tax advantages for annuity contracts by also restricting contracts purchased and maintained by non-living, corporate- or trust-owned entities and consider them to be 'non-natural, ' thus disqualifying them to receive the same IRS tax advantages provided to 'natural,' living individuals. As an exception to this tax rule, if an entity or trust is 'acting as an agent for a natural person,' it represents and is taxed the same as a natural person, thus receiving the same tax-deferred growth on annual earnings as a natural person.

Taxable Event

- The IRS levies an ordinary income tax on any money being distributed to a policyowner or beneficiary as a result of earned income.

IRS Taxation

- The Internal Revenue Service administers and regulates taxation on life insurance, annuities, endowments, and other retirement funds including individual retirement accounts.

Normal Retirement Age (NRA)

- The Normal Retirement Age (NRA), also known as the Full Retirement age, is considered to be the age that an individual becomes fully eligible for Social Security benefits. An individual's qualifying age is based on when he or she was born. The average age of current Social Security beneficiaries ranges between age 65, for individuals born before 1937, to age 67 for individuals born in 1960 and later. -Although the normal retirement age is between ages 65-67, a covered Social Security recipient can start receiving benefits as early as age 62; however, benefits are reduced by a fraction of a percent for each month before the normal retirement age of the covered individual. -Social Security pays the same amount of benefits for each recipient over his or her lifetime, whether or not the individual elects to receive early benefits or delays benefits to a later date. Benefits are reduced for early enrollment to account for a longer benefit period; likewise, if an individual chooses to delay Social Security benefits to a point in time after his or her normal retirement age, benefits would be increased to account for a shorter benefit period.

Cash Surrender Value

- The amount payable by the insurer to a policyowner who surrenders his or her whole life policy. The amount payable to the policyowner is based on the premiums paid into the policy, as well as any cash value accumulation earned by the policy.

Primary Insurance Amount (PIA)

- The benefit amount that an individual receives when he or she chooses to begin receiving retirement benefits at his or her normal retirement age. This calculation, which results from the AIME amount, determines the correct amount of Social Security benefits for each recipient based on the amount of annual income he or she produced while in his or her working (and FICA taxed) years.

Effective Date

- The date that the application is submitted along with the initial premium and a conditional receipt is given to the applicant. In a circumstance where an inspection receipt is requested by the applicant to review the coverage before premium is submitted, the effective date is then the date the policy is issued by the insurer and appears on the face page of the policy.

Extended Term Option (Nonforfeiture Options)

- The extended term option is similar to the reduced paid-up option, except the policyowner uses the policy's cash value to buy a term life policy with the same face amount as the surrendered whole life policy at a lesser term length, based on the amount of cash value available at surrender. As an example, a policyowner surrenders his or her $100,000 whole life policy and reinvests its accumulated cash value to purchase a single-premium $100,000 term life policy, with a term length as long as can be purchased by the surrendered policy's cash value.

Fixed-Period Option

- The fixed-period option is defined by the period of time in which death benefit proceeds are paid to the beneficiary. Under this option, installments are composed of both the policy's face amount and earned interest, the amount of which is determined by the length of time in which payments are to be made to the policy's beneficiary.

Single (Lump Sum) Premium Payment

- The most common premium option is the single, lump-sum option. This single payment is invested by the contract owner initially and continues to grow as the insurer reinvests the annual earned interest back into the annuity.

Annual Renewable Term (ART)

- The most common type of employment-related group life insurance policy, ART provides life insurance on a one-year term basis that is most often renewable without proof of insurability and allows the insurer to adjust annual premiums based on the experience of the group.

Paid-Up Option

- The policyowner can pay off the policy earlier than the projected time period using dividend returns in combination with monthly premium payments to reduce the amount of time remaining to pay off the policy.

One-Year Term Dividend Option

- The policyowner can purchase a term insurance plan for a period of one year equal to the cash value of the original insurance.

Paid-up Additions Option

- The policyowner can purchase additional insurance using dividend returns.

Accumulation at Interest Option

- The policyowner can reinvest policy dividends back into the insurance company to continue to accumulate interest at a compounding rate.

Cash Dividend Option (Dividend Options in a Life Policy)

- The policyowner simply receives a cash distribution as his or her return of premium from the mutual insurer.

Reduce Premium Dividend Option

- The policyowner uses dividend proceeds to reduce the next year's premium payments.

