Types of Life Insurance Policies Ch.2
Joint Life
A single policy that is designed to insure two or more lives. - the premium is based on a JOINT AVERAGE AGE that is between the ages of the insureds - The death benefit is paid upon the FIRST death only -Perk: lower premium than if you would have gotten a separate policy for each person -used when there is a need for 2 or more persons to be protected; however the need for the insurance is no longer present after the first of the insured dies. the premium rates on a joint life policy are determined by averaging the ages of both insureds - People use this to pay off mortgages assuming that the survivor doesn't need additional financial protection
Indexed Whole life
A whole life insurance policy whose death benefit increases according to the rate of inflation. Such policies are usually tied to the Consumer Price Index (CPI) without requiring insurability - cash value is dependent on performance of equity index such as S&P500 - guaranteed minimum interest rate - if policyowner assumes the inflation risk, the policy prem inc w the inc in the face amount -if insurer assumes the risk, prem remains level
Q. What is another name for interest-sensitive whole life insurance? A. Current assumption life B. variable life C. term life D. adjustable life
A. current assumption life interest-sensitive whole life policy provides a guaranteed death benefit to age 100
Q. Not true about Straight life policy? A. its prem steadily dec over time, in response to its growing cash value b. the face value of the policy is paid to the insured at age 100 c. it usually develops cash value by the end of the third policy year it has the lowest ann prem of the 3 types of whole life policies
A. its prem steadily dec over time, in response to its growing cash value straight life policies charge a level ann prem throughout the insured's lifetime & provide a level, guaranteed death beenfit
The death protection component of a universal life policy is expressed as what type of coverage?
Annually renewable term
Variable Life
Fey feature:, permanent insurance Premium: fixed (if whole life); flexible (if universal life) Face amount: can increase or decrease to a stated minimum Cash value: not guaranteed; separate account Policy loans: can borrow cash value
Adjustable life
Key Features: Can be Term or Whole Life; can convert from one to the other Premium: Can be increased or decreased by policyowners Face Amount: Flexible; set by policyowner with proof of insurability Cash Value: Fixed rate of return; general account Policy Loans: Can borrow cash value
Q. what are the 3 basic types of term insurance?
Level, increasing, & decreasing
Return of Premium (ROP)
Life insurance is an increasing term insurance policy that 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. look for more info
Life insurance vs Annuities
Life insurance: -risk of dying too soon - creates an estate ( death benefit paid federal income tax free to the beneficiary). to create an estate means you have assets -pays a death benefit (at death) Annuities: -risk of living too long -liquidates an estate -pays an annuity benefit (while living)
Separate account
The account that holds funds paid by variable annuity contract holders. The funds are kept separate from the insurer's general account and are invested in a portfolio of securities that match the contract holders' objectives. - bc the insurance comp is not using sustaining the investment risk or the contract, the underlying assets of the contract cannot be kept in the insurance com's general account. -invests in stocks, bonds, & other securities - any domestic insurer issuing variable contracts must establish one or more separate accounts. Each separate account must maintain assets with a value at least equal to the reserves and other contract liabilities -assets in a sep acc cant be commingled w assets in the general account
Who bears the investment risk on a whole life policy? ( who is doing the investing, who is making the choices, who is making sure you get your interest rate?)
The insurance company, the insurer
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
Universal life Universal life allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged & the amount and frequency of the withdrawals are usually limited
Renewable
allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability - if individual purchases a 10 yr term policy at age 35, they will pay a prem based on the age 45 upon renewing the policy
Q. NOT true regarding accumulation period of an annuity? A. its also known as pay-in period b. it would not occur in a deferred ann c. it is the period which the ann payments earn interest d. it is the period over which the owner makes payments into an annuity
b. it would not occur in a deferred ann period during which payments earn interest & grow tax deferred
When would a 20-pay whole life policy endow a. after 20 payments b. in 20 years c. when the insured reaches age 100 d. at the insured's age 65
c. endows for the face amount if the insured lives to age 100. the prem is however, paid off in 20 years
Q. type of policy that can be changed from one that does not accumulate cash value to the one that does: a. dec term policy b. whole life policy c. convertible term policy d, renewable term policy
c. convertible term policy
Securities
financial instruments that may trade for value (for example, stocks, bonds, options)
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a bene, the prems must be paid
for 20 years or until death, whichever comes first under a 20-pay life polic, all the prems necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned prems are paid' the beneficiary will receive the face amount as a death benefit
Policy maturity
in life policies, the time when the face value is paid out
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. - to prevent the policy from lapsing
Which two terms are associated directly with the way an annuity is funded?
