AD Banker Life & Health Chapter 3

A convertible term life insurance policy may be converted _____ time(s) for a permanent life policy based on the original or attained age.

1

Which Term Life insurance policy would have the highest initial premium, all else being equal?

20 years

Life Settlement Broker

A life settlement broker, for a fee or commission, offers to negotiate life settlement contracts between an owner and providers. A life settlement broker represents only the owner and owes a fiduciary duty to the owner to act in the best interest according to the owner's instructions, regardless of the manner in which the broker is compensated.

Universal Life

Adjustable face amount Guaranteed minimum rate of return on cash value Partial withdrawal or surrender available Mortality charge for cost of pure insurance is deducted monthly Flexible premium 2 death benefit options to choose from

A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect?

By paying over a shorter period of time, each of the payments will be lower

Which of the following are characteristics of universal life insurance policies?

Death benefit options, death benefit and premiums may be changed. Death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.

Waiver of Premium

If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first

Payor Benefit

If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time

What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured?

Joint Life

Joint Life (First to Die)

Joint Life is a whole life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die and the policy terminates. Premiums are based upon a joint issue age which is obtained by an average of both insureds' ages resulting in a lower premium than two separate policies. This policy is designed to provide income protection for the surviving spouse when both have earned income.

Cash Value

Money accumulated in a permanent whole life policy that is considered a living benefit which the policyowner may borrow against or receive if the policy is surrendered before the insured dies.

Which of these best describes a disability income rider?

Pays a percentage of the death benefit as monthly income to the insured when totally disabled

Accidental Death and Dismemberment

Pays the principal sum of the rider (100% of the face amount) upon accidental death or double dismemberment and the capital sum (50% of the face amount) for accidental single dismemberment

Credit life is usually sold on a group basis to a creditor, such as a bank, finance company or a company selling high-priced items on the installment plan. Policy generally pays the outstanding balance of the debt at the time of the borrower's death, subject to policy maximums. Debts covered in this way include:

Personal loans Loans to cover the purchase of appliances, motor vehicles, mobile homes, farm equipment Educational loans Bank credit and revolving check loans Mortgages loans, etc.

Following riders with the correct description

Return of Premium An increasing term insurance rider that provides additional coverage equal to the amount of premiums paid Cost of Living Enables the insured to purchase more insurance each year to help offset increasing insurance needs due to inflation Disability Income After an initial waiting period, premiums waived and the insured receives a monthly income Guaranteed Insurability Allows the insured to purchase stated amounts of additional insurance every 3 years based on certain ages, events, or specified dates without evidence of insurability up to a maximum age Long-Term Care Provides up to 100% of the policy benefits if the insured qualifies for benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living

Term Riders

Term riders may be attached to any individual life policy to provide additional insurance protection for a fixed period of time. If the need for additional coverage is temporary, a term insurance rider is more cost effective than buying another policy.

Which of the following would have the highest first-year annual premium for a 30-year-old, all other factors being equal?

Term to age 70

Accounts

The policy cash accumulation is split between the insurer's General and Separate Accounts.

If the cash value of a traditional whole life policy equals the face amount, what is that referred to?

The policy's endowment

Which of the following statements about Annual Renewable Term premiums is TRUE?

The premium increases over time as the insured's age increases.

A Fixed Premium

The premium is determined by the insurer and remains fixed and level throughout the contract.

Straight Life or Continuous Premium

The premium is level and payable to age 100 or death of the insured, whichever comes first. The face amount remains level throughout the life of the policy. This policy has the highest total premium outlay.

Variable Life

Variable whole life is a whole life policy with certain benefits that will vary based on market conditions. Variable life characteristics include:

A __________ is a contractual agreement that allows a company or person to buy one or more of the rights of ownership in a life policy on the life of another person, should the owner/insured become terminally ill.

Viatical Settlement A Viatical Settlement is negotiated with a person who is terminally ill and accomplished through absolute assignment.

