Section A: Chapter 4: Part 1- Life Insurance Policies
What is cash value?
the equity amount or "savings" accumulation in a whole life policy
What is Modified Endowment Contract (MEC)(Whole life insurance)?
- a policy that exceeds the maximum that can be paid into a policy and still have it recognized as a life insurance contract -MEC does not meet the 7-day test and is considered over-funded, according to the IRS -the policy will lose favorable tax treatment
What is a family maintenance policy?
- a policy that pays a monthly income from the date of death of the insured to the end of the preselected period -the payment of the face amount of the policy is payable at the end of such preselected period
What are family income policies?
- a policy that pays an income beginning at the insured's death and continues for a period specified from the date of policy issue
What is a convertible term?
- a provision that allows policyholders to convert their term insurance into permanent policies without showing proof of insurability -provides temporary coverage that may be changed to permanent coverage without evidence of insurability
What is an adjustable life policy?
-a policy offering flexible premiums -the policyowner can make adjustments to the premium and/or face amount of the policy -able to provide these features by combining whole life and term life into a single plan -no dividends involved in the policies
What is Modified (with whole life insurance)?
-a policy where the premium stays fixed for the first 5 years, and then increases in year 6 and stays level for the remainder of the policy -cuts you a break on premium for the first few years
What is decreasing term?
-a term life insurance that provides an annually decreasing face amount over time with level premiums -used for mortgage protection
What is a term rider?
-a type of life insurance product which covers children under their parent's policy -ex: family plan policies -always a level term -also allow an applicant to have excess coverage by adding an additional __________ for them to the main policy
What is term life insurance?
-a type of life insurance that gives you the greatest amount of coverage for a limited period of time -has a termination date -cheapest type of pure life insurance -no cash value -will alwasys be cheaper than whole life policy with the same face value -provides pure death protection
What is group life insurance?
-a type of life insurance written for members of a group -group under one master contract -group is underwritten as a whole -no evidence of insurability required
What is an increasing term?
-a type of term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount
What is equity index universal life insurance?
-allows policyholders to link accumulation values to an outside equity index like S&P 500 -insurance combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of the index -policies are characterized by a guaranteed minimum interest rate, tax deferral of iterest accumulations and policy loan access
What is a joint life policy?
-covers the lives of 2 individuals and save on premium cost by averaging the ages of the two insureds -pay the face amount after the first person covered on the policy dies
What is level term?
-has a level face amount and level premiums -premiums tend to be higher than annual renewable term because they are level throughout the policy period -premiums will increase at each renewal -also called level premium level term
What is industrial life insurance?
-insurance that issues very small face amounts for burial coverage -premiums paid weekly and collected by debit agents
What is whole life insurance?
-insurance that provides death benefits for the entire life of the insured -provides living benefits in the form of cash values -matures at age 100 and normally has a level premium -all whole life insurance has the same benefits but differ in how policy is paid
What is target premium?
-is a suggested premium used in Universal Life policies -does not guarantee there will be adequate funds to maintain the policy to any time, especially to life
What are the 8 types of term life insurance?
-level term, decreasing term, credit policies, increasing term, convertible term, renewable term, annual renewable term and term rider
What is a joint survivor or last survivor life policies?
-policies that cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds -only pay the death benefit upon the death of the last insured person
What are credit policies?
-polies typically purchased using a decreasing term life insurance policy -the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance -designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid, credit polies can only be purchased for up to the amount of the debt or loan outstanding
What is Straight Life Insurance (with whole life)?
-premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death -provides fixed premiums, a level death benefit, and cash value
What are the 4 types of whole life insurance?
-straight life insurance -limited pay -modified -modified endowment contract (MEC)
What is a renewable term?
-term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability
What is an annual renewable term?
-term insurance that provides a level face amount that renews annually -this type of coverage is guaranteed renewable annually without proof of insurability
What is Limited Pay (with whole life insurance)?
-the coverage remains on a limited pay life policy until age 100 or death, whichever happens first -insurance protection extends until the insured's death, or to age 100
What is an Universal life insurance policy?
-the policy incorporates flexible premiums and an adjustable death benefit -investment gains from the policy usually go toward the cash value -the policyowner can use the cash value to manipulate the flexible aspects of the policy
What is Variable Universal Whole life (VUL)?
-the policyowner controls the investment of cash values and selects the timing and amount of premium payments
What are Variable life insurance policies?
-these policies require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities -fixed level premium but cash value and death benefits of policy fluctuate according to portfolio performance -also known as interest sensitive policies
What is ordinary life insurance?
-type of life insurance of commerial companies not issued on the weekly premium basis -made up of several types of individual life insurance (temporary or permanent)
What is the role of investor (or stanger) originated life insurance policy (S(I)OLI)?
-when the insured dies, the policyowner (investor) benefits -investor originated life insurance policy is when an investor purchases a policy on the life of someone else to profit upon that person's death
What is an endowment policy?
a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period
What is face amount plus cash value policy?
a contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value
What is juvenile insurance?
insurance is written on the lives of children who are within specified age limits and generally under parental control
What is non-medical life insurance?
life insurance does not require a medical exam and tends to be more expensive than medically underwritten policies