Illinois Life Insurance Key Points
Decreasing Term Life Insurance...
Premium remains level for entire policy period. Death benefit decreases over time.
Reinstatement provision
Proof of insurability is requested/ usually required. Overdue premiums must be paid too.
401k
Qualified Employee has investment choices Contributions reduce gross income Contributions grow tax deferred Employer can match
Sally understated her age and is underpaying her premiums, what happens?
Sally's death benefit will be reduced to match the lower premiums she was paying.
Sally overstated her age and is overpaying her premiums, what happens?
She gets overpaid premiums + interest refunded.
Determining amount of Life insurance: Human Life Approach
Specific to client needs, takes in current assetts, income, debt, obligations etc.
Life Insurance creates ____ upon death
an estate
Group Life probationary period
period of time on the job before insured
Whole Life how to get cash value?
- Surrender Policy or - Policy Loan
Ordinary Life Insurance Categories:
- Term - Whole life/ cash value / permanent - Non-traditional -Annuities
Assignment of the Policy
-Absolute Assignment (100% ownership of policy to someone else) OR -Collateral Assignment (giving up partial ownership rights, used in loans regularly)
Required Signatures
-Insured, applicant, and/or owner -Agent
Factors Used To Calculate Premiums:
-Mortality -Interest (guaranteed minimum) -Expenses (load)
All variable products need:
1) Life AND security licensing 2) Presentation of prospectus before or at sale 3) Suitability (ethics)
Insuring Provision
1) Page one 2) parties involved 3) perils insured 4) promise to pay
Coverage Becomes Affective When:
1) Policy is issued 2) Client accepts policy when delivered 3) Consideration (they pay for it) 4) Statement of continued good health
Free look is usually how long
10 days - full refund is awarded within this time
Tax consequences of turning to a Modified Endowment Contract (MEC)
10% penalty AND ordinary income tax
Social Security eligibility
40 Credits
Defined contribution plans are:
401ks, tax sheltered annuities. They are qualified, employer defines the contribution.
How do they test policies?
7 pay test
T/F The more you pay upfront for insurance, the bigger the discount
True
403b
AKA Tax sheltered annuity (TSA) Public school employees Other non-profit 501c organizations Contribution limits similar to 401k
Adjustable Life
Adjust: Premium, Death benefit, Premium durations, how fast you build cash value
Primary Insurance Amount (PIA)
Amount to determine retirement benefits at age 65 or 67
1035 Exchanges
Annuity to an Annuity Endowment to an Annuity or Endowment L.I. to an Annuity, endowment OR L.I
Only fixed annuities offer what provision?
Bailout
Modified Premium
Changes Once (Premium are initially low, after three - five years a one time premium increase is issued)
Survivorship Life Insurance
Covers 2 people, pays benefit when the second person dies. Used almost exclusively for estate planning.
Riders: Waiver of Premium
Disability protection of premium - usually falls off at 65, along with the extra cost of the rider.
Aviation exclusion
Does NOT count for passengers, aviation exclusion is for pilots and flight crew.
Entire Contract Provision
Everything is included in contract - policy, riders, amendments
T/F Group life members are individually underwritten
FALSE - The group is underwritten. There are NO medical questions. There is NO preexisting conditions clause. Average age and sex are factors however.
T/F - Term Life lasts forever
False
T/F Accumulation period is for immediate and deferred annuities
False - Accumulation period is only for deferred. However both immediate and deferred annuities have an annuity period.
T/F Term life is not renewable
False - Term life CAN be renewable, but is not always.
Indexed annuities are designed to
Follow the market like variable annuities while giving a guarenteed minimum pay out like fixed. Only life insurance license and 4 hour annuities course is required to sell indexed annuities.
Determining amount of Life insurance: Income Multiplier
Generic, 7-10 times annual gross income.
Annuity earnings
Grow tax deferred
Riders: Accelerated death benefit
If insured diagnosed with terminal illness, the insurere pays a percentage of death benefit while the insured is still alive.
Incontestibility Clause
Insurer cannot contest a claim based on misrepresentation or concealment after the policy has been in force for 2 years.
Increasing Term Life Insurance...
Mainly designed as a rider. Premium remains level for entire policy period. Death benefit increases over time. This benefit increase is designed to keep pace with inflation.
Graded Premium
Multiple Premium Changes (Premiums increase every year for the early years [10-20] and then remain level)
Buy-sell agreements
Never a tax break on premiums, but when paid out is tax free.
From group term to individual whole life:
No proof of insurability AGE RATED Like face amount Premiums directly billed - 31 days to convert
Medical Information Bureau (MIB)
Non-profit membership designed to aid in underwriting process. Information sharing between insurers
Nonforfeiture options
ONLY on permanent policies. Cash, policy loan, reduced paid up policy, extended term.
Keogh Plan (HR-10)
ONLY qualified plan that can be funded in part with life insurance Exclusively for self employeed
Universal Life Insurance has two death benefit options:
Option 1 or A - Level - face amount Option 2 or B - Increasing - face amount + cash value
Term Life convertability
Option to convert - switching from term to a permanent policy. Converting keeps ratings the SAME. Attained age conversion: Premium at new insurance is based on the age at conversion.
Riders: Guarenteed insurability rider or OPAI
Option to purchase additional insurance @ age 25 and @40 without medical exam or new medical application.
3 Times to enroll in group insurance:
Original enrollment Open enrollment Qualifying event
Key employee/person protection
Owned by company
What are the three parts of a life insurance application?
Part 1 - Non medical Info (general questionnaire) Part 2 - Medical Info (COMPLETE history, biggest part) Part 3 - Agent's Report (only seen by underwriter and agent)
Social Security Blackout period
Time between spousal survivor benefit until age 60 widow benefit
Main purpose of annuities:
To aid in retirement
Why did they pass 1988 tax law?
To stop tax shelter
Fair Credit Reporting Act (FCRA)
Underwriting tool. Must inform applicant within 3 days of report being made. Applicant can dispute information found by agency.
Suicide exclusion
Usually 2 years - can differ though
Attending Physicians Report (APS)
Write-up on applicant by physician
Roth IRA dollars are
after tax
Policy death benefit proceeds
are not taxable as income to beneficiary if received in lump sum.
Variable Life insurance death benefit can...
go UP, but always meets minimum death benefit if paying premium
Variable Universal Life insurance death benefit can...
go UP, but does NOT have a minimum death benefit
Fixed annuities are designed to
produce a fixed income stream that is guarenteed
Variable annuities are designed to
produce an income stream that may vary based on returns (need Life and series 7 licenses). No guarentees.
Application Statements are
representations (true to the best of your knowledge) NOT warranties (100% fact)