CH2. Types of Life Policies

Liquidation of an estate

converting a person's net worth into a clash flow

Agents selling variable life insurance products must:

- Be registered with Financial Industry Regulatory Authority (FINRA) - Be licensed by the state to sell life insurance; and - Have received a securities license

There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term:

- Level - Increasing, and - Decreasing Regardless of type of term insurance, premium is level throughout the term of the policy. Only the amount of death benefit may fluctuate. Upon selling, renewing, or converting the term policy, the premium is figured at attained age ( the insured's age at the time of transaction).

annuity income amount is based upon the following:

- The amount of premium paid or cash value accumulated; - The frequency of the payment; - The interest rate; and - The annuitant's age and gender

Since the premium can be adjusted, the insurance companies may give the policyowner a choice to pay either of the two types of premiums:

- The minimum premium is the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product. - The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A. $50,000 B. $62,500 C. $75,000 D. Nothing

A. $50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account

A Straight Life policy has what type of premium? A. A level annual premium for the life of the insured B. An increasing annual premium for the life of the insured C. A decreasing annual premium for the life of the insured D. A variable annual premium for the life of the insured

A. A level annual premium for the life of the insured

A Straight Life policy has what type of premium? A. A level annual premium for the life of the insured B. An increasing annual premium for the life of the insured C. A decreasing annual premium for the life of the insured D. A variable annual premium for the life of the insured

A. A level annual premium for the life of the insured Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit

Which of the following is a feature of a variable annuity? A. Benefit payment amounts are not guaranteed B. Payments into the annuity are kept in the company's general account C. Interest rate is guaranteed. D. Securities license is not required.

A. Benefit payment amounts are not guaranteed Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.

This type of policy that can be changed from one that does not accumulate cash value to the one that does is a A. Convertible Term Policy B. Renewable Term Policy C. Decreasing Term Policy D. Whole Life Policy

A. Convertible Term Policy A convertible term policy has a provision that allows the policyowner to convert to permanent insurance

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? A. Depreciation period B. Annuitization period C. Pay-out period D. Liquidation period

A. Depreciation period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

The automatic premium loan provision is activated at the end of the A. Grace period B. Free-look period C. Elimination period D. Policy period

A. Grace period Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force

In which of the following cases will the insured be able to receive the full face amount from a whole life policy? A. If the insured lives to age 100 B. As soon as the cash value exceeds the face amounts C. If there are no named beneficiaries when the policy is paid up D. At age 65

A. If the insured lives to age 100 Whole life insurance provides protection for the entire lifetime of the insured. If the insured lives to the age of 100, the company pays the face amount of the policy to the policyowner (usually the insured)

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits. A. Immediate annuity B. Variable annuity C. Flexible payment annuity D. Deferred interest annuity

A. Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement

Life income joint and survivor settlement option guarantees A. Income for 2 or more recipients until they die B. Payment of interest on death proceeds C. Payout of the entire death benefit D. Equal payments to all recipients

A. Income for 2 or more recipients until they die The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

During partial withdrawal from a universal life policy, Which portion will be taxed? A. Interest B. Cash Value C. Principal D. Loan

A. Interest During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation

Why is an equity indexed annuity considered to be a fixed annuity? A. It has a guaranteed minimum interest rate. B. It has modest investment potential C. It has a fixed rate of return D. It is not tied to an index like the S&P 500

A. It has a guaranteed minimum interest rate While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Which of the following is TRUE regarding the accumulation period of an annuity? A. It is a period during which the payments into the annuity grow tax deferred. B. It is also referred to as the annuity period C. It is a period of time during which the beneficiary receives income D. It is limited to 10 years

A. It is a period during which the payments into the annuity grow tax deferred The "accumulation period" is the period of time over which the annuitant makes payments ( premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

Variable Whole Life insurance is based on what type of premium? A. Level fixed B. Increasing C. Flexible D. Graded

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

What are the licensing requirements for someone who sells variable universal life insurance? A. Life insurance and securities B. Life insurance C. Securities D. Universal life and variable products

A. Life insurance and securities An individual must be licensed for both securities and life insurance in order to sell variable universal life

Which of the following best describes a pure life annuity settlement option? A. Pure life provides payments for as long as the annuitant is alive B. Pure life guarantees that all the proceeds will be paid out C. Benefits are paid for a fixed period of time, specified when the policy begins to pay D. Pure life provides payments for as long as both the annuitant and the spouse are living

A. Pure life provides payments for as long as the annuitant is alive Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; however, if he/she dies after receiving the first payment, no more payments would be made to any other person. For this reason, pure life has the potential to pay larger monthly benefits than other options

To sell variable life insurance policies, an agent must receive all of the following EXCEPT A. SEC registration B. FINRA registration C. A securities license D. A life insurance license

A. SEC registration Agents selling variable life products must be registered with FINRa, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

A domestic insurer issuing variable contracts must establish one or more

A. Separate accounts Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account

Which two terms are associated directly with the way an annuity is funded? A. Single payment or periodic payments B. Increasing or decreasing C. Immediate or deferred D. Renewable or convertible

A. Single payment or periodic payments Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installments varies.

Which of the following policies would be classified as a traditional level premium contract? A. Straight Life B. Adjustable Life C. Universal Life D. Variable Universal Life