single payment or periodic payments
Attained age
the insured's age at the time the policy is issued or renewed
Q. Who is an annuitant?
the person on whose life expectancy the annuity is written & who receives benefits from the annuity
Q. when would a whole life insurance policy mature?
when the insured dies or turns age 100, which ever is sooner
Annuities: Single Life vs. Multiple lives
- can take a annuity out as a single person or multiple people on one annuity. -depends on product & company
3 basic forms of Whole life insurance
1. Ordinary Whole Life (Straight whole life) 2. Limited-pay whole life 3. Single premium whole life
what kind of policy allows withdrawals or partial surrenders? 1. variable whole life 2. universal life 3. 20-pay life 4. term policy
2. universal life
Universal Life
- Only policies have that Option A or Option B Key Features: Permanent insurance w the renewable term protection component Premium: Flexible; minimum or target Face Amount: Flexible; set by policyowner with proof of insurability Cash Value: Guaranteed at minimum level; general account Policy Loans: Can borrow cash value
Q. Which type of life insurance policy generates immediate cash value? A. single prem B. level term C. Decreasing term D. Continuous prem
A. single prem Like other types of whole life policies, Single Prem Whole Life endows for the face amount of the policy if the insured lives until the age 100. The distinguishing feature of a SPWL is the fact that it generates in=mmediate cash value, due to the lump-sum payment made to the insurer
In flexible premium payment annuities, the term flexible refers to what?
Amount of premium
Agents selling variable life insurance products must:
Be registered with FINRA Be license by the state to sell life insurance Have received a securities license (series 6 & 63) Fixed: only state resident life insurance license
Q. A man decided to purchase a 100k annually renewable term life policy to provide additional protection until his children finished college. he discovered that his policy: A. built cash values b. required proof of insurability every year c. dec death bene at each renewal d. required a prem inc each renewal
D
Q. your client wants both protection & savings from the insurance & is willing to pay prems until retirement at age65. What would be the right policy for this client? A. interest- sensitive whole life B. life annuity with period certain C. increasing term D. Limited pay whole life
D. Limited pay whole life *prem payments will cease at her age 65, but coverage will continue to her death or age 100
Single Premium Whole Life (SPWL)
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. - immediate cash value (equal to death benefit) - all the excess money generates cash value because you are over paying rather than annual payments
If the annuitant dies before the annuitization period stars, what will the beneficiary recieve?
Either the amount paid into the annuity or the cash value, which ever is greater
Which of the following products provides income for a specified period of years or for life & protects a person against outliving their money?
annuity
Liquidation of an estate
converting a person's net worth into a cash flow
Mortality tables are used by insurance companies to predict what?
life expectancy and the death rates for specified groups of individuals
Minimum Premium
the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product.
