EXAM FX Life: Types of Insurance Policies

A universal life policy has two components

1. an insurance component and a cash account 2. always annually renewable term insurance

securities

financial instruments that may trade for value

pure death protection

if the insured dies during this term the poicy 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 there is no cash value or other living benefits.

Policy maturity

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

Term insurance (pure life insurance)

is temporary protection because it only provides coverage for a specific period of time.

Death Benefit options

option A and B

Annually Renewable Term

"ART" is the purest form of term insurance. the benefit remains level . -policy may be guaranteed to be renewable each year -premium increases annually due to age, probability of death increases.

3 Types of term coverage

1. Level 2. Increasing 3. Decreasing

Universal Life

Known by the generic name of flexible premium adjustable life. The policy owner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again.

Variable universal life insurance features:

a flexible premium that can be increased decreased or skipped as long as there is cash value to be borrowed against. increasing and decreasing the amount of insurance cash withdrawls or policy loans

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

Renewable

allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability.

Agents selling variable life insurance products must

be registered with FINRA have a securities license Be licensed by the state to sell life insurance.

Nonforfeiture values

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

deferred

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

fixed life insurance

contracts that offer guaranteed minimum or fixed benefits

Permanent

life insurance is 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.

Return of Premium (ROP)

life insurance is an increasing term insurance policy -pays additional death benefit to the beneficiary equal to premiums paid. -return of premium is paid when death occurs within a specified period of time or if the insured outlives the policy term.

ROP policy structure

low risk, but at increase premium cost. offers pure protection where the company guarantees a return of premium. Amount returned is equal to the amount paid in.

Special features

most term insurance policies are renewable, convertible, or renewable and convertible.

Traditional term policy structure

offer a low cost simple death benefit for a specified term but have no investment component or cash value.

Whole life insurance

provides lifetime protection and includes a savings element. 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.

Endowment Policies

provides permanent level death protection if the insured should die prematurely and they accumulate cash values. Premiums can be paid up until the endowment date for a limited period of time or in a lump sum single payment.

Convertible

provides the policy owner with the right to convert the policy to a permanent insurance policy without evidence of insurability

The state and federal government ruled variable life contracts as

securities and are thus regulated by the SEC

Variable life insurance products are dually regulated by

state and federal government

length of coverage 2 types

temporary and permanent

face amount

the amount of benefit stated in the life insurance policy

Adjustable Life

the best mix between permanent and temporary coverage. the policy owner has the option of converting from term to whole life or vice versa. the cash value of an adjustable life policy only develops when the premiums paid are more than the cost of the policy.

endow

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

Attained Age

the insured age at the time the policy is issues or renewed

level premium

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

Variable universal life insurance

type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life making it a securities version of the universal life insurance.

universal life policies allow the partial withdrawal

where someone takes a loan out of the cash value of their policy.

Ordinary Whole Life

"Straight life" is the basic whole life policy. The policy owner pays the premium from the time the policy is issued until the insured's death or age 100 (lowest annual premium)

Alternative Policies

1. Adjustable life 2. Universal Life 3. Variable Whole Life 4. Variable Universal Life 5. Interest Sensitive Whole life 6. Indexed life

Characteristics of whole life insurance

1. Level premium (based on age) 2. death benefit (guaranteed and remains for life) 3. cash value 4. Living benefits

3 types of whole life insurance

1. Ordinary whole life 2. Limited pay life 3. Endowment

the difference between a whole life policy and an endowment

is that an endowment matures at an earlier age

minimum premium

is the amount needed to keep the policy in force for the current year

Death Benefit Option B

is the increasing death benefit option.

Death Benefit Option A

is the level death benefit option

the most common type of temporary protection purchased?

level term insurance, the word level refers to the death benefit that does not change throughout the life of the policy.

variable life insurance

contracts in which the cash values accumulate based upon a specific portfoilio of stocks without guarantees of performance

liquidation of an estate

converting a person's net worth into a cash flow

Decreasing Term

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 decreases over time.

Limited pay life

designed so that premiums for coverage will be completely paid up well before age 100 some of the more common versions of limited pay life are 20 pay life whereby coverage is completely paid for in 20 years (LP-20) and (LP 65)

single premium whole life(SPWL)

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

Adjustable Life options

increase or decrease the premium or the premium paying period Increase or decrease the face amount Change the period of protection.

Target premium

is a recommended amount that should be paid on a policy in orrder to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.