Life and Health Insurance Chapter 2

annuity

A contract that provides income for a specified period of years, or for life.

Annuitant

A person who receives an annuity contract's distribution.

Qualified Plan

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.

Joint Life Insurance

A single life policy covering two or more lives. Can be written as a term or permanent. The benefit is paid upon first death only and rates are based on a joint average age.

Annuity Units

A variable annuity contract owner's interest in the separate account after annuitization.

Accumulation Units

A variable annuity contract owner's interest in the separate account prior to annuitization.

Annually Renewable Term Insurance

Always the insurance component of a universal life policy

Fixed Annuity

An annuity that offers fixed payments and guarantees a minimum rate of interest to be credited to the purchase payment or payments.

Return of Premium (ROP)

An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.

what is the purest form of term insurance?

Annually Renewable term (ART). It remains level

Variable Annuity

Annuity that has a varying rate of return based on the mutual funds in which one has invested

Interest Sensitive Whole Life

Guaranteed death benefit to age 100. Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

Immediate annuity

Annuity Period

In a variable annuity, the time when the client is receiving benefits from the contract based on the number of units owned, payout option selected and the performance of the separate account

They type of term insurance that provides increasing death benefits as the insured ages is called?

Increasing term

Why is an equity indexed annuity considered to be a fixed annuity?

It has a guaranteed minimum interest rate.

Variable whole life insurance is based on what type of premium?

Level fixed

Indexed Whole Life

Policy whose death benefit increases according to the rate of inflation, usually tied to the CPI.

Universal Life Insurance

Policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again.

What two categories do life insurance fall into?

Temporary and permanent protection

Who bears the investment risk on Variable Life policy?

The Policyowner

The following is NOT true regarding annuitant

The annuitant cannot be the same person as the annuity owner

A policy owner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

The death benefit will be reduced by the amount of any unpaid loans and interest.

who bears the investment risk on whole life policy?

The insurer

Target premium in a universal life policy

The recommended amount to keep the policy in force throughout its lifetime

The main difference between immediate and deferred annuity's is?

When the income payments begin

cash value

a policy's savings element or living benefit

suitability

a requirement to determine if an insurance product is appropriate for a customer

decreasing term policy

a term insurance policy that maintains a level premium throughout all periods of coverage while the amount of protection decreases

The death protection component of Universal Life Insurance is always

annually renewable term

income payments from deferred annuity

begin sometime after 1 year from the purchase date

Nonforfeiture Values

benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Variable Life Insurance

contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance

What is the most common type of temporary protection purchased?

level term insurance

3 basic types of term coverage

level, increasing, decreasing

what does whole life insurance provide?

lifetime (permanent) protection and accumulates cash value

Face Amount

the amount of benefit stated in the life insurance policy

endow

the cash value of a whole life policy has reached the contractual face amount

Attained Age

the insured's age at the time the policy is issued or renewed

Level Premium

the premium that does not change throughout the life of a policy

the policy will NOT lapse if you miss a premium payment on this type of life policy

universal life policy

converting

when you switch from term to whole life and vice versa

deferred

withheld or postponed until a specified time or event in the future

Variable Universal Life Insurance

• A combination of universal and variable life.

Immediate Annuity

purchased with a single premium

Term insurance provides what?

pure death protection

increasing term policy

level premium, as do all policies, but the face amount increases every year of the policy term

Key Characteristics of whole life insurance

level premium, death benefit, cash value, living benefits

Term Insurance

no cash value; provides the greatest amount of coverage for the lowest premium

beneficiary

one who receives annuity assets if the annuitant dies during the accumulation period, or whom the balance of annuity benefits is paid out.

Cash Value Insurance

only develops when the premiums paid are more than the cost of the policy

Death Benefit Options

option A- level death benefit option B- increasing death benefit

Two parties of annuity

owner and annuitant

classification of annuities

premium payment method: single vs. periodic when income payments begin: immediate vs. deferred how premiums are invested: fixed vs. variable disposing of proceeds: pure life, annuity certain, or life refund annuity

What is NOT true regarding the accumulation period of an annuity?

It would not occurred in a deferred annuity.

Two ways Periodic Payments can be:

Level: owner pays a fixed installment Flexible: amount & frequency of each installment varies

What are the licensing requirements for someone who sells variable universal life insurance?

Life insurance and securities

An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?

Limited-Pay Life

Accumulation Period

The time over which the annuitant makes payments or investments in an annuity, and when those payments earn interest tax deferred.

Liquidation of an estate

converting a person's net worth into a cash flow

Owner of Annuity

has all the rights, naming beneficiary and surrendering annuity

policy maturity

in life policies, the time when the face value is paid out

Survivorship Life

insures two or more lives for a premium that is based on a joint age; pays on the last death. Used to offset the liability of estate tax.

Target Premium

recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime

Fixed Life Insurance

contracts that offer guaranteed minimum or fixed benefits

adjustable life

developed in an effort to provide the Policyowner with the best of both worlds. (term and permeant coverage)

Securities

financial instruments that may trade for value (for example, stocks, bonds, options)

Indexed Annuities

fixed annuities that invest on a relatively aggressive basis to aim for higher returns

2 components of a universal life policy

insurance component (always A.R.T) and cash account

The following is an example of a limited-pay life policy

Life paid-up at age 65

Two components of a universal life policy

insurance component and cash account

What does "level" refer to in level term insurance?

it does NOT change (stay's level)

two ways annuity can be funded

single premium: one lump sum periodic payments: payed in installments over time

3 basic forms of whole life insurance

straight (ordinary) whole life, limited pay whole life and single-premium whole life

Minimum Premium

the amount needed to keep the policy in force for the current year