Face amount
the amount of benefit stated in the life insurance policy
Endow
the cash value of a whole life policy has reached the contractual face amount
Cash Value (whole life)
the cash value, created by the accumulation of prem, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policyowner. -are credited to the policy on a reg basis and have guaranteed interest rate
Death benefit (whole life)
the death benefit is guaranteed and also remains level for life
Graded Premium Whole Life
- also customized policy - initial premium would be lower than a straight life policy would have cost - the premiums will increase each year for a specified period and then level out for the life of the policy - prems start low, gradually increase & then level out
Indexed (or equity indexed) annuities
- are fixed annuities that invest on a relatively aggressive basis to aim for higher returns - has a guaranteed minimum interest rate - generally, comps reserve the initial returns for themselves but pay excess to the annuitant. ex: if interest is 4%. earns 12%, comp keeps 4%, client= 8% -less risky than VA or MF but expect to earn higher interest rate than a FA -current rate of return is based on an index of equity products -"mirror" an equity index, such as the S&P 500
Group Conversion (what happens when you leave the company)
- can convert to whole life - cannot convert from group term life to individual term life - have to do the conversion within 31 days - have to be at least 5 years under the group plan - can convert without proof of insurability within a specified period (31 days) (don't have to go through a physical as long as within 31 days period) - When converting, from group to individual and term to whole Life= Premiums will go up
Family Policy
- everyone in the family is covered - dad (breadwinner) covered by a whole life policy, the rest of the family covered by term life policy that is convertible to a whole life policy. If something happens to the dad, mom can enter the work force and convert hers to a whole life since she became the new breadwinner. The kids can convert to a whole life policy upon leaving home since they became the breadwinner too
Pure Death Protection
- if the insured dies during this term, the policy 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
Group life
- it gives the ability to get inexpensive death benefit - Group cannot be formed for a reason OTHER THAN buying group insurance - Group sponsor (usually employer) receives the master policy - biggest group/ group that most often does this the the employer/ employee group. Fringe benefit through work - usually term insurance bc it is the cheapest form - employer makes the decision with the company to see how they want to structure the policy, if they will allow employee to cover spouses/ children - Employee group/ the insured receive CERTIFICATES OF INSURANCE (one-page document of proof that you are covered) - Group underwriting: very liberal/ almost nonexistent because it has to cover ALL employees. can't go to one person and say " we can't cover you, you are too sick". Sometimes this is the only way for high risk clients to be covered. you are well enough to work; you will get covered - Have to meet eligibility. biggest one is usually you have to be a FULL-TIME employee. Some type of eligibility in place. -Other eligible groups: Debtor/ creditor group, labor union, associations ( AARP, or Triple A)
Uses of Annuities
- lump-sum settlements (won a lawsuit, puts large sum of money in an annuity) -Qualified retirement plans -retirement income
Family Income Policy
- only the breadwinner can be covered by a combination of decreasing term and whole life - the decreasing term part will begin to pay a monthly income benefit upon dads death. At the end of a specified period, the whole life portion will pay a lump sum
Variable annuities
- serves as a hedge against inflation, & is variable from the standpoint that the annuitant may receive diff rates of return on the funds that are paid into the annuity - no guaranteed rate bc there is not interest rate. growth of money dependent on the separate account & the mutual funds in the account - income payment amounts not gua ranteed 3 characteristics: -Underlying Investment: payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account. -Interest rate: issuing insurance comp does not guarantee a minimum interest rate -License requirements: VA is considered a "security" & is regulated by the (SEC) in addition to state insurance regulations. Agent selling VA must hold a secuirities license in addition to a life ins license. agents/ comp be registered with FINRA - Variable prems purchase "accumulation units" which is similar to buying shares in a MF. AU represent ownership interest in the sep account. upon annuitization, the accumulation unities are converted into Annuity units. The income is then paid to the annuitant based on the value of the annuity units. The # of annuity units received remains level, but the unit values will fluctuate until actually paid out the annuitant - in accumulation period: making payments: those dollars are buying accumulation units. when the annuity reaches it's payout period, the accumulation units are converted to annuity units
Annuity income amount is based on:
- the amount of prem paid or cash value accumulated -frequency of the payment -interest rate annuitant's age and gender -an annuitant whose life expectancy is longer will have smaller income installments
Modified Life Whole Life
-customized policy so you can get more coverage for less money - good for single people who eventually want a whole life policy - during the first few policy years, the premium is set at a lower dollar amount, after that, the premium will be adjusted for the life of the policy - perfect for someone who wants more coverage initially and anticipates that the higher premium won't be a problem later on -level death benefit - prems low for first few years (usually 5) then increase
Fixed Annuity
-guaranteed minimum rate of interest to be credited to the purchase payments (that is the only way the money grows) -income payments that do not vary from one payment to the next. guaranteed - the insur comp guarantees the specified dollar amount for each payment & the length of the period of payments as determined by the settlement option chosen by the annuitant > level benefit payment amount: annuitant knows exact amount of each payment recieved from the annuity during the annuity period. disadvantage: the purchasing power that they afford may be eroded over time due to inflation
Classification of annuities
-how it is funded (paid for or payment method): single prem vs periodic -when income payments begin: immediate vs. deferred -how prems are invested: fixed vs. variable -disposing of proceeds: pure life, annuity certain or life refund annuity
Annuity parties
