Florida Agent's Life (including Annuities & Variable Contracts): General Knowledge 14%
Deferred Annuity
A Deferred Annuity is 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 so deferred, the more flexible for the payment of premium it allows.
Universal Life Components
A Universal Life Policy has TWO components: 1.) AN INSURANCE COMPONENT 2.) A CASH ACCOUNT. The Insurance Component of a Universal Life Policy is ALWAYS ANNUALLY RENEWABLE TERM INSURANCE.
Adjustable Life Products
Adjustable Life: can be term or permanent insurance, coverage can change, amount of premium can change to meet the needs of the insured. The policyowner has the following options: • Increase or decrease the premium or the premium paying period • Increase of decrease the face amount • Change the period of protection. The policyowner also has the option of converting from term to whole life or vice versa. CHANGES IN DEATH BENEFIT OR CHANGING TO LOWER PREMIUM MAY REQUIRE PROOF OF INSURABILITY.
Annuities
An annuity is a contract that provides income for a specified amount of time or period of years, or for life. An annuity protects a person against outliving his or her money. Annuity's are not insurance, but a vehicle for the accumulation of only and liquidation of an estate. Annuities are marketed by life insurance companies. Licensed life insurance agents are authorized to sell some types of annuities.
Annually Renewable Term (ART)
Annually Renewable Term (ART) is the purest form of term insurance. The death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability. BUT the premium increases annually according to attained age, as the probability of death increases.
Mortality Tables
Annuities do not pay out the face amount Upton the death of annuitant. They do the opposite. Payments stop upon death of the annuitant. Annuities use mortality tables for insurance. Mortality Tables indicate the number of individuals within a specified group (e.g males, females, smokers, non-smokers) starting at a certain age. Who are expected to be alive at succeeding age.
Variable Annuity Benefits:
Below are the three man in characteristics of variable annuities: • Underlying Investment: the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not the general 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 insurers 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 SEC in addition to State Insurance Regulations. An agent selling variable annuities must hold a securities license in addition to a life insurance license. Agents or companies that sell variable annuities must also be properly registered with FINRA.
Convertible Provision
Convertible provision provides the policy owner the right to convert the policy to a permanent insurance policy without evidence of insurability. The premium will be based on the insured's age at the time of conversion.
Decreasing Term Policies
Decreasing Term Policies feature a level premium and a death benefit that decreases each year over the duration of the policy term. COMMONLY PURCHASED TO PAY OFF MORTGAGES IN EVENT OF DEATH.
Fixed Annuity Benefits:
Fixed Annuity provides the flowing 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; • 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 by the annuitant.
Immediate Annuity
Immediate Annuity will make its' first payment as early as one month from the purchase date. Most commonly, this type of annuity is known as a SINGLE PREMIUM IMMEDIATE ANNUITY (SPIA)
Indexed Annuities
Indexed (or equity indexed) annuities 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. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.
Indexed-Life (or Equity Indexed Whole Life) insurance
Indexed-Life (or Equity Indexed Whole Life) insurance is that the cash value is dependent upon the performance of the equity index or the S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep the pace with inflation. (As the Consumer Price Index increases) without requiring evidence of insurability.
Interest-Sensitive Whole Life Insurance
Interest-Sensitive Whole Life Insurance AKA Current Assumption life, is 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 values change the the company will lower or raise the premium as designated intervals. Interest-sensitive whole life policies credit the cash value with the current interest rate which is comparable to Money Market rates and can be higher than the guaranteed levels. The policy provides for a minimum guaranteed rate of interest.
Joint Life
Joint Life is a single policy that insures two or more lives. Joint Life policies can be in the form of Term Insurance or Permanent Insurance. The Premium for Joint Life would be less that for the same type and amount of coverage on the same individuals.
Level Premium Term
Level Premium Term provides a level death benefit and a level premium during the policy term. The premium will remain level during the duration of the term policy and the death benefit will remain the same. If the policy is renewed at the end of the term, the premium will be calculated based on the insured's attained age at time of renewal.
Level Term Insurance
Level Term is 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.
Limited-Pay & Single Premium Life
Limited-Pay Life and Single Premium Life: is designed so that the premiums for coverage will be completely paid-up well before age 100. Annual premiums will be higher Cash value builds faster. Goo solitons for people that don't want to pay premiums past a certain age.
Owner (Annuity)
Owner the purchaser of the annuity contract, but not necessarily the the recipient of the benefits. The owner has all the rights, such as naming the beneficiary and surrendering the annuity. The Owner may be a corporation, trust or other legal entity.
Traditional Whole Life Products
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 (or till 100) as long as the premium is paid. The most common type of insurance is whole life.
Return of Premium
Return of Premium (ROP) is an increasing term insurance policy and 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.
Special Features of Term Insurance
SPECIAL FEATURES of Term Insurance Most term insurance policies are renewable, convertible, OR renewable and convertible (R&C).