A. Straight Life Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend A. Straight life B. Life income with period certain C. Installment refund D. Joint and survivor

A. Straight life With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant

Which of the following statements about a suicide clause in a life insurance policy is TRUE? A. Suicide is excluded for a specific period of years and covered thereafter B. Suicide is covered for a specific period of years and excluded thereafter C. Suicide is covered as long as the policy is in force D. Suicide is excluded as long as the policy is in force

A. Suicide is excluded for a specific period of years and covered thereafter In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit

Which of the following would help prevent a universal life policy from lapsing? A. Target premium B. Face amount C. Adjustable premium D. Corridor of insurance

A. Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime

Which of the following is TRUE regarding variable annuities? A. The annuitant assumes the risks on investment B. The funds are invested in the company's general account C. The company guarantees a minimum interest rate. D. A person selling variable annuities is required to have only a life agent's license

A. The annuitant assumes the risks on investment The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.

Which of the following is NOT true regarding the annuitant? A. The annuitant cannot be the same person as the annuity owner B. The annuitant's life expectancy is taken into consideration for the annuity C. The annuitant receives the annuity benefits D. The annuitant must be a natural person

A. The annuitant cannot be the same person as the annuity owner While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person

If the annuitant dies during the accumulation period, who will receive the annuity benefits? A. The beneficiary B. The annuity owner C. The insurance company D. The annuitant's estate

A. The beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as A. The policy contains sufficient cash value to cover the cost of insurance B. The previous premium payments were high enough to create an excess of premium C. The policyowner cannot skip premiums without the policy lapsing D. The next month's premium is sufficient to cover both the current premium amount and the skipped amount

A. The policy contains sufficient cash value to cover the cost of insurance In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium

All of the following are true about variable products EXCEPT A. The premiums are invested in the insurer's general account B. The minimum death benefit is guaranteed C. The cash value is not guaranteed D. Policyowners bear the investment risk

A. The premiums are invested in the insurer's general account Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk

Which of the following best defines target premium in a universal life policy? A. The recommended amount to keep the policy in force throughout its lifetime B. The maximum amount the policy owner

A. The recommended amount to keep the policy in force throughout its lifetime

What is the purpose of establishing the target premium for a universal life policy? A. To keep the policy in force B. To accumulate cash value faster C. To pay up the policy faster D. To cover all policy expenses

A. To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

What kind of policy allows withdrawals or partial surrenders? A. Universal life B. 20-pay life C. Term policy D. Variable whole life

A. Universal life Universal Life products allow the partial withdrawal, or surrender, of the policy cash value

The main difference between immediate and deferred annuities is A. When the income payments begin B. How the annuity is purchased C. The number of insureds D. The amount of each payment

A. When the income payments begin The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year

Annuity period

A.K.A "annuitization period", "liquidation period", or "pay-out period" the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant. The annuity period may last for the lifetime of the annuitant or for a specified period. The annuitization date is the time when the annuity benefit payouts begin( trigger for benefits) KNOW THIS: During the annuity period, funds are paid OUT to the annuitant

Indexed annuities

A.K.A "equity indexed" are fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the indexed annuity has a guaranteed minimum interest rate. Generally, the insurance companies reserve the initial returns for themselves but pay the excess to the annuitant. For Example : the company may keep the first 4% earned for itself, but any accumulation in excess of 4% is credited to the annuitant's account. So if the interest earned is 12%, the company keeps 4% and credits the client's account with 8% Equity indexed annuities are less risky than a variable annuity or mutual fund but are expected to earn a higher interest rate than a fixed annuity

Accumulation period

A.K.A "pay-in period" is the period of time over which the owner makes payments (premiums) into an annuity. It is the period of time during which the payments earn interest on a tax-deferred basis KNOW THIS: During the accumulation period, funds are paid INTO the annuity

Survivorship life

A.K.A "second-to-die" or "last survivor" policy this policy is pretty much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that this life policy pays on the last death rather than upon the first death. Since death benefit is paid until last death, the joint life expectancy in a sense is extended, resulting in a lower premium than joint life. This type of policy is often used to offset the liability of the estate tax upon the death of the last insured. KNOW THIS: Joint life = first to die; survivorship life = second to die/last survivor

Variable Whole Life Insurnace

A.K.A Variable life insurance a level, fixed premium, investment-based product. These policies have fixed premiums and a guaranteed minimum death benefit. The cash value of the policy, however, is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in variable contracts. KNOW THIS: In variable contracts, the policyowner bears the investment risk (assets in a separate account) Because the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract cannot be kept in the insurance company's general account. These assets must be held in a separate account, which invests in stocks, bonds, and other securities investment options. Any domestic insurer issuing variable contracts must establish one or more separate accounts . Each separate account must maintain assets with a value at least equal to the reserves and other contract liabilities. Assets in the separate account cannot be commingled with assets in the general account

Indexed whole life

A.K.A equity index whole life insurance that the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. Policy's face amount increases annually to keep pace with inflation without requiring evidence of insurability. Indexed whole life policies are classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the policy premiums increase with the increases in the face amount. If the insurer assumes the risk, the premium remains level.