-owner (in the accumulation period): the purchaser of the contract(putting money into it) but not necessarily the one who reciveves the benefits. > the owner of the annuity has all of the rights such as naming the bene & surrendering the annuity > owner may be a corp, trust o legal entity - Annuitant ( in the annuitization period): person who receives benefits; life expectancy taken into consideration & whom the annuity is written > must be natural person - Beneficiary (in accumulation period): person who receives assets if the annuitant dies
an individual has been making periodic premium payments on an annuity. the annuity income payments are scheduled to begin after 1 year since the annuity was purchased. what type of annuity is it? 1. flexible premium 2. immediate 3. deferred 4. fixed
3. deferred
Annuity
A contract that provides income for a specified period of years, or for life. -Basic function: liquidating a principle sum, regardless of how it was accumulated - protects against outliving their money - vehicle for the accumulation of money and liquidation of an estate - used mortality tables: indicates the # of ind within a specified group ( gender, smokers/non) starting at a certain age, who are expected to be alive at a succeeding age - most cases: payments stop upon the death of the annuitant -provides income for a specified period of time or for life depending on how you structure the annuity
Permanent life insurance
A general term used to refer to various forms of whole life insurance policies that remain in effect to age 100 so long as the premium is paid. - most common is a whole life
Term Life Insurance/ pure life insurance
A life insurance policy purchased to last only a specified length of time. For example, if you buy a 10-year policy and you die within those 10 years, your insurance company will pay your beneficiary if your payments are up to date. Once the 10 years are over, coverage ends or the policy must be renewed at a higher premium. -temporary protection -provide for the greatest amount of coverage for the lowest premium as compared to any other form of protection. There is usually a max age above which coverage will not be offered or at which coverage cannot be renewed -Simplest, Purest form of insurance -Never a cash value; No Loans can be made since so cash value -matures at death; pay out to the beneficiary at death - Maximum coverage/ protection with lowest cost - only thing they offer is a death benefit Term insurance provides Pure Death protection
Decreasing Term
A type of life insurance that features a level premium and a death benefit that decreases each year over the duration of the policy. - primarily used when amount of needed protection is time sensitive, or decreases over time -commonly purchased to insure the payment of a mortgage or other DEBTS if the insured dies prematurely - the amount of coverage thereby dec as the outstanding loan balance dec each year. -usually convertible; however, usually not renewable since the death benefit is $0 at the end of the policy term - death benefit matches the loan amount; mirrors what you owe on your loan - have the LOWEST premium
If the owner of a whole life policy (the insured) dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the bene? a. the face amount minus the prem that would have been collected until the insured reached the age 100 b. full death benefit c. a death benefit equal to the cash value of the policy d. 50% of the death benefit
B
Q. the policyowner of an adjustable life policy wants to inc the death benefit. which statement is correct? A. the death benefit can be inc only by exchanging the existing policy for a new one b. the death benefit can be inc by providing evidence of insurability c. the death ben cannot be inc d. the DB can be in only when the policy has developed a cash value
B
Q. to sell variable life insurance policies, an agent must receive all of the following except: a. securities license b. life insurance license c. SEC registration d. FINRA registration
C sec registration is for securities not agents
Q. in which of the following cases will the insured be able to receive the full face amount from a whole life policy A. if there are no named bene when the policy is paid up b. at age 65 c. if the insured lives to age 100 d. as soon as the cash value exceeds the face amount
C. if the insured lives to age 100 whole life ins provides protection for the entire lifetime of the insured. if the insured lives to the age 100, the comp pays the face amount of the policy to the policy owner (usually the insured)
Annuity Settlement Options
Ex: all based on 60 you annuitize. they say you have life expectancy until age 80 MAIN 3: life expectancy based options -life only: based on person's life expectancy. choosing the option that gives you the largest payout but can't protect loved one you are leaving behind. if you live till 100, insurance company would have to keep paying you. They will look at your age when you annuitize. Let says at age 60 you annuitize, company says life expectancy is until age 80. by age 80, they would have already paid out everything. if you live to 100, they will have to keep paying you out of their pockets. If you die before (age 70), the company keeps whatever is left over ( the 10 years of payouts). No beneficiary involved -refund life annuity: die at age 77. 3 years left until reaching life expectancy. 3 years of payments goes to the beneficiary. Equal to the remainder of the purchase price. lowest payout option -Life with period certain. Period certain is protection time for your loved ones you are leaving behind. As long as you live, you will get paid; even to 150 years. Ex: 10 year period certain. those first 10 years of the annuity payouts to you, if you die in year 6= 4 years of payments goes to beneficiary. die in year 12= nothing for the beneficiary -Joint life: pays out until first death. - joint and survivor: pays for 2 or more people. even when first death, will pay the 2nd person until death. all taxable at ordinary income rate. cannot be outlived. monthly payments to the survivor may be lower -lump sum: gives everything and all the growth. could be a very big tax bill. If annuitant younger than 59 & a half, more taxes would be due. - fixed period/ fixed amount- outliveable
Annuities Certain (Annuitization period) CAN BE OUTLIVED
Fixed period: specified time period- you customize how many years you receive payments - can always outlive a fixed period ( ex: you pick a 6 year period to receive payments; still alive on 7th year= no more payments - payments stop; payout not guaranteed Fixed amount: specified amount (ex: you want 10k payments every year. they will pay that until the money runs out - can still outlive their money
Special Features
Most term insurance policies are renewable, convertible, or renewable and convertible (R&C).