If the insured becomes totally disabled, the company waives premiums for the duration of the disability if a _____________ is in force.

Waiver of premium rider

Jacob owns a policy that pays a death benefit only if he dies within the 20-year policy period. If Jacob dies anytime that the policy is in force, his beneficiary will receive $100,000. The premium that Jacob pays for this policy will be the same throughout the 20-year policy period. Jacob owns:

A Level Term policy

A Long-Term Care Rider provides up to what percentage of the policy's death benefits if the insured qualifies for long-term care benefits based on being chronically ill as defined in the rider?

100%

How much of a cash value policy loan will an insurer normally grant with a variable type policy?

75-90%

The Double Indemnity Rider requires that the insured die within _____ days of the accident.

90

Family Income

A Family Income policy combines whole life insurance with a Decreasing Term rider. The length of the rider is based on the number of years until the youngest child is no longer a dependent, such as age 21. If the insured dies while the rider is in force, the death benefit of the rider is paid in equal monthly installments (including interest) for the remaining number of years the rider would have been in effect. This benefit is in addition to the face amount of the whole life policy. If the insured is still living at the end of the decreasing term, the rider drops and the premium decreases.

Renewable

A benefit that will renew the contract on the renewal date without evidence of insurability. The policy may be a 1- (annual), 5-, 10-, or 20-year renewable contract up to a specified age, with premiums increasing at the beginning of each renewal period. The renewal premium is based upon attained age. Renewability is important because the risk is that the insured's health may deteriorate and the insured may be unable to obtain a policy at the same rates or even at all, leaving the insured without coverage. Some term policies include a "reentry" provision, which offers the insured an opportunity to obtain a new policy at a reduced premium based on new underwriting.

Life Settlement Contract

A financial transaction in which the owner of a life insurance policy sells an unneeded policy to a third party for more than the cash surrender value and less than the face value. A written agreement is entered between a life settlement provider and the owner of the policy. The contract establishes that compensation is paid in return for the owner's assignment of an insurance policy.

A Last-to-Die policy would be the most appropriate recommendation for which of the following?

A husband and wife concerned about paying estate taxes after they have died

Effect on the Death Benefit

After the accelerated benefits are paid and any lost interest to the insurer is deducted, the insurer must pay the balance of the face amount to the beneficiary.

Living Needs Accelerated Benefit Rider

Allows the early payment of a portion of the face amount before death should the insured become terminally ill with less than 24 months to live. This rider is not designed to provide services to the insured.

Rider

An added benefit attached to the policy that supplements existing coverage. A rider is usually added at the time of application and may result in a small increase in premium.

Which of the following is not a feature of term life insurance?

Cash surrender value term life insurance has no cash value and is often referred to as providing pure protection. Compared to the same face amount of whole life insurance, term will cost less.

Term Insurance

Coverage may be convertible Written for a specified time period or to a specified age Temporary protection Death benefits may be level, decreasing, or increasing Coverage may be renewable Pure insurance

Permanent Insurance

Designed to provide coverage for a lifetime Policy loans available Premium builds a reserve known as cash value Policy matures or endows when cash value equals the face amount Issued with a level face amount Premiums may be payable for life, a limited period, or as a lump sum

Even though this rider can pay out upon death, it also pays out a benefit if the insured loses a limb, eyesight, fingers, or toes as a result of an accident. What is this rider benefit called?

Dismemberment Accidental Death and Dismemberment is a rider that provides an additional benefit in addition to the base of the policy. The rider pays 50% of the rider amount (capital sum) for accidental dismemberment losses, such as the loss of a limb, or eyesight. Double dismemberment benefits are provided at 100% of the rider (2 times the capital sum). Benefits are only payable if the loss is accidental and occurs within 90 days of the accident.

Universal Life Insurance (UL)

Features insurance protection and a savings element (cash value) that grows on a tax-deferred basis. UL is an "unbundled policy." This means the individual elements of the policy and premium—which includes the mortality risk, policy expenses, and the cash value—are credited to the account separately after the premium is paid. Universal life has built in guarantees regarding the cost of insurance (mortality risk) and the interest rates applied to cash values.