Universal Life Insurance

A.K.A flexible premium adjustable life That implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deduction for cost of insurance. If the cash value is too small, the policy will expire. KNOW THIS: If an insured skips a premium payment on a universal life policy, the missing premium may be deducted from the policy's cash value. The policy will NOT lapse. Key Features: Permanent insurance with renewable term protection component Premium: Flexible;minimum or target Face Amount: Flexible; set by policyowner with proof of insurability Cash Value: Guaranteed at a minimum level; general account Policy Loans: Can borrow cash value

Straight Whole Life

A.K.A ordinary life or continuous premium whole life the basic whole life policy The policyowner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever occurs first). As the insured ages the cash value goes up linearly. Of the common whole life policies, this form of whole life will have the lowest annual premium

A Universal life policy has two components:

An insurance component and a cash account

Annuity Investment Options

Annuities may be classified as fixed or variable based on how the premium payments are invested

Which of the following is another term for the accumulation period of an annuity? A. Liquidation period B. Annuity period C. Payin-in period D. Premium period

C. Pay-in period The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? A. Family Income Policy B. Joint Life Policy C. Survivorship Life Policy D. Second-to-Die

B. Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends

The minimum interest rate on an equity indexed annuity is often based on A. The insurance company's general account investments. B. An index like Standard & Poor's 500. C. The returns from the insurance company's separate account D. The annuitant's individual stock portfolio

B. An index like Standard & Poor's 500 Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the equity indexed annuity has a guaranteed minimum interest rate. Interest rates on equity indexed annuities are often tied to a familiar index, such as the Standard and Poor's 500.

When an annuity is written, whose life expectancy is taken into account? A. Owner B. Annuitant C. Beneficiary D. Life expectancy is not a factor when writing an annuity

B. Annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

What happens when a policy is surrendered for its cash value? A. The policy can be converted to term coverage B. Coverage ends and the policy cannot be reinstated C. Coverage ends but the policy can be reinstated at any time D. The policy can be reinstated by paying back all policy loans and premium

B. Coverage ends and the policy cannot be reinstated Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated

What is another name for interest-sensitive whole life insurance? A. Adjustable life B. Current assumption life C. Variable life D. Term life

B. Current assumption life Interest-sensitive whole life, also referred to as current assumption life, is a whole life policy that provides a guaranteed death benefit to age 100

An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it? A. Immediate B. Deferred C. Fixed D. Flexible premium

B. Deferred Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the A. Complete contract B. Entire contract C. Total contract D. Aleatory contract

B. Entire contract The policy, together with the attached application , constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A. Immediate Annuity B. Equity Indexed Annuity C. Variable Annuity D. Flexible Annuity

B. Equity Indexed Annuity The interest rates of Equity Indexed Annuities are tied to Standard and Poor's Index

An agent selling variable annuities must be registered with A. SEC B. FINRA C. Department of Insurance D. The Guaranty Association

B. FINRA Because variable annuities are considered to be securities, a person must be registered with the FINRA (formerly NASD) and hold a securities license in addition to a life agent's license in order to sell variable annuities

The death benefit under the Universal Life Option B A. Remains level. B. Gradually increases each year by the amount that the cash value increases C. Decreases by the amount that the cash value increases. D. Increases for the first few years of the policy, and then levels off

B. Gradually increases each year by the amount that the cash value increases 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

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be? A. Cash refund B. Installments for a fixed period C. Installments for a fixed amount D. Installment refund

B. Installments for a fixed period Under the "installments for a fixed period" option, the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be. This option pays for a specific period of time only, and there are no life contingencies.

Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? A. Payments can be made in installments and as a single cash refund B. It does not guarantee that the entire principal amount will be paid out C. It is a life contingency option D. The beneficiary receives the remainder of the principal amount upon the annuitant's death

B. It does not guarantee that the entire principal amount will be paid out With the Life with Guaranteed Minimum annuity settlement option, if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to his/her beneficiary. Pure life provides the highest monthly benefits for an individual annuitant

Which of the following is TRUE regarding the annuity period? A. It is the period of time during which the annuitant makes premium payments into the annuity B. it may last for the lifetime of the annuitant. C. During this period of time the annuity payments grow interest tax deferred. D. It is also referred to as the accumulation period

B. It may last for the lifetime of the annuitant The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called A. Joint life nanuity B. Life income with period certain C. Life income with refund D. Joint and survivorship

B. Life income with period certain If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain.

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A. Decreased Death benefit at each renewal B. Required a premium increase each renewal C. Built cash values D. Required proof of insurability every year

B. Required a premium increase each renewal Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

If an agent wishes to sell variable life policies, what license must the agent obtain? A. Personal Lines B. Securities C. Adjuster D. Surplus Lines

B. Securities Variable products are governed in part by the Securities and Exchange Commission, therefore, agents selling variable life policies must also secure a securities license.

