fundamentals of life insurance and annuities
guaranteed premium
premium is established for life provide coverage for the whole life build cash value- after 3rd year premiums never increase
annuities
provide for you for a long life always taxed
if you surrender during pay in phase
pay taxes on profits 10% penalty for early surrender prior to the age of 59 1/2 lawful surrender charges
straight life annuity
pay until you die- largest monthly income bc lowest risk to ins comp- social security is examp
flexible premium anuity
payments when able- comission
limited pay
payments will be given over a period of time such as 20 yrs or until age 65- gross premium will be less
an annuity life
pays you for the rest of your life
annuity phases
phase one: the pay in phase, you are called the policy owner phase two: the pay out phase, called the annuitant when you annuitize
higher premium=
shorter pay period+ lower total cost+ faster growth of cash value
fixed amount
specific amount of dollars
fixed period
specific period of time
what do they build into every interest sensitive whole life policy to keep it from becoming an MEC?
corridor of safety
level premium term
costs more at the beginning but less at the end
increasing term insurance
never sold by itself- only used if rider is attached allows you to get the cash value and the death benefit
equity indexed
not based on the stock market- based on the s&p 500
single premium annuity
one lump sum
single premium
pay in one lump sum
variable 4 things
1 separate account 2 you get to decide where the money is invested 3 no guarantees 4 if you sell variable you need a securities licence
straight life (continuous premium)
pay pay pay
when do you have to have proof of insurability if you have a 10 year convertible term
never
either...
a company will pay the face amount to your designated beneficiary when you die or the company will return your guaranteed cash value at any point if you surrender the policy
how do we figure taxation on annuity?
according to the exclusion ratio
term insurance
all death no savings
annuity
all savings
what does a corridor of safety do?
allows cash value to grow and chase up the death benefit but it will never reach it
virtually anyone can buy and annuity
almost no underwriting- no death benefits
whole life
coverage for the whole life, build cash value, premiums never increase- till age 100 value in the WLP begins to grow the third year of purchasing - whole life is guaranteed to produce cash value equal to the face amount of the policy at age 100
maturity
death benefits are not considered taxable income to beneficiary
with variable annuities how do you keep up with inflation?
expressed in units not dollars
fixed premium annuity
fixed payments
fixed dollar/ conventional annuity with a fixed guaranteed interest rate
fixed rate of return- around 4-6%
life annuity period certian
guaranteed straight life but period certain for 10 years- you die in 8 they will pay the remainder two years to estate
interest sensitive
guarantees are rate of return such as 4% but pays higher if financial markets do better
convertible term insurance
has the right to convert term policy to a form of permanent protection eg whole life without having to show proof of insurability but your premium will drastically increase
decreasing term
if the needs of the policyowner change and they need less over time it would result in decreasing term. the most common use of decreasing term is to provide mortgage protection -the face amount can never be more than the mortgage amount -a bank can require you to have mortgage protection but cannot require you get it from them
joint and survivorship life annuity
keeps going as long as either husband or wife is alive (may decrease in monthly payments) but when both are dead the ins comp keeps the money
an annuity certain
known amount of money for a known amount of time without regard to mortality
dont confuse
level premium term= means the premium will be level throughout the entire length of contract level term= the face amount/death benefit will remain the same throughout the contract if it has both, its called level premium level term
term insurance
limited period of time matures- you died expired - lived passed it pure protection- pure death protection but only for a specific period of time most marketed form is ART- annually renewable term but the premium goes up every year bc rates are based on attained(current) age
whole life
most death some savings
endowment
most savings some death
immediate
start the pay out phase now
deferred
start the pay put phase later
most affordable protection for the premium dollar
term insurance
modified endowment contract MEC
the cash value may not exceed the face amount prior to age 95 7 year pay whole life rule MEC surrender prior to age 59 and a half - 10% penalty tax on profits (growth)
annuities are sold by life insurance companies but
they are technically not life insurance because they have no death benefit
annuitizing the contract
transfers the value of your account into a promise to pay income benefits over time- your account no longer has cash value changing your mind is no longer an option
renewable term insurance
with the small amount of additional premium, you can make a term policy renewable and have the right to renew without proof of instability but premium goes up
refund life annuity
you get all your money back - lowest monthly payment
if you die during the pay in phase
you get returned the value of your account (VA) and it goes to estate- but it will be taxed
when you surrender your policy for cash
you would have to pay income taxes on the amount of cash value - taxed on growth?