Level - The death benefit remains level during the policy term. The types of level term include:

Guaranteed Level Premium - The policy premium is guaranteed to be level throughout the term of the policy Non-guaranteed Level Premium - The premium can be increased to a new premium level for the remainder of the term Indeterminate Premium Term - The premium may fluctuate between the current charge and a maximum rate stated in the policy based on the insurer's mortality, expenses, and investment returns

Endow (Mature)

In a cash value policy, the date on which the contract ends. A whole life policy is expected to have cash value equal to the face amount (if no loans are taken and all premiums are paid) on the endowment date, and the policy value is paid to the owner.

Accidental Death Benefit

In the event of a claim, the policy normally pays double or triple the face amount only if the insured's death was a result of an accident

Death Benefit Options

Option A - Pays the face amount of the policy and provides a level death benefit. As the cash value increases, the company's risk decreases. If the cash value increases to the point it equals the death benefit, the death benefit will automatically become the greater of the cash value or face amount of insurance. This minimum separation between the cash value and the death benefit is called the "risk corridor." This corridor of insurance is automatic and does not require insurability. This prevents the policy from maturing too early. Option B - Pays the face amount stated in the contract which is level term, plus any cash values accumulated over the years. This provides for an increasing death benefit. The mortality charge for Option B is greater than Option A.

Limited Payment

Premium payments are for a specified time (Example: 20-Pay Life or 30-Pay Life) or to a specified age (Example: Life Paid up at 65). The face amount (death benefit) remains level and cash value continues to earn interest and mature at age 100. While the annual premium is higher than Straight Life, it is paid for a shorter period of time and will have a lower total premium outlay.

Fraudulent Life Settlements

Presenting or preparing false material information, or concealing material information, with respect to: life settlement solicitations, applications, underwriting, premiums, claims, and change of ownership. Entering into stranger-originated life insurance (STOLI) Employing any device to defraud in the business of life settlements

What does a long-term care rider do that a Living Needs (Terminal Illness) rider does not?

Provides an advance payment of the death benefit for the covered expenses of long term care a chronically ill person may incur

Face Amount or Limit of Liability

The death benefit amount payable or coverage provided on a life insurance policy. This is also referred to as the limit of liability.

Decreasing

The death benefit decreases, but premiums remain level for the policy term. Often such policies are sold as mortgage protection with the amount of insurance decreasing as the balance of the mortgage decreases. If the insured dies, the proceeds of the policy can be used to pay off the mortgage. The premiums paid for decreasing term are lower than the premiums payable for level term since the benefit decreases throughout the term of the policy.

Waiver of Cost of Insurance

Waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled,usually after 6 months of continuous disability

Mortgage Redemption

When credit life insurance is used to protect against the unpaid balance of a mortgage, it is referred to as Mortgage Protection or Mortgage Redemption Insurance. In this case, the amount of protection decreases along with the balance of the mortgage.

Family Policies

he special needs of families with young children can be addressed with "Family Income" or "Family Maintenance" policies. Both type of policies begin with a base policy of whole life insurance usually written on the parent with the largest income and greatest risk of death. This provides insurance protection to the insured's age 100. To this base policy, a term insurance rider is attached that is designed to provide a monthly income to the survivor if the insured dies during the specified term. This greatly increases the total insurance amount without affecting the cash accumulation feature of the base policy. Each of these policies only provides insurance protection on one parent. A third policy, the Family Protection Plan, provides insurance protection on the entire family.