Which of the following is called a "second-to-die" policy? A. Joint life B. Survivorship life C. Family income D. Juvenile life

B. Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

The annuitant dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A. The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary B. The beneficiary will receive the greater of the money paid into the annuity or the cash value C. The owner's estate will receive the money paid into the annuity D. The insurance company will retain the cash value and pay back the premiums to the owner's estate

B. The beneficiary will receive the greater of the money paid into the annuity or the cash value If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater

Who bears all of the investment risk in a fixed annuity? A. The annuitant B. The insurance company C. The owner D. the beneficiary

B. The insurance company Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

Which of the following determines the cash value of a variable life policy? A. The premium mode B. The performance of the policy portfolio C. The company's general account D. The policy's guarantees

B. The performance of the policy portfolio The cash value of a variable life policy is not. guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer

Which of the following is NOT true regarding Equity Indexed Annuities? A. They are less risky than variable annuities. B. They earn lower interest rates than fixed annuities C. The insurance company keeps a percentage of the returns. D. They have guaranteed minimum interest rates.

B. They earn lower interest rates than fixed annuities Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays t rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities

Which of the following is TRUE for both equity indexed annuities and fixed annuities? A. They invest on a conservative basis. B. They have a guaranteed minimum interest rate. C. They are both tied to an equity index. D. Both are considered to be more risk than variable annuities

B. They have a guaranteed minimum interest rate While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Which of the following is TRUE for both equity indexed annuities and fixed annuities? A. They invest on a conservative basis. B. They have a guaranteed minimum interest rate. C. They are both tied to an equity index. D. Both are considered to be more risky than variable annuities

B. They have a guaranteed minimum interest rate While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? A. Limited pay B. Universal Life C. Adjustable Life D. Term life

B. Universal Life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Variable Universal Life B. Universal Life - Option A C. Universal Life - Option B D. Equity Indexed Universal Life

B. Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRs. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance

Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be A. Based on the issue age of the insured B. Discounted C. Adjusted to the insured's age at the time of renewal D. Determined by the health of the insured

C. Adjusted to the insured's age at the time of renewal If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A. Adjustable life B. Universal life C. Flexible life D. Variable life

B. Universal life With universal life policies, the policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium, and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Which of the following products requires a securities license? A. Deferred annuity B. Variable annuity C. Fixed annuity D. Equity Indexed annuity

B. Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities

Which of the following is a key distinction between variable whole life and variable universal life products? A. Variable universal life has a fixed premium B. Variable whole life has a guaranteed death benefit. C. Variable universal life is regulated solely through FINRA D. Variable whole life allows policy loans from the cash value

B. Variable whole life has a guaranteed death benefit Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit

Which of the following types of policies will provide permanent protection? A. Group Life B. Whole Life C. Credit Life D. Term Life

B. Whole Life Whole life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured. Both the premiums and death benefit are guaranteed and will remain level for life.

An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy? A. Nothing B. $50,000 C. $100,000 D. $200,000

C. $100,000 In joint life policies, the death benefit is paid upon the first death only.

An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out? A. $10,000 B. $40,000 C. $50,000 D. $60,000

C. $50,000 The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? A. $20,000 B. $25,000 C. $50,000 D. The face amount will be determined by the insurer

C. $50,000 The face of the term policy would be the same as the face amount provided under the whole life policy

Which of the following products provides income for a specified period of years or for life, and protects a person against outliving their money? A. A universal life policy B. A group policy C. An annuity D. A survivorship life policy

C. An annuity An annuity is a contract used to accumulate funds that are to be distributed at a specified time in the future as a periodic payment of accumulated funds.

A Universal Life Insurance policy is best described as a/an A. Whole Life policy with two premiums: target and minimum B. Flexible Premium Variable Life policy C. Annually Renewable Term policy with a cash value account D. Variable Life with a cash value account

C. Annually Renewable Term policy with a cash value account A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

In an annuity, the accumulated money is converted into a stream of income during which time period? A. Amortization period B. Conversion period C. Annuitization period D. Payment period

C. Annuitization period The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream

The death benefit in a variable universal life policy A. Is fixed B. Always equals the face amount stated in the policy C. Depends on the performance of a separate account D. Is guaranteed to be higher than when the policy is originally issued

C. Depends on the performance of a separate account The death benefit is not fixed, and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the policy

If an annuitant dies before annuitization occurs, what will the beneficiary receive? A. Amount paid into the plan B. Cash value of the plan C. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount D. either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount

C. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it? A. Deferred B. Variable C. Immediate D. Flexible

C. Immediate With an immediate annuity, distribution stars within 1 year of purchase

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an A. Annual Renewable Term B. Adjustable Life C. Interest-sensitive Whole Life D. Credit Life

C. Interest-sensitive Whole Life Because the cash values are generated by investments, interest rates will affect the amount of the cash value

Which of the following is NOT true regarding the accumulation period of an annuity? A. It is the period over which the owner makes payments into an annuity B. It is also known as the pay-in period C. It would not occur in a deferred annuity D. It is the period during which the annuity payments earn interest

C. It would not occur in a deferred annuity The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity)

Which statement is NOT true regarding a Straight Life policy? A. It usually develops cash value by the end of the third policy year. B. It has the lowest annual premium of the three types of Whole Life policies C. Its premium steadily decreases over time, in response to its growing cash value D. The face value of the policy is paid to the insured at age 100

C. Its premium steadily decreases over time, in response to its growing cash value Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit

Which of the following is NOT a type of whole life insurance? A. Straight Life B. Limited payment C. Level Term D. Single premium

C. Level term There are several types of whole life policies. The first three, Straight Life, Limited Payment, and Single Premium, are the basic forms of whole life. Level term is a type of term insurance.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? A. Life annuity with period certain B. Increasing term C. Limited pay whole life D. Interest-sensitive whole life

C. Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100

An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? A. Adjustable elife B. Graded premium life C. Limited-pay life D. Variable life

C. Limited-pay life In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years

Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive A. The amount paid into the annuity B. The remainder of the principal C. Nothing; the payments will cease D. Guaranteed minimum benefit

C. Nothing; the payments will cease Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principal that hasn't been paid out. There is no refund or payments to survivors

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? A. Variable option B. Option A C. Option B D. Corridor option

C. 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

Equity indexed annuities A. Are security instruments B. Invest conservatively C. Seek higher returns D. Are more risky than variable annuities

C. Seek higher returns Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called A. Level term life. B. Graded premium whole life C. Single premium whole life D. Modified Endowment Contract (MEC)

C. Single premium whole life Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception

Which of the following best describes what the annuity period is? A. The period of time during which money is accumulated in an annuity. B. The period of time from the effective date of the contract to the date of its termination C. The period of time during which accumulated money is converted into income payments D. The period of time from the accumulation period to the annuitization period

C. The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.

Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A. Decreasing term B. Straight whole life C. Universal Life D. Variable whole life

C. Universal Life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium

Which of the following features of the Indexed Whole Life policy is NOT fixed? A. Premium B. Death benefit C. Policy period D. Cash value growth

D. Cash value growth Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed

What characteristic makes whole life permanent protection? A. Guaranteed death benefit B. Guaranteed level premium C. Living benefits D. Coverage until death or age 100

D. Coverage until death or age 100 Whole Life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured or till the insured's age 100

The term "fixed" in a fixed annuity refers to all of the following EXCEPT A. Guaranteed rate of interest B. Equal annuity payments C. Amount and length of payments D. Death benefit

D. Death benefit A fixed annuity is fixed in the sense that it provides a guaranteed minimum rate of interest and income payments that do not vary from one to the next. The company also guarantees the specified dollar amount for each payment and the length of the payout period. Annuities do not provide a death benefit.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A. In lesser amounts for the remaining policy term of age 100. B. Equal to the cash value surrendered from the policy C. The same as the original policy minus the cash value D. Equal to the original policy for as long as the cash values will purchase

D. Equal to the original policy for as long as the cash values will purchase With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age

Which policy component decreases in decreasing term insurance? A. Cash value B. Dividend C. Premium D. Face amount

D. Face amount Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

Fixed annuities provide all of the following EXCEPT A. Equal monthly payments for life B. Minimum guaranteed rate of interest C. Future income payments D. Hedge against inflation

D. Hedge against inflation Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT A. It will pay the benefit only for a designated period of time B. The payments are not guaranteed for life C. The insurer determines the amount for each payment D. It is a life contingency option

D. It is a life contingency option Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only , and there are no life contingencies.

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? A. Decreasing Term B. Whole Life C. Ordinary Life D. Joint Life

D. Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death

Which of the following is an example of a limited-pay life policy? A. Renewable Term to Age 70 B. Level Term Life C. Straight Life D. Life Paid-up At Age 65

D. Life Paid-up At Age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity

The premium of a survivorship life policy compared with that of a joint life policy would be A. Higher B. As high. C. Half the amount. D. Lower.

D. Lower Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life

An insured committed suicide one year after his life insurance policy was issued. The insurer will A. Pay the policy's cash value. B. Pay the full death benefit to the beneficiary C. Pay nothing D. Refund the premiums paid

D. Refund the premiums paid If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium

All of the following entities regulate variable life policies EXCEPT A. Federal government B. The SEC. C. The Insurance Department D. The Guaranty Association

D. The Guaranty Association Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? A. A corporation can be an annuitant as long as it is also the owner B. A corporation can be an annuitant as long as the beneficiary is a natural person. C. The contract can be issued without an annuitant D. The annuitant must be a natural person.

D. The annuitant must be a natural person Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

All of the following statements about equity index annuities are correct EXCEPT A. They have a guaranteed minimum interest rate. B. The Interest rate is tied to an index such as the Standard & poor's 500. C. They invest on a more aggressive basis aiming for higher returns. D. The annuitant receives a fixed amount of return

D. The annuitant receives a fixed amount of return Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

Which of the following is NOT true regarding a Variable Universal Life policy? A. The policyowner can participate in some of the investment decisions B. The minimum death benefit is guaranteed C. The cash values are not guaranteed D. The death benefit is fixed

D. The death benefit is fixed In a variable universal life policy, the death benefit is adjustable, and the cash values are not guaranteed. While the death benefit may decrease and increase, it cannot go below a guaranteed minimum face amount.