Transfer

- The process of moving funds from one financial institution directly to another without the withdrawal or distribution of such funds to the individual. The IRS does not levy a tax on transfers, nor does it limit the frequency of such transfers by the individual.

Rollover

- The process of reinvesting distributed funds from one account into another. The IRS does not levy a tax on distributed funds that are rolled over into another retirement plan but does require an individual to rollover distributed funds into another account within 60 days of such distribution. The IRS also requires the individual's employer to distribute retirement funds directly to another retirement plan in order for the individual to avoid 20% of the funds being held by the distributing fund institution, known as a 'mandatory withholding' requirement, for a specific period of time after such rollover occurs.

Current Rate

- The rate used at the time an insurer credits the annuity, typically once a year. The insurer guarantees that this current rate will always be higher than the minimum guaranteed rate. Though a fixed annuity will provide financial security for an annuitant, that amount is usually lower than a variable annuity due to rising inflation over time.

Reduced Paid-up Option (Nonforfeiture Options)

- The reduced paid-up whole life policy option allows a policyowner to cancel his or her current whole life policy and reinvest the policy's cash value by purchasing a single-payment whole life policy at a lesser face amount than the original, forfeited policy. As an example, a policyowner surrenders his or her $100,000 whole life policy and reinvests its accumulated cash value to purchase a single-premium $60,000 whole life policy (paid 100% by the cash value of the forfeited policy).

Vesting Schedule

- The time period in which an employer sets up for employees to gain ownership over employer contributions that are deposited to the employee's qualified retirement account. -An employee is always 100% vested in his or her own retirement contributions as well as the interest earned on his or her portion of the investment. -In addition to being vested in one's own contributions, an employer's vesting schedule depends on the number of years of employment, or Years of Service to the employer, are required by the employee before he or she gains ownership of the employer's retirement contributions.

Suicide Clause

- This clause is designed to deter potential suicide contemplation and usually extends for the first 2 years after policy issuance. If the insured commits suicide within the first 2 years, the insurer will refund the premium paid to the policyowner, or to the designated beneficiary if the insured and policyowner are the same individual. If the insured commits suicide after the first 2 years, the insurer is obligated to pay the death benefit to the designated beneficiary.

Social Security Wage Base

- This income limit, or 'wage base,' is set by the Social Security Administration and allows for taxation on all income earned up the current year's wage base, which the administration typically increases 2-3% annually to reflect rising inflation. Income amounts exceeding this taxable ceiling are not taxed under FICA for Social Security purposes. -In regards to Medicare funding, no such income limit exists, meaning that an employee's entire annual wages are FICA taxable for Medicare purposes. In addition, FICA taxation is strictly a payroll tax and is not required for any earning or financial gains on investment performance, such as interest earnings or dividend returns.

Joint and Full Survivor Option

- This payment option results in the payout of two annuitants. If one annuitant dies, payments still continue for the survivor until his or her death, and at which time, all payments will cease. Within this option, two similar, less expensive payout options are available to a survivor: -Joint and Two-Thirds Survivor - Same as above; however, two-thirds of the original payout amount is payable to the survivor, in comparison to the full payout -Joint and One-Half Survivor - Same as above; however, one-half of the original payout amount is payable to the survivor, in comparison to the full payout

Return of Premium Rider

- This rider is purchased by a policyowner as an added benefit for the policy's beneficiary upon the death of the insured, if he or she dies within a certain period of time, as defined in the policy. In adding this rider, the beneficiary not only receives the face amount of the policy, but also all premiums paid into the policy up to the death of the insured; however, premiums paid are not actually refunded, but instead a separate increasing term policy is purchased with the extra premium required by the rider upon purchasing the intended whole or term life policy. A return of premium rider should not be confused with a return of premium (ROP) term life policy. While a return of premium rider provides extra benefits to the beneficiary upon the death of the insured, an ROP term life policy provides extra benefits to the policyowner upon the survival of the insured.

Other (Additional) Insured(s) Rider

- This rider is referred to as a Family Rider or Child Rider and is incorporated into Family Protection, Family Income and Family Maintenance policies. Each family member who is added to either of these policies receives term life coverage as a rider to the whole life policy written on the policyowner, typically the breadwinner in the family.

Long-Term Care (LTC) Rider

- This rider pays medical expenses associated with an assisted living center without increasing the policy's premium. Limits such as an elimination period, prior hospitalization of at least three days, and impaired daily activities are characteristic of this type of rider.