Indexed Universal Life (Equity Indexed)

Indexed Universal Life (IUL) policies are a more recent evolution from traditional UL policies, and base interest crediting on one or more "strategies" linked to the performance of a known stock or similar index (such as S&P 500), which is not under the control of the insurance company. There is no direct investment in any stocks or indexes. In exchange for the potential of higher interest crediting, these policies offer a minimum interest rate guarantee (which could be 0%) to avoid cash value decreases due to negative index performance. IUL policies also offer a "fixed rate" option, which is not affected by changes in the index performance. The insurer controls and sets the fixed rate

Riders Covering Additional Insureds

Spouse (Other Insured) Rider - Provides level term coverage on the life of the insured's spouse. This rider will also provide a conversion provision allowing the spouse to convert to permanent coverage without evidence of insurability prior to the termination of the rider or upon the death of the insured covered under the main policy. Child Rider - Provides level term coverage on the life of all of the insured's children. This rider is usually offered at one premium rate and will cover newborns after 14 days of life and adopted children who can be added to the coverage without increasing the premium. The children have coverage to a specified age (21 to 25) and are usually given the option to convert to a permanent policy without evidence of insurability. Family Rider - Provides a combination of coverage on the spouse and children. Usually family riders are sold in units (packages) of protection, such as $5,000 on the main wage earner, $1,500 on the spouse and $1,000 on each child. Additional Insured Rider - Provides coverage for another person, other than a spouse or child, such as a business partner. Insurable interest must exist at the time the rider is added.

Single Premium

The entire premium is paid in a lump sum at the time of purchase and creates immediate cash value. The face amount (death benefit) remains level and cash value continues to earn interest and mature at age 100. This policy has the lowest total premium outlay for the life of the policy.

General Account (guaranteed values)

The general account provides a fixed rate of interest and the cash value in the general account provides for a guaranteed minimum death benefit to age 100. Policy loans are available from the general account but will decrease the guaranteed death benefit by the amount of the loan plus unpaid interest.

Long-Term Care Rider

Provides up to 100% of the policy benefits if the insured qualifies for long term care benefits based on being chronically ill as defined in the rider. Any payout is an acceleration of the life insurance death benefit, meaning it will reduce the ultimate death benefit payable to the beneficiary. The amount of protection is determined at the time of policy purchase. Long term care benefits are paid income tax free after the insured meets the qualifying requirements.

Exclusions and Restrictions

The accelerated death benefit cannot contain exclusions or restrictions that are not also exclusions or restrictions in the policy. Typical exclusions apply to suicide, intentional self-inflicted injury, war, or engaging in illegal occupations or activities.

Family Policies

The special needs of families with young children can be addressed with "Family Income" or "Family Maintenance" policies. Both type of policies begin with a base policy of whole life insurance usually written on the parent with the largest income and greatest risk of death. This provides insurance protection to the insured's age 100. To this base policy, a term insurance rider is attached that is designed to provide a monthly income to the survivor if the insured dies during the specified term. This greatly increases the total insurance amount without affecting the cash accumulation feature of the base policy. Each of these policies only provides insurance protection on one parent. A third policy, the Family Protection Plan, provides insurance protection on the entire family.

A Variable Universal Life (VUL) is a combination of:

Universal and Variable Life

Family Maintenance

A Family Maintenance policy combines whole life insurance with a Level Term rider. If the insured dies while the rider is in force, the death benefit of the rider is paid in equal monthly installments (including interest) for the full number of years for which the rider was issued. This benefit is in addition to the face amount of the whole life policy. If the insured is still living at the end of the level term, the rider drops and the premium decreases.

Guaranteed Universal Life

A Guaranteed Universal Life policy is also referred to as "Universal Life with a No-Lapse Guarantee". This product provides the guarantee of term insurance for life. As long as the minimum required premiums are paid, the policy is guaranteed not to lapse. There is minimal cash value growth, but if the owner uses the cash value to cover the premium, or misses a premium payment, the "no-lapse guarantee" is removed from the policy.

Viatical Settlement

An agreement between a policyowner and a third-party buyer to purchase the life policy covering a person who is diagnosed as terminally ill with less than 24 months remaining life expectancy. California Insurance Laws for viatical settlements are referenced under the life settlement laws.