All of the following are true regarding a decreasing term policy EXCEPT A. The death benefit is $0 at the ed of the policy term. B. The contract pays only in the event of the death during the term and there is no cash value C. The face amount steadily declines throughout the duration of the contract. D. The payable premium amount steadily declines throughout the duration of the contract

D. The payable premium amount steadily declines throughout the duration of the contract Premiums remain level with a decreasing term policy; only the face amount decreases

In a survivorship life policy, when does the insurer pay the death benefit? A. Upon the first death B. Half at the first death, and half at then second death C. If the insured survives to age 100 D. Upon the last death

D. Upon the last death Survivorship life pays on the last death rather than upon the first death

It is more commonly found as joint whole life, which functions similarly to an individual whole life policy with two major exceptions:

Joint Life - The premium is based on a joint average that is between the ages of the insureds; and - The death benefit is paid upon the first death only

Classification of annuities:

KNOW THIS:: - Premium payment method: single premium vs. periodic - When income payments begin: immediate vs. deferred - How premiums are invested: fixed vs. variable - Disposing of proceeds : pure life, annuity certain, or life refund annuity

Key characteristics of whole life insurance

Level premium - the premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy Death benefit - the death benefit is guaranteed and also remains level for life Cash value - the cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 ( the policy maturity date), and is paid out to the policyowner. (Remember: the insured and the policyowner do not have to be the same person.) Cash values are credited to the policy on a regular basis and have guaranteed interest rate Living benefits - the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. The cash value, also called nonforfeiture value, does not usually accumulate until the third policy year and it grows tax deferred.

Universal life offers one of two death benefit options to the policyowner.

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

Annuities are purchased for:

Overall, can be used for any situation that requires a steady stream of income at some point in the future. The BASIC function of an annuity is that of liquidating a principal sum, regardless of how it was accumulated. to provide or supplement retirement income purchased to fund or to help fund a college education used to provide for structured settlements

The Parties of Annuity

Owner Annuitant Beneficiary

Fixed Annuities

Provides the following features: - Guaranteed minimum rate of interest to be credited to the purchase payment(s); - Income (annuity) payments that do not vary from one payment to the next; and - The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen.y the annuitant With fixed annuities, the annuitant knows the exact amount of each payment received form the annuity during the annuity period. This is called level benefit payment amount. A disadvantage to fixed annuities is that the purchasing power that they afford may be eroded over time due to inflation Interest Rate: Guaranteed by insurer Underlying Investment: General account ( safe, conservative) License Needed: Life insurance Expenses: Guaranteed Income Payment: Guaranteed

Interest-sensitive whole life

Referred to as current assumption life a whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals. Interest-sensitive whole life policies credit the cash value with the current interest rate that is usually comparable to money market rates, and can be higher than the guaranteed levels. The policy also provides for a minimum guaranteed rate of interest. Interest-sensitive whole life provides the same benefits as other traditional whole life policies with the added benefit of current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period.

Pure death protection

Term insurance provides this. - If the insured dies during this term, the policy pays the death benefit to the beneficiary; - If the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term; and - There is no cash value or other living benefits

Level benefit payment amount (annuity)

The annuitant knows the exact amount of each payment received from the annuity during the annuity period

Option A (Level Death Benefit option)

The death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years. There must be a specified "corridor" or gap maintained between the cash value and the death benefit in a life insurance policy. The percentages that apply to the corridor are established in a table published by the IRS and vary as to the age of the insured and the amount of coverage. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes and consequently loses most of the tax advantages that have been associated with life insurance.

Insurance component (universal life policy)

The insurance component of a universal life policy is always annually renewable term insurance.

Beneficiary ( The Parties)

The person who receives annuity assets ( either the amount paid into the annuity or the cash value, whichever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out

Annuitant (The Parties)

The person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written. The annuitant and the contract owner do not need to be the same person, but most often are. A corporation, trust or other legal entity may own an annuity, but the annuitant must be a natural person KNOW THIS: Because annuities are based on the life expectancy of an annuitant, the annuitant must be a natural person, regardless of who owns the policy.

Owner (The Parties)

The purchaser of the annuity contract, but not necessarily the one who receives the benefits. The owner of the annuity has all of the rights, such as naming the beneficiary and surrendering the annuity. The owner of an annuity may be a corporation, trust, or other legal entity.

An annuitant whose life expectancy is longer will have smaller installments (T/F)

True For Example: all other factors being equal, a 65-year-old male will have higher annuity income payments than a 45-year-old male ( because he is younger), or than a 65-year-old female (because women statistically have a longer life expectancy) KNOW THIS: Shorter life expectancy = higher benefit; Longer Life expectancy = lower benefit

3 Main Characteristics of Variable Annuities

Underlying Investment Interest Rate License Requirements

Cash account ( universal life policy)

Universal life policies allow the partial withdrawal (partial surrender) of the policy cash value) However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. The death benefit will be reduced by the amount of any partial surrender. Note, however, that a partial surrender from a universal life policy is not the same as a policy loan.

Limited Payment (Whole Life)

Unlike straight life, this type of policy is designed so that the premiums for coverage will be completely paid-up well before age 100. Some of the more common versions of this are 20-pay life whereby coverage is completely paid for in 20 years, and life paid-up at 65 whereby the coverage is completely paid up for by the insured' age 65. This type of policy has a shorter premium-paying period than straight life insurance, so the annual premium will be higher. Cash value builds up faster for this policy. These type of policies are well suited for those insured who do not want to be paying premiums beyond a certain point in time. Example: an indiivudal may need some protection after retirement, but does not want to be paying premiums at that time. A limited-pay (paid-up at 65) policy purchased during the person's working years will accomplish that objective.

