Types of life insurance policies

variable universal life insurance, like universal life itself, has the following features and characteristics:

-a flexible premium that can be increased, decreased, pr skipped as long as there is enough value in the policy to fund the death benefit -increasing and decreasing the amt of insurance -cash withdrawals or policy loans.

example of ROP

A healthy, 30 year old male pays $380 annually for a $250,000, 30 year term policy. At the end of the 30 years, he has paid a total of $11,400 in premiums which will be returned to him if he is still alive. The insurance company has determined that $250 per year, or $7,500 0ver 30 years, will cover the actual cost of protection. The excess funds, which the insurer invests, provide the cash for the returned premiums.

level premium term example

a $100,000 10-year term policy will provide $100,000 death benefit if the insured dies at any time during the 10-year period. The premium will remain level during the entire 10 year period. If the policy renews at the end of the 10-year period, the premium will be based on the insured's attained age at the time of renewal.

Although adjustable life policies contain most of the common features of the other whole life policies, the ______________ of an adjustable life policy only develops when the premiums paid are more than the cost of the policy.

cash value

annuity

contract that provides income for a specified period of years or for life. An annuity protects a person against outliving his or her money. -vehicle for the accumulation of money and the liquidation of an estate.

decreasing term polices:

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

death benefit

guaranteed and also remains level for life

Most term insurance policies are -----

renewable, convertible, or renewable and convertible (R&C).

variable investment

serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity.

this type of policy is often used to offset the liability of the estate tax upon the death of the last insured

survivorship life

agents selling variable life insurance products must:

-be registered with FINRA -have a securities license and -be licensed by the state to sell life insurance

Term insurance provides what is known as 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; and -there is no cash value or other living benefits

deferred annuity

an annuity in which the income payments begin sometime after one year from the date of purchase. these can be funded with either single premium deferred annuities or flexible premium deferred annuities -the longer the annuity is deferred the more flexibility for payment of premiums it allows.

Universal life Option A: Level death benefit

death benefit remains level while cash value increases, thereby lowering the pure insurance with the insurer in the later years. - the pure insurance is actually decreasing as time passes, lowering expenses and allowing for greater cash value in older years. This is so the policy complies with the "statutory definition of life insurance" that was established by the IRS and applies to all life insurance contracts issued after Dec 31, 1984.

a universal life policy has two components

insurance component and cash account

interest rate

issuing insurance company does not guarantee a minimum interest rate.

decreasing term coverage is commonly purchased to insure the payment of a mortgage or other debts if the insured dies ___________

prematurely

whole life insurance

provides lifetime protection, and includes a savings element (or cash value).

a decreasing term policy is usually convertible; however, it is usually not _____________ since the death benefit is $0 at the end of the policy term

renewable

why are annuities purchased?

retirement income college education structured settlements

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.

decreasing term is primarily used when...

the amount of needed protection is time sensitive, or decreases over time.

level premium

the premium for whole life policies is based on the issue age; therefor, it remains the same throughout the life of the policy

limited pay whole life is designed so that:

the premiums for coverage will be completely paid up well before age 100. Some of the more common versions of this are 20-pay life where coverage is completely paid in 20 years, and life paid up at 65 (LP-65) where coverage is completely paid up for by the insured's age 65. this type of policy has a shorter premium paying period than straight life insurance, so the annual premium will be higher. Cash value builds up faster for the limited pay policies.

Upon selling, renewing, or converting the term policy, the premium is figured at _______________

attained age (the insured's age at the time of transaction

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.

Universal life policies allow the partial withfrawal (partial surrender) of the policy cash value.

however, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. during the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation, depending upon the plan. The death benefit will be reduced by the amt of any partial surrener. Note, however, that a partial surrender from a universal life policy is not the same as a policy loan.

with fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. This is called ______________

level benefit payment amount. a disadvantage to fixed annuities is that the purchasing power that they afford may be eroded over time due to inflation.

periodic payment annuities can be either level premium, in which the annuitant / owner pays a fixed installment, or flexible premium, in which the amount and frequency of each installment varies.

true

return of premium (ROP) life insurance

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 the premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term.

"statutory definition of life insurance"

there must be a specified "corridor" or gap maintained between the cash value and the death benefit in a life insurance policy.

limited pay policies are well suited for those insured who do not want to be paying premiums beyond a certain point in time. For example:

an individual may need some protection after retirement, but does not want to e paying premiums at that time. A limited pay (paid up by 65) policy purchased during the persons working years will accomplish that objective.

survivorship life aka second to die or last survivor policy

same as joint in that it insures two or more lives for a premium that is based on a joint age. Major difference is that survivorship life pays on the last death rather than the first. Since the death benefit isnt paid until the last death, the joint life expectancy in a ense is extended, reulsting in a lower premium than hhat which is typically charged for joint life, which pays upon the first death.

Joint life

insure two or more lives. can be term or permanent. Premium would be less than for the same type and amount of coverage on the same individuals.

three basic types of term coverahe available, based on how the face amount (death benefit) changes during the policy term:

level, increasing, and decreasing

universal life or flexible premium life

the policy owner has the flexibility to increase the amt of premium paid into the policy and to later decrease it again. In fact, the policy owner may even skip paying the premium and the polocy will not lapse as long as there is sufficient cash value at the time to covert he monthly deductions for cost of insurance. If the cash value is too small, the policy will expire.

annuity 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. -this period may last for a lifetime of the annuitant or for a specified period, which could be longer or shorter.

joint life is the same as whole life policy except 2 major exceptions

1. premium is based on a joint average age that is between the ages of the nsured's 2. the death benefit is paid upon the first death only

the insurance component of a universal life policy is always

annually renewable term insurance

cash value

created by the accumulation of premium, 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 policy owner. Cash values are credited to the policy on a regular basis and have a guaranteed interest rate.