Universal life offers 2 death benefit options- ONLY UNIVERSAL POLICIES OFFER option A or option B
Option A: Level Death benefit: death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years. Usually cheaper prem than option B Option B: Increasing Death benefit: death benefit includes the annual incr in cash value so that the death benefit gradually incr each year by the amount that the cash value increases. cash value grows slower than option a - total death benefit will always be equal to the face amount of the policy plus the current amount - since the pure insurance w the insurer remains level for life, the expenses of this option are much greater than those for Option A, thereby causing the cash value to be lower in the older years (all else being equal)
Adjustable life
Permanent or Term (best of both worlds) Combines permanent and term life policies allowing changes ( inc or dec) to the prem or prem paying period, face amount, change the period of protection - option of converting from term to whole or vice versa - inc in death bene or changing to a lower prem type of policy will usually require proof of insurability - the cash value of adj life only develops when the prems paid are more than the cost of the policy -suitable for insureds whose incomes are unpredictable -allows to keep the policy in place but change features so you are able to make the prem payments with unpredictable incomes -owner decides the term or whole and what death benefit be
Universal life ( Interest-sensitive whole life) (flexible premium adjustable life)
Policyowner has the flexibility to increase or decrease the amount of premium paid into the policy - (flexible premium adjustable life) CAN skip paying a premium, policy will not lapse if sufficient cash to cover monthly deductions for cost of insurance; If policy runs out of cash it expires -choice to pay: minimum prem or target prem - has a stated interest rate for which the company pays the cash value; which is what grows the cash value; stated for one-year at a time. every year when the policy renews, interest rate changes every year - has a minimum interest rate; offers protection for insured - excess prem goes into cash value - company can take cash value to pay off expenses to cover mortality charges - can take loans and withdrawals -partial withdrawal: Interest earned on the withdrawn cash value will be taxed
all of the following entities regulate variable life policies EXCEPT 1. guaranty association 2. federal government 3. sec 4. insurance department
The Guaranty association
Level Term Insurance (Level Premium Term)
The 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. -Premium stays level - most expensive since you get the highest death benefit possible throughout the entire life of the policy -provides a level death benefit and a level premium during the policy term
Accumulation period or "pay-in period"
The period of time over which the owner makes payments (prems) into an annuity - time during which the payments earn interest on a tax- deferred basis
Variable Whole Life
a level, fixed prem, INVESTMENT-BASED PRODUCT. -guaranteed death benefit. The cash value however, is not guaranteed and fluctuate with the performance of the portfolio in which the premiums have been invested by the insurer - the policyowner bears the investment risk in variable contracts (assets in a separate account) - was created to take advantage of a very high stock market - agents need a securities (series 6 & 63) & life license - always use the term separate account ( cash value) - choose what mutual funds to invest in every month - has to follow SEC/ FINRA registration rules and regulations - stock market varies. mutual funds value once a day - cash value (separate account) varies depending on how the funds are doing - clients who have a higher risk tolerance can handle this - cash value fluctuates with performance of portfolio in which insurer has invested premiums - funds are put into more riskier investments than fixed/ ordinary but can offer much higher returns - there is a minimum death benefit guaranteed; but benefit payment amounts are not guaranteed
Cash value
a policy's savings element or living benefit Ex: over paying prem; accumulates cash value for the difference
Annuity can be used for any situation that requires a steady stream of income at some point in the future. also provide "structured settlements"
a structured settlement would take on the form of a court settlement arising from a civil lawsuit or it may take on the form of the income that is provided to the winner of a state lottery. many involve selecting an annuity payment option
Interest-Sensitive Whole Life (Current Assumption life)
a whole life policy that provides a guaranteed death benefit at age 100. -provides same benefits as other trad whole like with the added benefit of current interest rates, which may allow for either greater cash value accumulation or shorter prem-paying period. - insurer sets prem based on risk. interest, expense - if values change comp will lower or raise prem at designed intervals. -credit the cash value with the current interest rate that is usually comparable to money market rates ; policy also provides minimum guaranteed rate of interest
under a 20-pay whole life policy in order for the policy to pay the death benefit to a beneficiary, the prems must be paid a. for 20 years or until death, whichever occurs first b. until the policyowner reaches age 65 c. for at least 20 years d. until the policyowner's age 100, when the policy matures
a.
