Nevada Life and Health

Annuities Phases

- Accumulation (pay-in) - payments made into the annuity - Annuitization (pay-out) - payments made to the annuitant from the annuity

Annuities Parties

- Annuitant - insured (must be a natural person); annuity issued on annuitant's life - Beneficiary - will receive any amount contributed to annuity (plus any gain) if annuitant dies during accumulation period - Owner - has all rights to policy (usually annuitant); can be corporation or trust

Ordinary Whole Life (Continuous Premium)

- Basic policy - Level death benefit - Insured pays premiums for life or until age 100

Types of Annuities

- Fixed annuities - guaranteed, fixed payment amount; premiums in general account - Variable annuities - payment not guaranteed; premiums in separate account, and invested in stocks and bonds - Indexed annuities - interest rate tied to an index; earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds

Variable Life Insurance

- Fixed premium, minimum death benefit - Cash value and the actual amount of death benefit are not guaranteed - Assets in separate accounts - Agents must be dually licensed in insurance and in securities

Annuities Income Payments

- Immediate - purchased with a single premium; income payments start within 12 months from the date of purchase - Deferred - purchased with either lump sum or periodic payments; benefits start sometime after 1 year from the date of purchase

Combination Plans

- Joint life: + Premium is based on the joint average age of the insured + Death benefit upon the first death only - Survivorship Life: + Premium is based on the joint average age of the insured + Death benefit upon the last death

Annuities Premium Payments

- Single premium - ONE lump-sum payment; the principal is created immediately (both immediate and deferred annuities) - Periodic (Flexible) premium - multiple payments; the principal is created over time (used for deferred annuity only)

Universal Life (Flexible Premium)

- an insurance component in the form of annually renewable term - 2 death benefit options: Option A - level death benefit, and Option B - increasing death benefit - Can make partial surrender/cash withdrawal

Features of Term Policies

- renewable: renew the policy without evidence of insurability - convertible: right to convert a term policy to a permanent policy without evidence of insurability

Annually Renewable Term

-Renews each year without proof of insurability -Premiums increase due to attained age

What product requires a securities license?

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.

To sell variable life insurance policies, an agent must receive all the following

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.

The minimum interest rate on an equity indexed annuity is often based on

An index like Standard & Poor's 500.

What best describes annually renewable term insurance?

Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

A 27-year-old professional has limited income and can only budget $15 per month for life insurance. What life insurance policy would provide the largest face amount for that amount of premium?

Because a term policy is not accumulating cash value, the cost is lower than policies that do.

Decreasing Term

Coverage gradually decreases at predetermined times; best used when the need for protection declines from year to year

What policy component decreases in decreasing term insurance?

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

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)?

Equity Indexed Annuity

The annuity owner dies while the annuity is still in the accumulation stage. True or False: The insurance company will retain the cash value and pay back the premiums to the owner's estate.

False. 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 president of a company is starting an annuity and decides that his corporation will be the annuitant. True or False: A corporation can be an annuitant as long as it is also the owner.

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

T or F: At the end of 20 years, the policy's cash value will equal $100,000.

False. Term policies do no develop cash values.

- Types of whole life insurance - Flexible premium General characteristics of which type of insurance?

Flexible premium

What term in term insurance refers to the death benefit, which does NOT change?

Level

temporary or permanent

Life insurance polices two main categories

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?

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

The premium of a survivorship life policy compared with that of a joint life policy would be

Lower

What general term is 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?

Permanent life insurance

Single Premium (Whole Life)

Premiums paid in one lump sum; coverage continues to age 100

Limited Payment (Whole Life)

Premiums paid until a certain time; coverage in effect to age 100

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

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

A straight life policy has what type of premium?

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

What is a true statement regarding a straight life policy?

Straight life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

What policy would classified as a traditional level premium contract?

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

- Pure protection - Lasts for a specific term - No cash value General characteristics of what type of life insurance?

Term Life

What insurance has no cash value?

Term insurance

What insurance provides the greatest amount of coverage for the lowest premium?

Term insurance

What would be considered an advantage of owning term insurance?

Term insurance has no cash value and provides no death benefit if the insured dies after the policy expired; however, it provides the highest amount of protection for a temporary period of time.

What type of insurance policy would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources?

Term insurance provides a death benefit only; cost per $1,000 of coverage is less than other types of policies that create cash values.

What determines the case value of a variable life policy?

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.

Who bears all of the investment risk in a fixed annuity?

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.

T or F 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.

True

T or F: 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 the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.

True

T or F: 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.

True

T or F: 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).

True

The death benefit under the Universal Life 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 case value increases.

Which policy would have an IRS required corridor or gap between the cash value and the death benefit?

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.

- Permanent protection - Guaranteed elements (face amount, premium, and cash value) until death or age 100 - Level premium - Cash value and other living benefits General characteristics of what type of life insurance?

Whole Life

What characteristic makes whole life permanent protection?

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.

Cash Value

a policy's savings element or living benefit

A Universal Life Insurance policy is best described as a/an

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.

what type of life insurance offers a tax advantage?

all life insurance

The death benefit in a variable universal life policy

depends on the performance of a separate account.

Level Premium Term

level death benefit and level premium

Variable Whole Life insurance is based on what type of premium?

level fixed premium investment based product

Face amount

the amount of benefit stated in the life insurance policy

to provide financial protection in the event of the insured's death

the purpose of life insurance

What is the most common type of permanent insurance?

whole life