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