Guaranteed Insurability Rider

- This rider, also known as an 'insurance protection' rider or an 'option to purchase other insurance,' it allows a policyowner with a whole life policy to purchase specified amounts of additional insurance at specified intervals during his or her coverage without providing proof of insurability. These intervals start on a policy's anniversary date coinciding with the policyowner's 25th birthday, and increases to a policy's face amount can be added every three (3) years thereafter until the policyowner turns age 40.

Owner-Driven Annuity

- This type of annuity structure involves the owner and annuitant being two separate individuals and is designed to benefit the annuitant upon the death of the annuity's owner.

Level Premium Payment

- This type of premium structure allows an annuity contract owner to make equal premium payments to the insurer on a scheduled basis, such as on a monthly, quarterly, semi-annual, or annual basis. As premium deposits are made by the contract's owner, both the invested principal and earned interest continue to build and grow the annuity.

Flexible-Premium Payment

- This type of premium structure allows an annuity contract owner to vary the annuity's premium deposit amounts at his or her discretion to better follow his or her budget, although a minimum and maximum premium payment level are enforced by the insurer.

Common Disaster Clause

- To further define who receives death benefits in the event of the simultaneous or nearly simultaneous death of both the insured and primary beneficiary, a policyowner can include a common disaster clause to the life policy.

Accelerated benefits and Viatical settlements

- Under current laws, as long as a policyowner is considered to be chronically or terminally ill, both accelerated benefits and policy proceeds from a viatical settlement are paid out on a tax-free basis.

Interest Only Option

- Under the interest-only option, a whole life policy's face amount is held by the insurer and placed into a trust or other financial vehicle where it earns interest.

Automatic Premium Loan Provision

In the event that a premium is not paid after the policy's grace period has ended, this provision will automatically take the required premium amount from the policy's cash value in order to prevent the policy from lapsing.

Interest Only Option

- Under the interest-only option, a whole life policy's face amount is held by the insurer and placed into a trust or other financial vehicle where it earns interest. As established by the policyowner, the policy's beneficiary initially receives payments only from the interest earned by the policy's face amount while it sits in the trust. This interest is paid periodically to the beneficiary until a specified date or period of time has been met, as defined by the policyowner. Once this period has ended, the policy' face amount is removed from the trust and distributed to the beneficiary as either a lump-sum payment, or through one of the available installment-based settlement options.

Life Income Option

- Under the life income option, installments are paid to the policy's beneficiary throughout the entirety of his or her life through the purchase of a single payment immediate annuity funded by the death benefits of the life insurance policy. This annuity is simply a stream of income payable to the beneficiary over the remainder of the beneficiary's lifetime.

Life with Period Certain Option

- Under this payment option, payments must be paid for a specified period of time, as stated in the contract. Should the annuitant outlive this period, payments continue to be paid for the rest of the annuitant's life.

Cash Value Accumulation Test (CVAT)

- Under this test, limits are placed on how much cash value can be maintained in relation to the face amount of insurance purchased.

Disability Benefits

- Unlike private disability insurance, Social Security Disability Insurance (SSDI) only provides benefits to individuals who are totally disabled, as oposed to partial or short-term disability. -SSDI defines total disability as the inability to engage in any substantial gainful activity due to physical or mental disability and must last at least 12 months or end in death. Benefits are paid after a 5 month waiting period to ensure the individual is totally disabled. -In addition to being totally disabled, an individual needs to be fully insured and have earned at least 20 quarters of coverage in the last 40 calendar quarters (last 10 years) ending with the quarter in which the disability begins. -A qualified beneficiary will receive 100% of his or her PIA. In addition, his or her spouse and dependent children under 18 years of age will receive 50% of the worker's PIA.

