Iowa Insurance Exam - Life

industrial life insurance

"burial insurance", small face amounts 1000 or 2500 to 10,000; premiums paid frequently, no medical exam, agent meets personally with policy owner to collect premium

Types of life insurance policies

-term -whole -flexible premium policies -specialized policies -endowment policies -group life

specialized life insurance policies (4 of them)

1. Joint (first-to-die) life insurance 2. Survivorship (Second-to-Die) Life Insurance 3. Juvenile Life Insurance 4. Specialized Policies for Family Needs

Actuary base life insurance premiums based on 3 things

mortality, interest, expenses

Immediate annuities

serves to distribute income -exchanges a lump sum amount of money for a series of income payments (referred to as single premium immediate annuity)

flexible premium deferred annuity

allows owners to make premium deposits of any amount whenever they want - there is a minimum (typically)

Net level premium

applying a factor to the net single premium, spreads out premium for duration of premium paying period

Ordinary whole life

benefits and premiums remain level straight through the insureds whole life, death benefits remain level. premiums are paid until insured dies

entity

business buys deceased partner's interest on business

key person insurance

business pays premiums, if person dies business receives death benefit, if person quits, insurance plan can still be continued

family maintenance policies

provide lump sum benefit and income that is funded by long term rider attached to a whole life policy -level term insurance to maintain income for level period of time from the time of death

Level term insurance

provides level death benefit and charges a level premium for duration of coverage term

limited payment whole life

provides level death benefit protection for the insureds whole life, level premiums, premiums are paable for a shorter time than ordinary life, premiums are higher

permanent life insurance

provides life ins for the insured's entire life; coverage is provided until insured dies or reaches 120 years old

Labor unions

Either all members for all members of the individual classes must be eligible Min 10 members Coverage cannot be suspended or terminated involved in labor dispute with plan sponsor

Employers for group insurance

Employer my sponsor a group plan or serve as trustee - minimum 10 people -all employees. Eligible must be allowed to participate

Association groups for group plan

Members of associations (school districts) minimum of 10 people association is policy owner Two or more employers in the same business can form a group

indexed whole life (include 2 pricing methods)

face amount increases automatically when consumer price index increases 1. premium increases every year for increased coverage 2. premium is higher at front end but averages out over time

ordinary life insurance

face amounts grater than $25,000, premiums are payable monthly, quarterly, semi annually, annually; includes every type of life insurance and annuity product, flexible options

Straight Life income (pure life)

income payments are made for lifetime

purpose of life insurance

pay a death benefit to beneficiaries when the insured dies

Net Single premium

uses factors of mortality and interest - theoretical amount (excludes expense factor) that would be needed to fund the face amount for the duration of the policy with single premium payment

Expense factor

worked into premium calculation to reflect costs that insurer expects to incur (rent, commissions, benefits)

Stranger - owned life insurance

(stoli - aka investor-owned life insurance) arrangement where investor or group convinces consumer to take out insurance policy on his/her life in exchange for a lump sum payment

Group insurance vs. individual

-covers many non-related people -less expensive per person

Types of group plan sponsors

-employer -association groups -labor union groups -multiple employer trusts (METs) -multiple employer welfare arrangements (MEWAs)

Group life standard provisions

-grace period 31 days -application and policy document constitute policy -can't refund policy after 2 years

group insurance eligibility

-group cannot be formed for the express purpose of purchasing it -employers -labor unions -trade and professional association groups

Non-fixed whole life product

-indeterminate premium whole life -current assumption whole life -interest-sensitive whole life

Deferred compensation plan and supplemental executive retirement plan similarities

-key objective is to shift exec income to retirement (lower marginal income tax bracket) -employer loses current income tax deduction -benefits are forfeited if executive fails to meet conditions in deferred comp agreement - remaining with employer until retirement, agreeing not to compete following retirement -employer can deduct benefits paid under agreement to executive at the time they are paid

Contributory group plan

-premiums split between sponsor and plan participants -~75% participants eligible -common with group health insurance

Universal life disability waivers 2 forms

1. Waiver of stipulated premium: rider that provides that a preset premium payment amount is waived if insured becomes disabled for at least 6 months, identified amount at time of application 2. Waiver of cost of insurance: rider that waived only the cost of insurance deducted monthly from policy's cash value, amount waived is the cost of insurance deduction instead of premium

2 purposes of annuities

1. can accumulate cash 2. can distribute income of guaranteed amount for guaranteed period

Vul death benefits

1. death benefit is equal to policys specified amount and includes a decreasing net amount at risk 2. death benefit equals the sum of policy's amount + cash value, includes level net amount at risk 3. death benefit = sum of policy's specified amount + total premiums paid, includes level net amount at risk

Indeterminate premium whole life

1. lower fixed rate 2. guaranteed maximum rate policyowner pays lower fixed rate for specified number of years, at end of period, premium rate moves up or down based on investment earnings

Whole life insurance

1. provides guaranteed death benefit protection for insureds whole life, policy pays face amount stated in policy, goes to age 120 2. includes guaranteed cash value that builds inside the policy, cash value is accessible when insured is alive

What does an annuity do for an insurance product?