Regulation of Variable Products (SEC, FINRA, and State)

Variable life insurance products are dually regulated by the State and Federal Government. Due to the element of investment risk, the federal government has declared that variable contracts are securities, and are thus regulated by the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory authority (FINRA). Variable life insurance is also regulated by the Insurance Department as an insurance product.

Variable universal life

a combination of universal life and variable life. Like universal life, it provides the policyowner with flexible premiums and an adjustable death benefit. Like variable life, the policyowner rather than the insurer, decides where the net premiums ( cash value ) will be invested, Also, like variable life, the cash values are not guaranteed, and the death benefit is not fixed. - The cash value and/or death benefit may increase or decrease over the life of policy depending on the investment performance of the underlying sub-account - The death benefit generally cannot decrease below the initial face amount of the policy - A producer must also be licensed for both securities and life insurance in order to sell variable universal life Key Features: Permanent insurance Premium: Fixed( if Whole Life); flexible (if Universal Life) Face Amount: Can increase or decrease to a stated minimum Cash Value: Not guaranteed;separate account Policy Loans: Can borrow cash value

Annuity

a contract that provides income for a specified period of years, or for life. This contract protects individuals against outliving their money. Not a life insurance, but rather a vehicle for the accumulation of money and the liquidation of an estate. Marked by life insurance companies. Licensed life insurance agents are authorized to sell some type of annuities Annuities do not pay a face amount upon the death of the annuitant. In most cases, the payments stop upon the death of the annuitant. Annuities use mortality tables, but these tables reflect a longer life expectancy than the mortality tables used for life insurance.

Permanent life insurance

a general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured ( or until age 100) as long as the premium is paid. Most common type of permanent insurance is whole life

Cash value

a policy's savings element or living benefit

Suitability

a requirement to determine if an insurance product is appropriate for a customer

Qualified plan

a retirement plan that meets IRS guidelines for receiving favorable tax treatment

Joint life

a single policy that is designed to insure two or more lives. life policies can be in the form of term insurance or permanent insurance. The premium for joint life would be less than for the same type and amount of coverage on the same individuals. A premium based on joint age is less than the sum of 2 premiums based on individual age, so it is common to find joint life policies issued on spouses. Joint life policies are used when there is a need for two or more persons to be protected; however, the need for the insurance is no longer present after the first of the insureds dies. Example : a married couple purchasing a house may use a Joint Life policy for mortgage protection if both spouses work and earn close to the same amount of income. If one spouse dies, the insurance pays the mortgage for the surviving spouse. KNOW THIS: Premium rates on a joint life policy are determined by averaging the ages of both insureds.

Term Insurance

a temporary protection because it only provides coverage for a specific period of time. It is A.K.A pure life insurance. Term policies provide for the greatest amount of coverage for the lowest premium as compared to any other form of protection. KNOW THIS: Term insurance provides the greatest amount of coverage for the lowest premium Term insurance has no cash value

License Requirements ( Variable Annuity )

a variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. An agent selling variable annuities must hold a securities license in addition to a life insurance license. agent or companies that sell variable annuities must also be properly registered with FINRA.

Renewable provision on term insurance policy

allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability. The premium for the new term policy will be based on the insured's current age Example: a 10-year term policy that is renewable can be renewed at the end of the 10-year period for a subsequent 10-year period without evidence of insurability. However, the insured will have to pay the premium that is based on their attained age. If an individual purchases a 10-year term policy at age 35, they will pay a premium based on the age of 45 upon renewing the policy.

Deferred annuity

an annuity in which the income payments begin sometime after one year from the date of purchase. Deferred annuities can be funded with either a single lump sum ( Single Premium Deferred Annuities - SPDAs ) or through periodic payments ( Flexible Premium Deferred Annuities - FPDAs ), Periodic payments can vary from year to year. The longer the annuity is deferred, the more flexibility for payment of premiums it allows. KNOW THIS: Income payments from a deferred annuity begin sometime after 1 year from the date of purchase

Nonforfeiture values

benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Single Premium Whole Life (SPWL)

designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash

Securities

financial instruments that may trade for value (for example, stocks, bonds, options)

Policy maturity

in life policies, the time when the face value is paid out

Periodic payments (annuity)

in which premiums are paid in installments over a period of time. Payments annuities can be either level premium, in which the annuitant/owner pays a fixed installment, or flexible premium, in which the amount and frequency of each installments varies.

Mortality tables

indicate the number of individuals within a specified group starting at a certain age, who are expected to be alive at a succeeding age.

Rate of Premium (ROP)

is a life insurance with an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term. ROP policies are structured to consider the low risk factor of a term policy but at a significant increase in premium cost, sometimes as much as 25% to 50% more. An ROP policy offers the pure protection of a term policy, but if he insured remains healthy and is still alive once the term limit expires, the insurance company guarantees a return of premium. However, since the amount returned equals the amount paid in, the returned premium are not taxable. Example : A healthy, 30 -year old male pays $380 annually for a $250,000, 30-year term policy. at the end of the 30 years, he has paid a total of $11,400 in premiums which will be returned to him if he is still alive. The insurance company has determined that $250 per year, or $7,500 over 30 years, will cover the actual cost of protection. The excess funds, which the insurer invests, provide the cash for the returned premiums.