Credit Life Insurance

Credit life insurance is a special form of decreasing term. Unlike the standard decreasing term policy, credit life automatically names the creditor as the beneficiary. The policy cannot be written for more than the outstanding debt, since that is the limit of the creditor's insurable interest. Once the loan is paid, the policy ends.

Policies Linked to Indexes

Index-linked life insurance policies offer the potential for increasing death benefits that are linked to the Consumer Price Index. These policies provide benefits that automatically increase to keep pace with inflation and are designed to avoid being underinsured.

What happens to the overall policy premium when most riders on a life insurance policy expire?

It goes down

Juvenile

Juvenile insurance is any policy written on the life of a minor. A common form of juvenile insurance is a "Jumping Juvenile" policy. This policy provides an automatic increase in the face amount at a given age (usually age 21 or 25) without evidence of insurability. The premium remains level for the life of the policy, and the usual increase in the face amount is 5 times the issue amount.

A "level term" policy means that the _________ remains the same throughout the lifetime of the policy.

Policy proceeds

All of the following are types of premium payment methods:

Single Premium - The entire cost of the policy is paid in a lump sum at the time of purchase. Limited Payment - The premium is payable for a specified time, such as 20-pay, 30-pay or to age 65. Modified Premium - The premium is payable for the first few years of the policy (3-5) are lower than an ordinary whole life policy to make it more affordable. Level (Guaranteed) Premium - The premium remains level for the duration of the contract. Fixed Premium - The premium amount is determined by the insurance company. Fixed premiums do not have to be level, but cannot be changed by the policyowner. Adjustable Premium - The premium can be increased or decreased by the policyowner on an annual basis. Premiums must be paid and adjusting the premium will affect other features of the policy. Flexible Premium - The premium can fluctuate at the policyowner's discretion. It can be increased, decreased, or even skipped at any premium due date. Universal and Variable Universal have flexible premium. Initial and Guaranteed Maximum Premium - The initial premium will be guaranteed but only for the first year, then the premium may increases due to the mortality costs. A guaranteed maximum premium table must be included in the policy showing projections of future maximum premiums.

Variable Life

Sold by individuals with a life license and securities (FINRA) registration Cash value in separate account fluctuates based on market conditions Policyowner bears all investment risk No guaranteed minimum return on cash value Fixed premium Death benefit varies along with performance in separate account

Increasing

The death benefit increases over the life of the policy while the premiums remain level. This type of term is normally written as a rider for the return of premium on a term policy over a set number of years.

Convertible

The right to convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified in the contract. The premium can be based upon either attained age or original (issue) age. The premiums will be higher than the original policy since the permanent policy will provide a cash value and coverage can last to age 100 or beyond. If the conversion is based on the issue or original age, back premiums plus interest will be required to be paid at the time of conversion.

Annually Renewable Term

The simplest form of term life insurance is for one year. The death benefit remains level and the premiums increase yearly as the policy renews up to a specified age. While it initially is very inexpensive compared to other types of life insurance, over time it can become cost prohibitive. The death benefit is paid by the insurer if the insured dies while the policy is in force.

Loans and Partial Withdrawals

UL policies give the policyowner the option to take a policy loan or a partial withdrawal from the cash value without terminating the contract. Partial withdrawals are different than loans. A loan is taken against cash value remaining in the policy. The cash value secures the loan and cannot be used for other purposes, but it remains in the policy. The loan itself neither decreases the total cash value, nor the face amount. The cash value is collateral if the loan is not paid back before the insured dies or the policy terminates and the unpaid loan balance and loan interest is deducted from a death claim or surrender.as

Family Plan (Family Protection Plan)

A Family Plan, or Protection Plan, provides a base policy of whole life insurance on the primary insured and the spouse and children are covered by level term riders. The spouse's coverage is written to a specified age, such as 65, and is usually convertible to a whole life policy any time prior to expiration without proof of insurability. The children are covered by a single level term insurance rider with one premium covering all of the children under age 18 who meet underwriting guidelines. Newborn or adopted children will automatically be covered once they are 15 days old without an additional premium as long as the insurer is notified in writing. The children's coverage is also convertible to a whole life policy at a specified age (up to age 25) without proof of insurability.