1. provides protection in form of guaranteed death benefits 2. can provide lifelong stream of income if product is annuitized

Riders for disabilty

Added benefits when the policy owner becomes disabled -three riders typically offered

Rider

Additional benefits to policy, extra premiums

nonqualified retirement plans

Any arrangement in which employer offers benefit to employee (executives) that aren't offered to all employees -deferred compensation plan: (snr executive) agrees to defer portion of salary until future date -supplemental executive retirement plan (SERP): (salary continuation plan) benefits for select employees above those provided through qualified retirement plans, funded by the employer for limited period or until they retire

Entity buy-sell agreement

Business covers cost of partners death, buys shareholders interest

Key Person Insurance

Business pays premiums on person, offers policy to person to purchase when retire

Credit life insurance

Covers life of a borrower in amounts of their outstanding loan If borrower dies policy pays death benefit to creditor -used with decreasing term insurance; loan balance decreases as coverage decreases -offered as group and individual -creditor is policyowner

Family term rider

Covers multiple family members equally with term insurance, policy owner can add or drop insurers at any time EOI needed to add -children convert to permanent coverage at age 21 without EOI

Multiple employer welfare arrangements (MEWAs)

Group of employers sponsor groups insurance plan -for small businesses Participating employers must be in the same industry 1. Fully insured form arrangement to buy insurance 2. Self insured certificate of authority from State - min 5 employers and 200 employees

Payor benefit (juvenile insurance)

If adult/parent of child dies, policy is open to lapse if premium is unpaid Ensures that insurance stays in force by waiving premium payment while insured is still a minor -stays in effect until child turns 21-25 years

are deferred annuity values forfeitable?

No, even if the owner stops making premium payments -can be left intact within contract for future annuitization or can be withdrawn

Cross purchase buy-sell agreement

Partners buy interest on others - if one dies, partners buy their portion of company (buys the interest N x (N-1)

Disability income benefit rider

Pays certain sum of monthly income to insured if they become disabled Calculated: 1. As percent of face amount 2. As # of dollars per month per $1000 of coverage

Premium rider

Popular to add to life insurance policy Premiums are waived if the insured becomes totally disabled -most waiver require the insured be disabled for six months before the waiver begins only require a four month period Max age restriction 65/70

Non contributory group plan

Premium is paid entirely by employer -must Cover all eligible group members -common with group life insurance

Group Life insurance

Provided through employers, labor union,other group -group must cover at least 10 people -individual medical exams not required -master policy is issued to employer/trust/union; participant receives certificate of insurance -insurance must be bought for the benefit of the participants -premiums are based on experience of entire group -individuals are classified so they do not choose the benefit level of plan, nondiscriminatory -premiums are averaged for group

Regulation of Variable products - what do the Securities Exchange commission and financial Industry Regulatory authority do?

SEC - responsible for regulating the securities that make up an insurer's separate account FIRA - regulates producers who sell variable life products and companies that sell investment products

USA Patriot Act

Sept. 11, 2001 require all financial institutions create, execute, and maintain anti money laundering programs

Multiple employer trust (mets)

Two or more employers form a trust to buy group insurance Employers must be in the same industry Minimum of two employers 100 employees

Interest factor

added to premium calculations to recognize investment earnings, used as credit - higher rate = lower premium

Juvenile Life Insurance

can be written on lives of children of any age, under 15 - an adult must be the owner of the policy insuring the minor; responsible for paying premiums -low premiums and death benefit that increases when the child becomes an adult -long term and affordable

Permanent life insurance accumulation element within the policy is __________ ____________

cash value

bailout provision

charge-free withdrawals if interest rate credited drops below specified level

Gross premium

charged for the policy by adding the expense load to the net single premium/net level premium

variable universal life

combines variable life and universal life -invest premiums in separate investment accounts. growth of cash value is based on performance of investment -premium flexibility, policyowners can increase/decrease/not pay premiums

Term life insurance

coverage is temporary, time limit can be as short as one year, as long as 20+ years or until the insured reaches a specific age (ex. 65). No cash value, costs less than permanent life, premiums increase with age

individual insurance

covers one individual

Increasing term insurance

death benefit increases over the term to preset amount

life insurance for personal use

death benefit serves to replace the insured's future loss income and pay expenses that occur upon death, living benefits

executive bonus plan

employer agrees to pay some or all premiums on life insurance policy purchased for co executive (policyowner) employer can deduct payments as compensation paid to employee

annuity riders - guaranteed income rider

ensures annitant will receive regular payments every month, quarter, or year from the deferred annuity without annuitizing the contract -single lump sum premium -can help provide retirement income without irreversibly committing funds through annuitization