Survivors Benefits

- Upon the death of a Social Security recipient, a surviving spouse may or may not receive surviving spouse benefits depending on whether the surviving spouse is responsible for the care of any children under the age of 16 that were also dependent on the deceased and surviving spouse at the time of the recipient's death. -If the surviving spouse is responsible for such care, he or she will receive 75% of the recipient's PIA during the period of time when the surviving spouse is responsible for caring for any surviving children. This benefit ends when the youngest dependent surviving child turns age 16, and a 'blackout' period begins until the surviving spouse turns age 60, or age 50 if he or she is disabled. Upon reaching age 60, the surviving spouse will begin receiving survivor's benefits of 71.5% of the deceased recipient's PIA amount. -If no children are under the care of the surviving spouse upon the recipient's death, survivor's benefits are only payable at the earliest when the surviving spouse turns age 60, or age 50 if he or she is disabled. If the surviving spouse waits until age 65 to begin receiving benefits, he or she will receive 100% of his or her deceased spouse's PIA benefits. -A divorced surviving spouse can also still receive OASDI benefits from a fully insured spouse's Social Security if he or she: Is age 60 or older Was married to the former spouse for at least 10 years -A divorced surviving spouse must also be entitled to receive his or her own Social Security benefits and cannot receive benefits from a former spouse's Social Security if he or she is already receiving or is entitled to receive a higher Social Security benefit on his or her own accord.

Lump-Sum Death (Burial) Benefit

- Upon the death of a qualified individual, his or her surviving spouse or children become eligible for a single lump-sum death benefit equal to 3 times the amount of the deceased individual's PIA with a maximum benefit amount not to exceed $255.

Estate Taxes

- Upon the death of an insured individual in a life insurance policy, federal and state inheritance estate taxes are mandated for policy proceeds that are included in the estate of the insured. To avoid this estate tax, the insured can transfer ownership of his or her life contract to the designated beneficiary, but the transfer must be completed at least three years before the death of the insured. Under the 'three-year look back' rule, the IRS can still levy estate taxes on the insured's estate if a transfer of ownership to the beneficiary occurs within three years of the insured's death.

Third-Party and Creditor's Rights

- Upon the death of an insured, the policy's death benefit is paid out only to the designated beneficiary, and cannot be redirect to any past creditor. Any past creditors are restricted from collecting any death benefit, including cash value, from the beneficiary.

Lump-Sum Cash Option (Life Insurance Settlement Options)

- Upon the death of the policy's insured, the designated beneficiary can choose to receive a single, lump-sum payment of the policy's death benefit proceeds. As established by the policyowner, the policy's beneficiary initially receives payments only from the interest earned by the policy's face amount while it sits in the trust. This interest is paid periodically to the beneficiary until a specified date or period of time has been met, as defined by the policyowner.

'No Lapse Guarantees' Rider (Universal Life Policies)

- Used in conjunction with universal life insurance policies, this rider allows a life policy to continue in force even if its cash value is zero as long as the policyowner satisfies the contract's minimum premiums requirements, as defined in the policy.

Multiple Employer Welfare Arrangements (MEWAs)

- Utilized by two or more employers of similar professions or trades (but not associated through a collective bargaining agreement) who group together and form a type of multiple employer trust or other arrangement in order to provide benefits to participating employers. In comparison to a typical multiple employer trust in which several small employers group together to purchase insurance at a lower rate as a result of the increased size of the group, MEWAs are often self-insured or partially insured arrangements. Although insurance is sometimes utilized, most MEWAs provided non-insured funds designated to pay employee claims instead of purchasing insurance through an insurer. As a result, MEWAs were often the subject of mismanagement and fraud in the past, prompting both state and federal regulators to place strict requirements on MEWAs under which to operate to ensure compliance with regulation under both ERISA and state insurance laws. Although it is important to understand such arrangements, MEWAs have become obsolete in many states and only a few such arrangements currently exist.

Medical Report

- When applying for life insurance, a medical report is often required by an underwriter to approve an applicant. In addition to this report, applicants are sometimes required to obtain an Attending Physician's Statement (APS) to provide additional support for proof of insurability.

Handling a Claim

- When death occurs, proof of the death is sent to the insurer and prompt payment is sent to the designated beneficiary. By law, the insurer is required to provide the death benefit within 60 days of proof of death; however, most insurers will finalize the insurance process within a few days and promptly pay the claim to the beneficiary.

Insuring Clause

- Written into all life insurance policies, the insuring clause states that an insurance company will honor its obligation to pay benefits in the event of an insured's death.

Blackout Period (In regards to a surviving spouse after the death of a Social Security recipient)

- benefits are paid during the period of time in which he or she is responsible for the care of his or her dependent children, and again after he or she turns age 60, or age 50 if he or she is disabled. -The 'blackout' period is the period of time in which Social Security benefits are not paid to the surviving spouse of a deceased Social Security recipient. -In a non-child bearing family, this period begins upon the death of the eligible Social Security recipient and lasts until the spouse turns age 60, or age 50 if he or she is disabled. -In a child-bearing family, this period begins when the youngest dependent child turns age 16 and continues until the surviving spouse reaches the age of 60, or 50 if he or she is disabled. -After the blackout period ends, the surviving spouse will begin (or resume) receiving Social Security benefits.