Broker Licensing

A life insurance producer licensed as a life agent for at least 1 year or as a licensed nonresident producer meets the licensing requirements and is permitted to operate as a Life Settlement Broker by notifying the Commissioner and paying the life settlement broker license fee. Individuals who have not been licensed life agents for at least 1 year who intend to transact life settlements must first complete at least 15 hours of education on life settlement transactions, complete and submit an application and pay the life settlement broker license fee. A person licensed to act as a viatical settlement broker or provider is qualified for licensure as a broker or provider. A Life Settlement Broker license is not required for a licensed attorney, certified public accountant, or accredited financial planner who represents the owner and whose compensation is not paid directly or indirectly by the life settlement provider. The Commissioner has the power to suspend or revoke a Life Settlement Broker license for cause after the appropriate hearing procedure. A licensee that intends to discontinue transacting life settlements must notify the commissioner and surrender their license.

Riders Affecting the Death Benefit Amount

Accidental Death Benefit (Double or Triple Indemnity) - In the event of a claim, the policy normally pays double or triple the face amount only if the insured's death was a result of an accident (may be called multiple indemnity rider, paying multiple times the face amount). The benefit is payable only if death occurs before a specific age and within 90 days of the accident. It does not add any additional values to the base policy. It may be added to any type of individual life policy. Among other exclusions, death due to sickness is excluded. This rider typically expires at age 65. Accidental Death and Dismemberment - This rider provides a benefit in addition to the base of the policy. The rider pays 100% of the amount of the rider, known as the principal sum, upon accidental death. If the insured suffers an accidental dismemberment loss, such as loss of a limb or eyesight, the rider pays 50% of the rider amount, known as the capital sum. Double dismemberment benefits (loss of 2 limbs or total eyesight) are provided at 100% of the rider. Benefits of the rider are only payable if the loss is accidental and occurs within 90 days of the accident. This rider typically expires at age 65 or whenever the principal sum has been paid. Guaranteed Insurability - Allows the insured to purchase stated amounts of additional insurance every 3 years based on certain ages (specifically 25, 28, 31, 34, 37, and 40), events, or specified dates without evidence of insurability up to a maximum age, usually 40. The premiums are based on attained age. The events which will allow for the insured to obtain additional insurance in between the specified ages include marriage and the birth or adoption of a child, when the need for insurance coverage may increase. It normally limits the insured to acquire additional amounts of the same type of coverage already in force. The insurer often limits the amount of coverage that may be added. This rider drops at age 40. Return of Premium - This rider uses Increasing Term insurance to provide coverage equal to the amount of premiums paid. If the insured dies within the term, the beneficiary would receive the face amount of the policy plus the benefit of the rider equaling the total amount of premiums paid. Guaranteed No-lapse Rider - This rider is attached to a universal life insurance policy and ensures the policy will not lapse if the cash value is reduced to zero. It relieves the policy owner of responsibility to monitor cash value and comes with a required payment schedule, effectively hybridizing the universal policy with whole life insurance. As long as the policyholder adheres to the payment schedule, the policy will not lapse. Cost of Living (COL) - The cost of living rider enables the insured to purchase more insurance each year to help offset increasing insurance needs due to inflation. The amount that can be purchased is based on increases in the cost of living index. This additional coverage is usually available at low rates and evidence of insurability need not be provided for such increases.