Family protection policies

entire family receives life insurance coverage under a single policy -whole life insurance coverage on principal insured: $5000 -term life insurance coverage on spouse until age 65: $2000 -term life insurance on each child until age 21: $1000

Annuities

financial products used to distribute a sum of money over extended period of time -THESE ARE NOT LIFE INSURANCE -purpose is to liquidate a principal sum over certain period, series of income payments

Flexible permanent life insurance

give policy owners flexibility in how they manage their policies - adjustable life insurance, universal life insurance

annuity riders - death benefit rider

guarantees if annuitant dies before payments begin or soon after distributions begin a beneficiary will receive at least the balance of premiums paid (can be done in lump sum payment/over balance of period of which payments were scheduled

surrender charges

if owner takes withdrawals from contract within period after buying annuity, may have to pay declining percentage of contracts accumulated value Ex. -7% first 3 years -6% 4/5 years -5% 6/7 years

Endowment

insurance policy that matures when its guaranteed cash value equals its face amount -if insured is still alive at maturity, coverage is termed and policyowner is paid, lasts until age 120 1.if insured dies before end of endowment period, policy pays death benefit to beneficiary 2. if insured is alive when policy endows, policyowner received specified sum as living benefit

fixed life insurance

insurer guarantees fixed death benefit and min rate of return on policy's cash value, premiums are invested in co's general account

Tax-deferred accumulation

interest earnings and growth are not taxable to owner

whole life 2 guaranteed features

length of time where premiums are paid how the pollicys cash values are invested and grown

convertible term

lets policyowners to exchange their term coverage for a permanent life insurance policy without having to provide EOI

fixed premium deferred annuity

level premiums of specified amount -(retirement annuities AKA)

Premium Tax

levied on insurance companies when they receive premiums

Family income policies

life ins policy that combines whole life and decreasing term life on insured. -decreasing term pays a specified monthly income to a specific date if the insured dies prior to date, if insured is alive at end of term, monthly income portion vanishes, death benefit remains -issued with income benefits defined in terms of monthly income unit, $10 for every $1000 of whole life coverage

Modifies and graded premium whole life insurance

lower initial premium, premiums increase after designated period -modified premium: single increase (5 yrs) become level after -graded premium: lower premium, but premiums increase in series of steps before they become level

Participating vs nonparticipating life insurance

par - issued by mutual ins co's, policyowner is eligible for policy dividends declared by the insurance co; dividends are paid from insurers divisible surplus non par - issued by stock ins co, no policy dividends

Survivorship (second-to-die) life insurance

pay death benefit only when second insured dies, cheaper than two individual policies popular in estate planning market, can be used both personal and business marketpla`ce anytime the death benefit is most needed when the second insured dies

life income with refund guarante

pays income for life, if dies before total income payments equal annuity's sum, refund guarantee option provides balance is aid to designated beneficiary payment options -lump sum cash payment -continuing monthly installment payments

Joint (first-to-die) life insurance

permanent coverage that insures two persons under one policy, policy pays the death benefit when the first insured dies, cheaper than two separate policies -when one dies other buy individual policy with same/lower face amount

Indexed life insurance

permanent insurance where interest credited to the contracts cash value is tied to an equity index instead of a rate

adjustable life insurance

policyowner can change premiums, face amount, and type of insurance

flexible premium plan

policyowner can change the premium payment amount after the first payment within range set by insurer, includes universal life insurance and variable universal life insurance

universal life insurance (include 3 components)

policyowner can increase/decrease/not pay premiums within certain limits -unbundled - mortality, interest, and expenses are treated as separate policy elements

Level premium payment plan

premium is fixed, remains over policy's term

interest-sensitive whole life

premium rates can change over time in response to insurer's mortality, interest, and expenses, if actual experience is good then premium rates are lowered

variable life insurance

premiums are invested in investment sub accounts managed by the insurer - guarantees min death benefit (face amount of policy); cash values and death benefit raise and fall based on sub accounts investment

Decreasing term life insurance

provides temporary protection for a set period, difference between this and level term is the amount of death benefit payable, it steadily decreases until it reaches 0 at the end of the term

deferred annuities

purchase with single sum of money or periodic investments - do not begin until future dates -contract under which annnuitization is delayed until future date, during deferrel period funds accumulate interest on a tax-deferred basis -must be bought with single premium payment -if owner dies during accumulation stage, values are given to beneficiary as death benefit

Cross purchase buy-self agree

shareholders buy interest on each other in case one dies (take over their share of company) Nx(N-1) (N=# of shareholders)

single premium deferred annuity

single lump-sum payment purchase -money grows within contract until owner accesses funds or contract annuitizes

True or false: Level premium of permanent life insurance - once the policy is issued premiums remain level for the full duration of policy coverage

true