Immediate annuity

is one that is purchased with a single, lump-sum payment and provides income payments that start WITHIN ONE YEAR from the date of purchase. Typically, an immediate annuity will make the first payment as early as 1 month from the purchase date.. Most commonly, this type of annuity is known as a Single Premium Immediate Annuity (SPIA) KNOW THIS: An immediate annuity is purchased with a single premium

Interest Rate (Variable Annuity)

issuing insurance company does not guarantee a minimum interest rate

Level term insurance

most common type of temporary protection purchased. The word LEVEL refers to the death benefit that does not change throughout the life of the policy KNOW THIS: "Level" in level term insurance refers to the death benefit, which does NOT change

Single Premium (annuity)

one-time lump-sum payment

Decreasing term

policies feature a level premium and a death benefit that decreases each year over the duration of the policy term. Decreasing term is primarily used when the amount of needed protection is time sensitive, or decrease over time. Decreasing term coverage is commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely. The amount of coverage thereby decreases as the outstanding loan balance decreases each year. A decreasing term policy is usually convertible; however, it is usually not renewable since the death benefit is $0 at the end of the policy term.

Whole life insurance

provides lifetime protection, and includes a savings element ( or cash value). Whole life policies endow at the insured's age 100, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age 100. Premiums for whole life policies usually are higher than for term insurance. Most common type of permanent insurance is whole life. KNOW THIS: Whole life insurance provides lifetime(permanent) protection and accumulates cash value

Convertible provision on term insurance policy

provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. The premium will be based on the insured's attained age at the time of conversion.

Variable premiums purchase (Variable Annuity)

purchases accumulation units in the fund. Accumulation units represent ownership interest in the separate account. Upon annuitization, the accumulation units are converted to annuity units. The income is then paid to the annuitant based on the value of the annuity units. The number of annuity units received remains level, but the unit values will fluctuate until actually paid out to the annuitant

Variable Annuity

servers as a hedge against inflation and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity. 3 main characteristics: - Underlying Investment: the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account. The separate account is not part of the insurance company's own investment portfolio, and is not subject to the restrictions that are applicable to the insurer's own general account. -Interest Rate: issuing insurance company does not guarantee a minimum interest rate - License Requirements: a variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. An agent selling variable annuities must hold a securities license in addition to a life insurance license. agent or companies that sell variable annuities must also be properly registered with FINRA. Variable premiums purchases accumulation units in the fund. Accumulation units represent ownership interest in the separate account. Upon annuitization, the accumulation units are converted to annuity units. The income is then paid to the annuitant based on the value of the annuity units. The number of annuity units received remains level, but the unit values will fluctuate until actually paid out to the annuitant Interest Rate : No guarantee Underlying Investment: Separate account (equities, no guarantee) License Needed: Life insurance PLUS securities Expenses: Guaranteed Income Payment: No guarantee

The first way to classify annuities can be based on how they can be funded. There are 2 options:

single premium periodic payments

3 basic forms of whole life insurance

straight whole life, limited-pay whole life. single premium whole life however; other forms and combination plans may also be available

Regarding the length of coverage, all life insurance policies fall into 2 categories:

temporary and permanent protection

Face amount

the amount of benefit stated in the life insurance policy

Endow

the cash value of a whole life policy has reached the contractual face amount

Option B (Increasing Death Benefit option)

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. Since the PURE INSURANCE with the insurer remains level for life, the expenses of this option are much greater than those for Option A, thereby causing the cash value to be lower in the older years ( all else being equal )

Attained age

the insured's age at the time the policy is issued or renewed

Underlying Investment (Variable Annuities)

the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account. The separate account is not part of the insurance company's own investment portfolio, and is not subject to the restrictions that are applicable to the insurer's own general account.

Level premium

the premium that does not change throughout the life of a policy

Annually renewable term (ART)

the purest form of term insurance. The death benefit remains level (in that sense, it's a level term policy), and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases.

Level premium term

this provides a level death benefit and a level premium during the policy term. For example: a $100,000 10-year level term policy will provide a $100,000 death benefit if the insured dies any time during the 10-year period. The premium will remain level during the entire 10-year period. If policy renews at the end of the 10-year period, the premium will be based on the insured's attained age at the time of renewal

Adjustable Life Insurance

was developed in an effort to provide the policyowner with the best of both worlds ( term and permanent coverage ). As the insured's needs change, the policyowner can make adjustments in the policy. Typically, the policyowner has the following options: - Increase or decrease the premium or the premium-paying period. -Increase or decrease the face amomunt; or - Change the period of protection The policyowner also has the option of converting from term to whole life or vice versa. However, increases in the death benefit or changing to a lower premium type of policy will usually require proof of insurability The policyowner may also pay additional premiums above and beyond what is required under the permanent form in order to accumulate greater cash value or to shorten the premium paying-period. MUST KNOW: Although adjustable life policies fcontain most of the common features of other whole life policies, the cash value of an adjustable life policy only develops when the premiums paid are more than the cost of the policy Key features: Can be Term or Whole Life; can convert from one to the other Premium: Can be increased or decreased by policyowners Face Amount: Flexible; set by policyowner with proof of insurability Cash Value: Fixed rate of return; general account Policy Loans: Can borrow cash value

Separate account

which invests in stocks, bonds, and other securities investment options

Deferred

withheld or postponed until a specified time or event in the future