The features of a UL policy include:

Adjustable Face Amount - The insured can increase or decrease the face amount of the policy. Any increase in the face amount will require evidence of insurability. Mortality charges are deducted monthly from the policy's cash value The mortality charge is the cost of pure insurance and although it is deducted monthly, it is determined annually based on the insured's age. The increase in the mortality charge is limited to a policy maximum. The insurance protection is considered annual renewable term. Expense charges to cover administrative costs are also deducted monthly from the cash value. This is the insurance company's cost of maintaining the policy and can be impacted by the overall increasing administrative costs associated with a plan. Like mortality charges, there is a maximum guaranteed amount that can be charged. Interest is credited to the cash value on a monthly basis at the current interest rate, but will never be less than the guaranteed minimum rate established at the time the policy was issued. The current interest rate is controlled and set by the insurance company and can be changed as often as monthly without prior notice to the policyowner. Flexible Premium - A target premium is established by the insurer, which is the minimum amount that must be deducted from the cash value to maintain the policy to age 100, based on current interest rates, mortality and expense charges. Because mortality and expense charges are deducted from the cash value monthly, the policyowner has more flexibility with universal life premium payments. The premiums can be increased, decreased, or even skipped at the policyowner's discretion as long as there is sufficient cash value to cover these deductions. If the cash value becomes insufficient to pay the monthly deductions, however, the owner will be required to start paying premiums to keep the policy from lapsing.

Separate Account (nonguaranteed values)

The separate account is invested in debt or equity securities as offered by the insurance company. The owner may select which subaccounts they want the premium to be invested in. Cash value in the separate account will fluctuate based on market conditions and performance of the subaccounts, which are similar to a mutual fund. The policyowner has an opportunity to achieve higher investment returns. This policy may act as a hedge against inflation but will decrease the guaranteed death benefit by the amount of the loan plus unpaid interest. There is no guaranteed minimum return on the cash value in the separate account and the policy may lose both cash value and death benefit if there are market losses. The death benefit is tied to the separate account and also varies along with the performance of the separate account. Death benefits are recalculated annually. While the separate account values may decrease, the policy will never pay less than the guaranteed death benefit supported by the general account. Since there is no guaranteed return on the separate account, the owner bears all investment risk. All variable products are subject to SEC regulation. Variable Life is considered a security and can only be sold by individuals with a life insurance license and a FINRA securities registration, Series 6 or 7 and Series 63. A prospectus must be provided prior to the sale of a variable policy and there are suitability requirements that must be met before a variable policy can be sold. Policy loans are available from either the general account or the separate account. Typically 75 - 90% of the cash value can be borrowed. Partial surrenders are not allowed from a variable whole life policy.ar

A viatical settlement is made between a purchaser of a person's life insurance policy and ____________________.

The terminally ill insured who must receive at least as much as would be available from the insurance company under any full cash surrender or living needs rider

Required Disclosures

There are possible alternatives to life settlements, including accelerated benefits options that may be offered by the life insurer. Some or all of the proceeds of a life settlement may be taxable and the policyowner should seek advice from a qualified tax professional. The proceeds from a life settlement could be subject to the claims of creditors. Entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits to be forfeited. A change in ownership of the settled policy could limit the insured's ability to purchase insurance in the future on the insured's life because there is a limit to how much coverage insurers will issue on one life. The owner has a right to rescind a life settlement contract within 30 days of the date it is executed by all parties and the owner has received all required disclosures, or 15 days from receipt by the owner of the proceeds of the settlement, whichever is sooner. Proceeds will be sent to the owner within 3 business days after the provider has received acknowledgment that ownership of the policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract. The funds will be available to the owner and the transmitter of the funds on a specified date.

Return of Premium Term

This policy provides for a full refund of premiums if the insured is still living at the end of the term. These policies charge a higher premium than level term insurance. The additional premium paid for this benefit provides a nonforfeiture value which will offer a nominal return of premiums paid if the policy is not held to the end of term.

Joint Survivorship Life (Last to Die)

This whole life policy is written to cover 2 or more lives, and the death benefit is not paid until the last insured dies. Premiums are based upon a joint issue age which is obtained by an average of both insureds' ages resulting in a lower premium than two separate policies. This policy is often purchased to provide a lump sum benefit to pay estate taxes once the second spouse dies.

