INS312 Chapter 7-Variable life insurance
Variable Universal life is a combination of:
-Universal life and variable life insurance
Can the death benefit in Variable Life Insurance vary above the minimum guaranteed death benefit?
-Yes, depending on the policy portfolio's investment performance
Because Variable Universal Life is a securities product, what does it requires?
-requires FINRA registration and SEC regulation -Can't be sold without agent
What could happen during a Universal life policy if there is negative investment growth?
Policy could lapse
Why was Universal Life developed?
to give cash value directed by client
Variable Universal Life insurance
+Flexible premium +Policy funds put in owner-directed separate accounts (not company general account)
During Variable life policy owner can or can't modify or skip premiums?
+policy owner can modify or skip premiums
During Variable Life Insurance, the cash value goes to who?
-Cash value goes to policy owner
Why does Universal life require more effort?
Because investment management
Why can death benefit grow?
Because of investment growth
During VL, the policy owner can direct the funds how?
By backing up the policy
Variable Life Insurance
Fixed-Premium Whole Life Insurance (cannot skip premiums; policy lapses if premiums are not paid) -Investment element
What is the death benefit equal to?
Guaranteed death benefit equal to original face amount, regardless of investment performance
Variable Life Insurance policy formula
Premiums-mortality and expense charges + investment return earned previously
What you should you do about indexed UL?
Stay away
True or false, Policy owner can change in death benefit amount?
True
(VUL) Expense and mortality charges - should not view as:
short-term or an "investment"
How are Variable Universal Life premiums flexible?
- can choose to fund contract at any level as long as it's high enough to have coverage similar to yearly renewable term insurance
if investment earnings are lower than the target rate:
-Death benefits are adjusted downward, but never below the policy's initial face amount
Other features of variable life
-Loans are permitted, but the maximum loan is usually limited to a slightly smaller percentage of the total cash value than with traditional whole life policies. -The policy provides the same range of non-forfeiture options as does a traditional whole life policy. -The policy contains the usual form of reinstatement provisions.
Are the guarantees on cash values or minimum interest during variable universal life insurance?
-No guaranteed cash values or minimum interest
if investment earnings are above the target rate?
-The death benefit is adjusted upward
Does the Variable Life Insurance policy provide any guarantees?
-The policy provides no guarantees of either interest rate or minimum cash value.
What is more expensive, variable or whole life insurance, and why?
-Variable is more expense than whole life. -because you have to pay management team of investment
Other Features (Variable Universal Life)
-The policy permits the policy owner to make partial withdrawals from the policy's cash value without incurring any indebtedness. -Surrender charges ("back-end" expense loads) that decrease with duration are levied if policy surrender occurs
-What does the variable universal insurance policy's Cash Value depend on?
-The policy's CV depends on the performance of the separate account funds that make up the policy portfolio.
What is required with Variable life insurance
-Subject to SEC regulation & Agent +Agent must be licensed in series 7 & life insurance
During Variable Life Insurance, where is the investment risk shifted to?
-The investment risk is shifted from the insurer to the policy owner.
Variable Life Insurance policy funds are invested in separate or accounts that are together? Do they constitute part of the insurer's general investment fund?
-The policy funds are invested in separate accounts that do not constitute part of the insurer's general investment fund.
The variable life insurance policy has a guaranteed minimum death benefit equal to what?
-The policy has a guaranteed minimum death benefit equal to the original face amount of the contract
During Variable Universal Life(VUL), who assumes the investment risks?
-The policy owner
A policy owner of variable life insurance can or can't direct investment funds?
-The policy owner can direct the investment of the funds
Flexible Premiums (Variable Universal Life Insurance)
-The policy owner has wide-open premium flexibility and can choose to fund the contract at any level as long as it's high enough to create coverage similar to yearly renewable term insurance but not so high as to violate tests set forth in the tax code's definition of life insurance. -The policy owner can modify or skip premium payments without prior notice, or agreement with, the insurer.
Death benefit features (Variable Universal Life)
-The policy owner may request changes in the death benefit amount (increases require proof of insurability). -The policy owner has a choice between a level death benefit design and an increasing death benefit design.
Agents that sell variable universal life must be licensed in what?
-Life insurance and securities
During VUL, Policy owner can access cash value through what?
-Loans
Who is the Variable life policy regulated by and do you need an agent?
-The policy is SEC and state regulated and can't be sold without an agent .
The Variable Life insurance policy's cash value depends on what?
-The policy's cash value depends on the performance of the separate account funds that make up the policy portfolio.
VUL face amount can increase based on what?
Face amount can increase based on favorable investment performance
During Variable Life, is the premium fixed or/and guaranteed?
Fixed, guaranteed premium VLI (Variable W)