Types of Life Policies

Universal life

- An insurance component in the form of ART - 2 death benefits: Option A, level death benefit; Option B, increasing death benefit - Can make partial surrender/cash withdrawal

Ordinary WL (continuous premium)

- Basic policy - Level death benefit - Insured pays premium for life or until age 100

Variable life

- Fixed premium, minimum death benefit - Cash value and the actual amount of death benefit are not guaranteed - Assets in separate accounts - Agents must be dually licensed in insurance and in securities

General characteristics of whole life insurance

- Permanent protection - Guaranteed elements (face amount, premium and cash value) until death or age 100 - Level premium - Cash value and other living benefits

Combination plans: Joint Life

- Premium is based on the average age of the insured - Death benefit upon the first death only

Combination plans: survivorship life

- Premium is based on the joint average age of the insured - Death benefit upon the last death

Features of term policies

- Renewable: renew the policy without evidence of insurability - Convertible: right to convert a term policy to a permanent policy without evidence of insurability

Annually Renewable Term

- Renews each year without proof of insurability - Premiums increase due to attained age

What is annually renewable term insurance?

ART is the purest form of term insurance in which the death benefit remains level; the policy may be guaranteed renewable without proof of insurability, but the premium increases each year based on attained age.

Annuity phases

Accumulation (pay-in) phase: payments made into the annuity Annuitization (pay-out): payments made to the annuitant from the annuity

Annuity parties

Annuitant: insured (must be a natural person); annuity issued on the annuitant's life Beneficiary: will receive any amount contributed to annuity (plus any gain) if the annuitant dies during accumulation period Owner: has all rights to the policy (usually the annuitant); can be corporation or trust

How do annuities differ from life insurance policies?

Annuities liquidate an estate (life insurance creates an estate). Annuities pay income to the annuitant while he or she is still living; life insurance pays the death benefit

Decreasing term

Coverage gradually decreases at predetermined times; best used when the NEED for protection declines from year to year

Which authorities regulate variable life policies?

Dually regulated by the State and Federal government: the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the State Department of Insurance

What happens to the benefit if the annuitant dies during the accumulation period?

If the annuitant dies before annuitization, his/her beneficiary will receive the amount paid into the plan or the cash value, whichever is greater

How soon can payments begin in a deferred annuity?

In a deferred annuity, income payments begin sometime after one year from the date of purchase

How does inflation affect the purchasing power of a fixed annuity?

Inflation can erode the purchasing power of income payments

What are the characteristics of term life insurance?

It provides temporary, pure death protection, with no cash value

Level premium term

Level death benefit + level premium

Variable Whole Life insurance is based on what type of premium?

Level fixed; Variable Whole Life insurance is a level fixed premium investment-based product

Single premium payment

ONE lump sum payment; the principal is created immediately (both immediate and deferred annuities)

What are the death benefit options in universal life policies?

Option A is the level death benefit option and Option B is the increasing death benefit option

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?

Option B; Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value

What are the characteristics of whole life insurance?

Permanent protection to the insured's age 100, with living benefits such as cash value, policy loans, and nonforfeiture options.

Single premium WL

Premiums paid in one lump sum; coverage continues to age 100

Limited payment WL

Premiums paid until a certain age; coverage in effect to age 100

General characteristics of term life

Pure protection, lasts for specific term, no cash value

What qualifications must an individual obtain prior to selling variable life insurance?

Registration with FINRA; Securities license; State issued license to sell life insurance

What are the 2 premium payment options in annuities?

Single premium and periodic premiums

What are the 2 distinct periods of an annuity?

The accumulation (pay-in) period: the period of time in which the annuitant makes payments (premiums) into an annuity The annuity (annuitization/liquidation/pay-out) period: the tine when money is distributed to the annuitant

Who has all the rights in an annuity contract?

The owner of the annuity has all the rights such as naming the beneficiary and surrendering the annuity

How does continuous premium straight life differ from 20-year limited pay life?

The premiums for straight life will be spread over the insured's lifetime, thus enabling the insurance company to charge a lower annual premium. When the premium paying period is condensed to 20 years , a higher annual deductible is required

General characteristics of flexible premium products

Types of WL insurance with a flexible premium

Which of the following is a key distinction between variable whole life and variable universal life policies?

Variable whole life has a guaranteed death benefit; Variable universal life may or may not have a guaranteed death benefit.

Fixed annuity

guaranteed, fixed payment amount premiums in general account

Indexed annuities

interest rate tied to an index earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds

Periodic (flexible) premium payment

multiple payments; the principal is created over time (used for deferred annuity only)

Variable annuities

payment not guaranteed; premiums in separate account and invested in stocks and bonds

Immediate income payments

purchased with a single premium; income payments start within 12 months from the date of purhcase

Deferred income payments

purchased with either lump sum or periodic payments; benefits start sometime after 1 year from the date of purchase