Types of Life Policies Chapter 2

Agents selling variable life insurance products must:

1. Be registered with FINRA 2. Have a securities license 3. Be licensed by the state to sell life insurance

Universal life death benefit options

A and B

Interest Sensitive Whole Life

A whole life policy that provides a guaranteed death benefit to age 100. Insurer sets the initial premium based on current assumptions about risk, interest and expense. Provides a minimum guaranteed rate of interest

Universal life death benefit option b

At any point in time, the total death benefit will always be equal to the face amount of the new policy plus the current amount of cash value

Renewable Term Insurance

Can be renewed without evidence of insurability and premium cost is based on insured's attained age

Ordinary whole life

Continuous premium while life

Whole life insurance cash value

Credited to the policy on a regular basis and have a guaranteed interest rate

Interest Sensitive Whole Life

Current assumption life

Universal life death benefit option b

Death benefit includes annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.

limited-payment life insurance

Designed so that the premiums for coverage will be completely paid up well before age 100

Single Premium Whole Life

Designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash

Cash value in whole life

Does not usually accumulate until the third policy year

Variable life insurance are ___ by the ___ and the ___. Therefore, variable life insurance are regulated by the ____ and the ____.

Dually regulated State and federal government Securities and exchange commission Financial industry regulatory aunthority

Indexed life insurance

Equity index while life

Joint Life Policy

First to die

Variable life

Fixed premiums and guaranteed minimum death benefit, but cash value is not guaranteed and fluctuates with the portfolio Im which premiums have been invested by the insurer.

Universal Life Insurance

Flexible premium adjustable life

Universal life death benefit option b

Increasing death benefit option

Universal life death benefit option a

Level death benefit. Death benefit remains level while cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years.

Level Term Insurance

Level refers to the death benefit that does not change throughout the life of the policy

Types of Term Policies

Level, increasing, decreasing

Universal life death benefit option a

Must be a "corridor" or gap maintained between cash value and death benefit

Return of Premium

Not taxable because the amount returned is equal to the amount paid in

Variable life

Policy owner bears the investment risk (asserts on separate account)

Universal Life Insurance

Policy owner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. Policy owner may skip payment as long as there's enough money in the cash value. If cash value is too small, policy expires

Indexed life insurance

Policy's gave amount increases annually to keep pace with inflation without requiring evidence of insurability. Guaranteed minimum interest rate S&P500 If policy owner assumes risk, policy premiums increase the the increase in face amount. If insurer assigns the risk, the premium remains level

Variable Universal Life Insurance

Provides policy owner with flexible premiums and an adjustable death benefit Policy owner decides where net premius (cash value) will be invested Cash values are not guaranteed and death benefit is not fixed Cash value and or death benefit may increase or decrease over the life of the policy depending on the investment performance of the underlying si account Death benefit cannot decrease below initial face amount Producer must have life and securities license

Convertible Term Insurance

Provides policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability. Premium will be based on insured's attained age

Term Insurance

Provides the greatest amount of coverage for the lowest premium

Universal life death benefit option a

Pure insurance decreasing as time passes, lowering expenses and allowing for greater cash value in older years

Term Insurance

Pure life insurance

Term insurance policies are ___, ___, or ___ and ___

Renewable, convertible or renewable and convertible

Survivorship life

Second to die

Universal life death benefit option b

Since pure insurance with the insurer remains level for life, the expenses of this option are much greater than those for the other option, thereby causing the cash value to the lower in the older years

Ordinary Whole Life

Straight life

Adjustable Life Insurance

Term and permanent coverage

Minimum premium in universal life

The amount needed to keep the policy in force. Paying the minimum premium will make the policy perform as an annually renewable term product

Target Premium in a universal life policy

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

permanent life insurance

Whole life insurance

Adjustable Life Insurance

a policy that offers the insured the option to adjust the policy's face amount, premium, and length of protection without ever having to complete a new application or have another policy issued. Requires proof of insurability when increasing DB or changing to lower premium

Renewable Term Insurance

allows the policyholder to continue term insurance for one or more terms without evidence of insurability

The insurance component of a universal life policy

always annually renewable term insurance

Nonforfeiture Values

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

Liquidation of an Estate

converting a person's net worth into a cash flow

Joint Life Policy

designed to insure two or more lives Can be in the form of term or permanent insurance Premium would be less than for the same type and amount of coverage in the same individuals Functions similarly to an individual whole life policy with 2 major exceptions: 1. Premium based on joint average age between ages of insureds 2. Death benefit is paid upon the first death only

Return of Premium

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

Two components of universal life

insurance component and cash account

Survivorship life

insures 2 or more people premium based on joint age of insured benefit paid on the last death lower premium Often used to offset the liability of the estate tax

decreasing term policy

level premium and a death benefit that decreases each year of the policy. Most commonly used with mortgage

Whole life insurance characteristics

level premium, death benefit, cash value, living benefits

Variable Whole Life Insurance

level, fixed premium, investment based product

permanent life insurance

life insurance that provides a death benefit plus a savings plan and lasts for the policyholder's lifetime or until age 100

Endow

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

straight life insurance

the policy owner pays the premium from the time the policy is issued until the insureds death or age 100 (whichever occurs first). lowest annual premium.

Annually Renewable Term

the purest form of term insurance. The death benefit remains level, and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases.

Deferred

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