Annuity Suitability
annuity recommendations must be suitable based on information from the applicant - financial situation - tax status (growth on annuity are tax deferred until they take the money out) (theory being; you typically don't take the money out quickly, you do it when you are older. the older you are, the lower the tax bracket - investment objective- risk tolerance - any other info: time horizon,
3 types of Term life coverage available
based on how the face amount (death benefit) changes during the policy term 1. Level 2. Increasing- the death benefit increase. prem is level. Used as a rider; add it to a policy to get a bump in the death benefit for a few years 3. Decreasing Premium stays the same- only the amount of death benefit may fluctuate - upon selling, renewing, or converting the term policy, the premium is figured at attained age
Ordinary Whole life ( Straight life/ straight whole life)
basic whole life policy -. The policyowner pays the prem from the time the policy is issued until the insured's death or age 100 (whichever occurs first). -of the common whole life policies, straight life will have the lowest annual prem - guaranteed death benefit and living benefits - making payments every year - living benefits: can do a loan against the cash value ( can borrow from cash value) - fixed guaranteed interest rate for cash value in what the company pays you - you pay your prem, company takes enough of the prem to cover the mortality cost/ death benefit, cash value ( excess money) goes into the GENERAL ACCOUNT (investment specialist get it invested, there is no separate account) - cash value held in general account. the funds in this policy are invested in fairly secure investment vehicles. Therefore, the insurance company is somewhat restricted in terms of types of investments can be made with these funds
Nonforfeiture values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Q. which would help prevent a universal life policy from lapsing? a. adjustable prem b. corridor of insurance c. target prem d. face amount
c. target prem
Variable Universal Life
combines many features of the whole life w the flexible prem of universal life & the investment component of variable life, making it a securities version of the universal life insurance. - A flexible prem that can be increased, dec, or skipped as long as enough value in the policy to fund the death -in or dec the amount of insurance - cash withdrawal or policy loans - hybrid: has features of variable life insurance and universal life policy - permanent: until age 100 - do not guarantee return -dually regulated by the state & federal Gov -variable contracts are securities; regulated by securities and exchange common (SEC), (FINRA), formerly known as (NASD), & regulated by the Insurance Department in your state as an insurance product - agents must be registered with FINRA, have a securities license, be licensed by the state to sell the life insurance
Limited-pay whole life
designed so prems for coverage will be completely paid-up well before age 100. - versions of limited-pay: 20-pay life whereby cov is completely paid for in 20 years & life paid-up at 65 (LP-65) cov paid by insured's age 65 -shorter prem-paying period than straight life, annual prem is higher. cash value - cash value builds up faster -well suited for those insureds who do not want to be paying prems beyond a certain point in time - People may choose age 65 bc that is typical retirement age; get a fixed income & don't have to worry about making prem payments when you are not working
Annuity Surrender Charges (Contingent deferred surrender charges)
if you surrender the annuity within the first 7 year of owning it , you will pay a surrender charge for getting out of the annuity early - this is during the accumulation period - purpose: compensate the company for loss of the investment value due to an early surrender of a deferred annuity * levied against/ charges apply to the cash value * percentage that reduces over time -At surrender: the owner receives the value of the annuity (premium & interest) minus the surrender charge - surrender charges decreases with each year until the 8th year. 8th year= no surrender charge
Immediate vs. Deferred annuities (when the income payments from the annuity begin)
immediate: one that is purchased with a single, lump-sum payment & provides income payments that start within one year from the date of purchase (typically will make the first payment as early as 1 month from the purchase date) (SPIA- Single prem immediate annuity - deferred annuity: income payments begin sometime after one year from the date of purchase. > can be funded with either single lump-sum (SPDA- single prem deferred ann) or periodic payments (FPDA- flexible prem def ann) > the longer the ann is deferred, the more flexibility for payment of prems it allows
Universal life policy has 2 components
insurance component and cash account - the insurance component is always annually renewable term insurance - allow partial withdrawal of the policy cash value (charge for each withdrawal & limits how much/often) > interest earned on withdrawn cash subject to taxation, depending on plan. Death benefit will be reduced by the amount of partial surrender.