Single-Payment
Single Payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payments annuities can be either level premium, in which the annuitant/owner pays a fixed installment or
Single Premium Whole Life
Single Premium Whole Life: 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.
Ordinary Whole Life
Straight Whole Life AKA Straight Life, Ordinary Life, Continuous Premium Whole Life: the policy owner pays the premium from the time the policy is issued until the insured's death or age 100 (which ever occurs first). Of the common whole life policies straight life will have the lowest annual premium.
Survivorship Life
Survivorship Life (also referred to ask "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures to or more lives for a premium that is based on joint age. The major difference is that SURVIVORSHIP LIFE pays on the last death rather than the first death. Because the death benefit isn't paid until the last death the premium are lower, due to the life expectancy in a sense is extended.
Types of Term Life
The three different types of Term coverage available are based on how the face amount (death benefit) changes during the policy term: • Level • Increasing • Decreasing • Return Of Premium • Annually Renewable
Universal Life Option A AKA Level Death Benefit
Under Option A (Level Death Benefit) the death benefit remains level while the cash value increases gradually. This lowers the pure insurance with the insurer in the later years. *The pure insurance is decreasing as time passes, lowering the expense and allowing for greater cash value in the older years.* This enables the policy to comply with the IRS STATUTORY DEFINITION OF OF LIFE INSURANCE. THERE MUST BE A SPECIFIED CORRIDOR OR GAP maintained between cash value and death benefit in a life insurance policy. Loss or lack of this gap/corridor the policy is no longer valid nor considered insurance and will lose most of tax benefits and advantages associated with life insurance.
Universal Life Products
Universal Life is known by the generic name of Flexible Premium Adjustable Life. Policyowner has the flexibility to increase the premium paid and to later decrease it again. AS long as there is sufficient cash value in the policy the policyowner can skip the premium and coverage will not lapse providing there is enough cash value in the policy to cover the monthly deductions for cost of insurance. If there isn't enough cash value, coverage will lapse and the policy will expire.
Universal Life Death Benefit Options
Universal Life offers one of the two death benefit options to the policy holder. OPTION A is the level death benefit option, and OPTION B is the increasing death benefit option.
Universal Life partial Withdrawal
Universal Life policies allow the partial withdrawal (partial surrender) of the policy cash value. A charge may be assessed for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During withdrawal the interest earned on the withdrawn cash value may be subject to taxation, depending on the plan. The death benefit will be reduced by the amount of the partial surrender. *A partial surrender from a universal life policy is not the same as a policy loan.*
Universal Life Minimum Premium
Universal Life premium can be adjusted, the insurance company may give the policyowner the choice to pay either of two types of premiums: • Minimum Premium is the amount needed to keep the policy in force for the current year. Paying this way will make the policy perform as an annually renewable term product.
Variable Annuity
Variable Annuity serves as a hedge against inflation, and is variable from the perspective that the annuitant may receive different rates of return on the funds that are pad into the annuity.
Variable Universal Life Products
Variable Universal Life Insurance is a type of insurance that combines many features of the whole life with the flexible premium pf universal life and the investment component of variable life, making it a securities version of the Universal Life Insurance.
Term Insurance
a temporary protection. It only provides coverage for a specific period of time. Known as the PURE life insurance. Term policies provide for the greatest amount of coverage for the lowest premium compared to any other form of protection. AKA Pure Death Protection
Renewable Provision
allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability. The premium will be based on the insured's attained age at the time of conversion
Fixed Annuities
fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. This is called a level benefit annuity payment amount. A disadvantage of fixed annuities is that purchasing power that they afford may be eroded over time due to inflation.
Flexible Premium
flexible premium, in which the amount and frequency of each installment varies.
Variable Universal Life Features
• A flexible premium that can be increased or decreased of skipped as long as there is enough value in the policy to fund the death benefit. • Increasing or decreasing the amount of insurance • Cash withdrawals or policy loans
Term Insurance Provides:
• If the insured dies during this term, policy pays the death benefit to the beneficiary. • If policy is canceled or expires prior to the insures death, nothing is payable acts the end of the term; and • There is no cash value or other living benefits.
Universal Life Target Premium
• 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.
Joint Life Policy Distinctions:
• The premium is based on joint average age, that is the ages between the insureds • The death benefit is paid upon the first death only. Examples: This policy is also found among joint business partners or business owners. In the funding of a buy-sell agreement and other business needs. A Buy-Sell is a business contingent agreement that determines what will be done with the business in the event that an owner dies or becomes disabled.
Variable Life Insurance AKA Variable Whole Life Insurance
• a level, fixed premium, • investment-based product. • have fixed premiums and • a guaranteed minimum death benefit. Remember: The cash value of the policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policy owner bears the investment risk in variable contracts.
Interest-Sensitive Whole Life Insurance Benefits:
• provides the same benefits as other traditional whole life policies • added benefit of current interest rates, • allow for greater cash value accumulation or a shorter premium paying period