renewable: the premium for the new term policy will be based on the insured's current age. For example:

a 10 year term policy that is renewable can be renewed at the end of the 10 year period for a subsequent 10 year period without evidence of insurability. However, the insured will have to pay the premium that is based on his or her attained age. If an individual purchases a 10 year term policy at age 35, he or she will pay a premium based on the age of 45 upon renewing the policy.

variable life insurance

a level, fixed premium, investment based product. life most, these policies have fixed premiums and a guaranteed minimum death benefit. cash value is NOT guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

ex. of joint life

a married couple is purchasing a house and use joint life policy for mortgage protection is both spouses work and earn close to the same amount of income. If one dies, he insurance pays the mortgage for the surviving spouse.

license requirments

a variable annuity is considered a security and is regulated by the securities exchange commission (SEC) in addition to state insurance regualtions. 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.

an annuitant whose life expectancy is longer will have smaller income installments. for example

all other factors being equal, a 65 year old male will have higher annuity income payments than a 45 year old male (because he is younger), or than a 65 year old female (because women statistically have a longer life expectancy)

annuitant

person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written -the annuitant must be a natural person

Traditional term policies offer a low cost, simple death benefit for a specified term but have no investment component or cash value. When the term is over, the policy expires and the insured is without coverage. An ROP policy offers.....

pure protection of the term policy, but if the insured remains healthy and is still alive one the term limit expires, the insurance company guarantees a return of premium. However, since the amount returned equals the amount paid in, the returned premiums are not taxable.

Variable life insurance products are dually regulated by

the state and fed. government. due to the element of investment risk, the fed. govt. has declared that variable contracts are securities, and are thus regulated by the securities and exchange commisiion (SEC), and the financial industry regulatory authority (FINRA).

Increasing death benefit option

the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. Since the pure insurance with 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.

immediate annuity

purchased with a single, lump sum payment and provides income payments that start within one year from the date of purchase. -known as a single premium immediate annuity

fixed annuities

guaranteed minimum rate of interest to be credited to the purchase payment -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.

whole life policies endow at the insured's age 100, which means...

the cash value created by the accumulation or premium is scheduled to equal the face amount of the policy at age 100. The policy premium is calculated assuming that the policyowner will be paying the premium until that age. Premiums for whole life policies usually are higher than for term insurance.

adjustable life

developed to provide policy owner with best of both worlds. (term and permanent). The insured determines how much coverage is needed and the affordable amount of premium. Insurer will then determine the appropriate type of insurance to meet the insured's needs. As the insured's needs change, the policyowner can make adjustments in his or her policy.

indexed annuities

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 familiar index like the standard and Poor's 500.

with adjustable life, the policy owner also has the option of converting from term to whole, or vice versa.

however, increases in the death benefit or changing to a lower premium type of policy will usually require proof of insurability. In the case of converting from a whole life policy to a term polciy, the insurer may adjust the death benefit. the policy owner may also pay additional premiums above and beyond what is required under the permanent form in order to accumulate greater cash value or to shorten the premium paying period.

mortality tables

indicate the number of individuals within a specified group (males, females, smokers, non smokers etc) starting at a certain age, who are expected to be alive at a succeeding age.

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.

straight life (aka ordinary life or continuous premium whole life) :

is the basic whole life policy. The policy owner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever comes first). Of the common whole life policies, straight life will have the lowest annual premium.

underlying investment

payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account. the sep. account is not part of the insurance company's own investment portfolio, and is not subject to the restrictions that are applicable to the insurer's own general account.

accumulation period

period of time over which the owner makes payments (premiums) into an annuity. period of time in which the payments earn interest on a tax-deferred basis

level premium term

provides a level death benefit and a level premium during the policy term.

because the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract have to be kept in --------

separate accounts, which invests stocks, bonds, and other securities investment options. each sep. account must maintain assets with a value at least equal to the reserves and other contract liabilities.

term insurance

temporary protection bc it only provides coverage for a specific period of time. also known as pure life insurance. Term policies provide for the greatest amt of coverage for the lowest premium as compared to any other form of protection.

level term insurance

the most common type of temporary protection purchased. The word level refers to the death venefit that does not change throughout the life of the policy.

beneficiary

the person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out.

liviing benefits

the policy owner 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 the nonforfeiture value, does not usually accumulate until the third policy year and it grows tax deferred.

annually renewable term (art)

the purest form of term insurance. the death benefit remains level (in that sense, its a level term policy), 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, ad the probability of death increases.

the renewable provision allows the policy owner the right to renew the coverage at the expiration date ____________

without evidence of insurability.

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 until age 100) as long as the premium is paid. The most common type of permanent insurance is whole life.

variable universal life insurance

is a type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance.

Regardless of the type of term insurance purchases, the premium is level throughout the term of the policy;

only the amount of the death benefit may fluctuate, depending on the type of term insurance.

the convertible provision:

provides the policy owner with the right to convert the policy to a permanent insurance policy without evidence of the insurability. The premium will be based on the insured's attained age at the time of conversion.

owner

purchaser of the annuity contract but no necessarily who receives the benefit. -they have all of the rights, could be a corporation, trust, or other legal entity

unlike universal life, most of the investment vehicles in variable universal life policies do not guarantee _____

return

2 ways to pay for annuitied

1. single payment ( lump sum) 2. periodic oayments in which the premums are paid in installments over a period of time.

ROP policies are structured to consider the low risk factor of a term policy but at a significant increase in premium cost, sometimes as much as _____________ more.

25% to 50% more

annuity income amount is based on

-the amount of premium paid or cash value accumulated -the frequency of the payment -the interest rate -the annuitant's age and gender