Whole life insurance
provides lifetime protection, and includes a savings element (or cash value) - The policy prem is calculated assuming that the policy owner will be paying the prem until 100 -Prem for whole like policies usually are higher than for term insurance provides lifetime (permanent) protection and accumulates cash value - prem & benefit level - cash value starts accruing around year 3 - cash value equal to death benefit at age 100 (endow or mature)
Convertible
provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. The prem will be based on the insured's attained age at the time of the conversion - a way to get people into insurance; most start out with term then convert to whole life/ or another type of cash accruing policy later on
Survivorship life
referred to as "second-to-die" or " last survivor"- insured 2 or more lives for a premium that is based on a JOINT AVERAGE AGE -pays on the LAST death - lower premium than joint life -often use to offset the liability of the estate tax upon the death of the last insured - often used in the estate planning process bc estate taxes/inheritance don't usually come due until the death of the second parent (to pre-fund the possible inheritance taxes if you have a large amount of assets). relieve inheritance tax burden that you may be leaving to your children. - premiums typically will be less than joint life
Single premium vs periodic payments
single prem- one time lump-sum payment periodic: paid in installments over a period of time >Level prem: pays fixed installments >Flexible prem: amount & frequency of each installment varies - as annuity grows, you do not pay taxes on the growth since it is inside the annuity - the longer the time it takes to make payments; the lower the payments will be. since the payouts are deffered
what type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insureds age of 100
single premium whole life
Annually Renewable Term
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 the attained age, as the probability of death increases.
Annuitization date
the time when the annuity benefit payouts begin - you do not have to start the income stream if you are not ready. some people love annuities bc of their deferred growth, they put their raining day money and do not plan to take it out until they need it as a fall back - can annuitize at any age. as long as you are an adult in your state
The annuity period, also known as: annuitization period, liquidation period, or pay-out period
time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant -may last a lifetime or specified period, which could be longer or shorter
all of the following are true regarding the convertibility option under a term life insurance policy EXCEPT 1. upon conversion, the death benefit of the permanent policy will be reduced by 50% 2. evidence of insurability is not required 3. most term policies contain a convertibility option 4. upon conversion, the premium for the permanent policy will be based upon attained age
upon conversion, the death benefit of the permanent policy will be reduced by 50%
Deferred
withheld or postponed until a specified time or event in the future
A return of Premium term life is written as what type of term coverage?
Increasing ROP life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficary equal to the amount of the premiums paid.
Which of the following is TRUE regarding the accumulation period of an annuity?
It is a period during which the payments into the annuity grow tax deferred.
Length of Coverage
Temporary and Permanent
Who bears the investment risk on a variable life?
The policyowner. - the money goes into a separate account & you make the choice on what mutual funds you want - you the insured have control of the investment choices - unique to variable products
What happens to the premium in an annually renewable term life policy?
The premium increases with each renewal
Q. in a survivorship life policy, when does the insurer pay the death benefit? A. if the insured survives to age 100 B. upon the last death c. upon the first death d. half at the first death, half at second
c. upon last death
Living benefits (whole life)
the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. The cash value, also called nonforfeiture value, does not usually accumulate until the third policy year and it grows tax deferred.
Level premium (whole life)
the prem for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy
Level premium
the premium that does not change throughout the life of a policy
