fundamentals of life insurance and annuities

guaranteed premium

premium is established for life provide coverage for the whole life build cash value- after 3rd year premiums never increase

annuities

provide for you for a long life always taxed

if you surrender during pay in phase

pay taxes on profits 10% penalty for early surrender prior to the age of 59 1/2 lawful surrender charges

straight life annuity

pay until you die- largest monthly income bc lowest risk to ins comp- social security is examp

flexible premium anuity

payments when able- comission

limited pay

payments will be given over a period of time such as 20 yrs or until age 65- gross premium will be less

an annuity life

pays you for the rest of your life

annuity phases

phase one: the pay in phase, you are called the policy owner phase two: the pay out phase, called the annuitant when you annuitize

higher premium=

shorter pay period+ lower total cost+ faster growth of cash value

fixed amount

specific amount of dollars

fixed period

specific period of time

what do they build into every interest sensitive whole life policy to keep it from becoming an MEC?

corridor of safety

level premium term

costs more at the beginning but less at the end

increasing term insurance

never sold by itself- only used if rider is attached allows you to get the cash value and the death benefit

equity indexed

not based on the stock market- based on the s&p 500

single premium annuity

one lump sum

single premium

pay in one lump sum

variable 4 things

1 separate account 2 you get to decide where the money is invested 3 no guarantees 4 if you sell variable you need a securities licence

straight life (continuous premium)

pay pay pay

when do you have to have proof of insurability if you have a 10 year convertible term

never

either...

a company will pay the face amount to your designated beneficiary when you die or the company will return your guaranteed cash value at any point if you surrender the policy

how do we figure taxation on annuity?

according to the exclusion ratio

term insurance

all death no savings

annuity

all savings

what does a corridor of safety do?

allows cash value to grow and chase up the death benefit but it will never reach it

virtually anyone can buy and annuity

almost no underwriting- no death benefits

whole life

coverage for the whole life, build cash value, premiums never increase- till age 100 value in the WLP begins to grow the third year of purchasing - whole life is guaranteed to produce cash value equal to the face amount of the policy at age 100

maturity

death benefits are not considered taxable income to beneficiary

with variable annuities how do you keep up with inflation?

expressed in units not dollars

fixed premium annuity

fixed payments

fixed dollar/ conventional annuity with a fixed guaranteed interest rate

fixed rate of return- around 4-6%

life annuity period certian

guaranteed straight life but period certain for 10 years- you die in 8 they will pay the remainder two years to estate

interest sensitive

guarantees are rate of return such as 4% but pays higher if financial markets do better

convertible term insurance

has the right to convert term policy to a form of permanent protection eg whole life without having to show proof of insurability but your premium will drastically increase

decreasing term

if the needs of the policyowner change and they need less over time it would result in decreasing term. the most common use of decreasing term is to provide mortgage protection -the face amount can never be more than the mortgage amount -a bank can require you to have mortgage protection but cannot require you get it from them

joint and survivorship life annuity

keeps going as long as either husband or wife is alive (may decrease in monthly payments) but when both are dead the ins comp keeps the money

an annuity certain

known amount of money for a known amount of time without regard to mortality

dont confuse

level premium term= means the premium will be level throughout the entire length of contract level term= the face amount/death benefit will remain the same throughout the contract if it has both, its called level premium level term

term insurance

limited period of time matures- you died expired - lived passed it pure protection- pure death protection but only for a specific period of time most marketed form is ART- annually renewable term but the premium goes up every year bc rates are based on attained(current) age

whole life

most death some savings

endowment

most savings some death

immediate

start the pay out phase now

deferred

start the pay put phase later

most affordable protection for the premium dollar

term insurance

modified endowment contract MEC

the cash value may not exceed the face amount prior to age 95 7 year pay whole life rule MEC surrender prior to age 59 and a half - 10% penalty tax on profits (growth)

annuities are sold by life insurance companies but

they are technically not life insurance because they have no death benefit

annuitizing the contract

transfers the value of your account into a promise to pay income benefits over time- your account no longer has cash value changing your mind is no longer an option

renewable term insurance

with the small amount of additional premium, you can make a term policy renewable and have the right to renew without proof of instability but premium goes up

refund life annuity

you get all your money back - lowest monthly payment

if you die during the pay in phase

you get returned the value of your account (VA) and it goes to estate- but it will be taxed

when you surrender your policy for cash

you would have to pay income taxes on the amount of cash value - taxed on growth?