The NAIC Model Group Life Insurance Requirements

-A 'true group' is defined by the NAIC as a group that includes 10 or more covered people under a single master contract; however, some states are more lenient on this requirement -No required individual medical exam -The employer is the 'master policyowner,' the employee is issued a 'certificate of insurance' -Coverage is established for the benefit of the employees and their dependents, not for the benefit of the company -Premium rates are based on the group, not the individual -Employee benefit levels are based on tenure

Under Section 1035 of the IRC, only the following exchanges are permitted without taxation:

-A life policy can be exchanged for another life policy, endowment, or annuity without being taxed -An endowment can be exchanged for another endowment or annuity without being taxed -An annuity can be exchanged for another annuity (including switching between fixed and variable annuities) without being taxed

FICA Payroll Tax

-Through the Federal Insurance Contributions Act (FICA), Congress created the FICA Payroll Tax to fund Social Security and later amended it to include funding for Medicare Part A and Medicaid. FICA taxes accumulate in a trust fund created solely to finance these federal and state programs. FICA taxes are imposed on an employee's wages up to a maximum annual amount, known as the 'Social Security Wage Base.'

Accumulation Period

Accumulation Period - The initial growth period in which either a lump-sum payment or a series of premium payments are deposited into the annuity on an after-tax basis, and then earn interest at a compounding rate on a tax-deferred basis.

Blanket Customer Groups (teams, passengers and others)

Blanket insurance is non-specific group insurance provided when a group is constantly changing. Specific members are not listed under the policy and proof of coverage is recognized by proof of membership to the group. An example of a college covering all full-time students shows that due to the continual changing of the population of the group, membership to the college equates to membership under the group insurance. Similar examples are players on a sports team, executives flying in a corporate jet, or passengers on a cruise ship. Groups can be either contributory or noncontributory regarding premium payment.

Individual Employer Plan (Non-Union Employers)

Non-Union Employers - Established by a single employer to provide insurance coverage for its employees. Plans are either fully insured by an insurer or partially insured by insurer, meaning that the employer assumes some risk before the insurer begins to cover any loss.

Nonforfeiture of an Annuity -

Similar to a life insurance policy's nonforfeiture provisions, if an annuitant stops paying premiums and surrenders the annuity contract to the insurer, the accumulation period will end and the annuity payout period will begin at the time of surrender. The annuity's accumulated investment amount is paid to the annuitant; however, the insurer typically subtracts a surrender charge from the annuity before the payout begins.

what is the maximum number of credits needed to be fully insured?

The maximum number needed is 40.

Increasing Term

- In comparison, an increasing term life policy's face amount increases over the term of the policy. Although this type of policy is not often sold as a stand-alone insurance product, it is typically incorporated into a whole life policy as an added rider.

Secondary (Contingent)

- Next in succession to the primary, the secondary beneficiary is a contingent to the primary beneficiary and will only receive a policy's death benefits if the primary beneficiary has died before the insured.

Irrevocable Beneficiary Designation

- The policyowner gives up the right to control the policy. Once a policy becomes in force as an irrevocable policy, it cannot be changed in the future without the consent of the beneficiary. All policy ownership rights including future policy loans or policy collateral on a loan are controlled by the beneficiary, not the policyowner, though the beneficiary can give these rights back to the policyowner if the beneficiary so chooses.

Viatical Settlement Contract

- The sale of a life insurance policy by a policyowner to a viatical settlement provider. The provider gains ownership of the life insurance policy and its death benefit in exchange for compensating the policyowner an amount less than the policy's proceeds.

Tertiary (Contingent) -

- Third in succession to the primary, a tertiary beneficiary is a contingent to both the primary and secondary beneficiaries and will only receive a policy's death benefits if both the primary and secondary beneficiaries have died before the insured.

Term Life Policy Features

While term life insurance provides coverage for a specified period of time, most term life policies include options to extend coverage beyond the policy's term. Term life policies can be 'renewed' or they can be 'converted' to a permanent life policy such as whole life.