General Account

Universal Life cash accumulation is held in the insurer's General Account, and may be invested as reserves according to the requirements of the Insurance Code. When the insurance company obtains higher than expected interest, it may credit excess interest credits in the form of a "current" interest rate which is higher than the policy's "guaranteed minimum" interest rate (typically 3% to 4%).

A _______________ policy has a death benefit that can increase or decrease over time based on stock market performance, but with a guaranteed minimum death benefit, a choice of sub-accounts in which cash value may be allocated, and a fixed premium

Variable Life

Variable Universal Life (VUL)

Variable Universal Life (VUL) offers the added attraction of the investment component seen in Variable Life policies through the insurer's Separate Account. Like Universal life, the policy provides for flexible premiums and adjustable death benefits. Options A and B are available to policyowners. However, like variable life, the entire cash value is held in the insurer's separate account and the investment return fluctuates based on the performance of the separate account. Since all premiums are credited to a separate account, there is no guaranteed minimum death benefit. Since there is no guaranteed return on the separate account, the owner bears all investment risk. The policyowner may take a policy loan or a partial withdrawal from the cash value without terminating the contract. A partial withdrawal is paid from the separate account. Policy loans are available based on the amount in the separate account. Typically 75 - 90% of the cash value can be borrowed. All variable products are subject to SEC regulation. Variable Life is considered a security and can only be sold by individuals with a life insurance license and a FINRA securities registration, Series 6 or 7 and a Series 63. A prospectus must be provided prior to the sale of a variable policy and there are suitability requirements that must be met before a variable policy can be sold. Since Variable Universal life does not have a general account, the cash values will fluctuate based on the performance of the separate account.

Disability Riders

Waiver of Premium - If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first. To qualify for the waiver, the insured must be disabled for a waiting period of 3-6 months. The policyowner must continue to pay premiums during the waiting period, but once eligible, the waiver is retroactive to the start of the disability and the premiums will be refunded. During the disability, the insurer will credit the premiums to the policy and all benefits, such as cash value accumulation and dividend payments, will continue. Unless the insured is disabled, the Waiver of Premium rider drops at age 65. Payor Benefit (Waiver of Payor's Premium) - If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time. Because this rider is commonly added to a juvenile policy, the payor (usually a parent) typically must show evidence of insurability before the rider can be added to the policy. Disability Income Benefit - In the event of total disability and after an initial waiting period (such as 6 months), premiums are waived and the insured is paid a monthly income. The monthly disability income benefit is typically limited to a percentage of the face value (for example, $10 per month for each $1,000 of face amount). The benefit paid from the rider does not reduce the death benefits paid out upon death. Waiver of Cost of Insurance - A rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability. The disability must occur prior to 65, and if disabled, the rider typically terminates at age 65. While the rider is in effect, only the monthly deductions are covered and no additional amount is added to cash value other than monthly interest credits. When the rider terminates, premiums must once again be paid.

Nontraditional Whole Life (Interest/Market - Sensitive)

Whole Life: (Death Benefit) Fixed: Guaranteed minimum, (Cash Value) Guaranteed , (Premiums) Fixed (Loans/Partial Surrenders), Loans available, (Risk) Insurer Universal Life Adjustable: (Death Benefit) Guaranteed minimum, (Cash Vaule) Guaranteed minimum, (Premiums) Flexible, (Loans/Partial Surrenders) Loans and partial surrenders, (Risk) Insurer Variable Life Variable: (Death Benefit) Guaranteed minimum, (Cash Value) Not guaranteed, (Premiums) Fixed, (Loans/Partial Surrenders) Loans available, (Risk) Policyowner Variable Universal Life: (Death Benefit) Variable and Adjustable' No Guranteed minimum; (Death Benefit) No Guaranteed minimum, (Cash Value) Not guaranteed, (Premiums) Flexible, (Loans/Partial Surrenders) Loans and partial surrenders, (Risk) Policyowner