3. Life Insurance Policies

Compare Joint Life vs. Survivorship Life

-Joint Life: awards a death benefit upon the FIRST death -Survivorship life: awards a death benefit upon the LAST death *NOTE: BOTH policies insure 2+ people & the premiums are based on the joint average age

What are the key characteristics of Whole Life insurance? (5 items)

-Permanent (up to age 100) -Premium remains constant/level throughout the life of the policy -Death benefit is guaranteed, remains constant -Cash value (from premium accumulation) should reach policy's face amount when owner turns 100 & is paid out to policyowner, have a guaranteed interest rate -is also tax-deferred -Living benefits -owner can borrow against policy's cash value while the policy is in effect OR -can receive the current cash value when the policy is surrendered

What are the key characteristics of term insurance?

-temporary -cheapest -pure protection (no cash value) -no loans -matures at your death -renewable -convertible to other cash-accruing insurance

2-part: 1. What is a Group Life policy? 2. What are the rules for a group life policy?

1. A policy that gives a group of people the ability to get an inexpensive death benefit 2. 4 rules: -group must be formed for a reason other than buying group insurance -group sponsor receives master policy, insureds get a certificate -group underwriting --> very generous in who gets coverage -Unions, employers, debtor/creditor groups, etc. are eligible groups

What are 2 types of flexible premium policies (can adjust how much/little premium is paid into the policy) that are good for people w/ unpredictable incomes?

1. Adjustable Life --> a hybrid of term & permanent life where the premium, face amount, coverage period can all be changed 2. Universal Life

Term insurance is provided for a specific period of time (a term). What are the 4 types of term insurance?

1. Annually Renewable Term - policy is renewed at year's end, premium increases because you're older --> the death benefit stays constant 2. Increasing term - premium remains the same but death benefit increases over time 3. Level term - premium & death benefit remain the same for a period of time 4. Decreasing term - premium stays level, but death benefit decreases --> it can be used to cover an outstanding debt upon your death

What are the 2 components of Universal Life insurance?

1. Insurance component (always annually renewable term insurance) 2. Cash account

Name the 7 types of Whole Life insurance.

1. Single premium - pay entire premium (100 years' worth) in the beginning of the policy -$$ paid (minus mortality charges) goes toward immediate cash value 2. Limited pay - pay a set number of years OR to a specific age -cash value can be paid out early, which is used for retirement purposes 3. Straight life - pay until death OR age 100 -whichever happens 1st is when the policy is paid out 4. Graded premium - initial premiums start off lower (usually 50% lower than a straight life premium) then increase to normal level over 5-10 years 5. Modified life - similar to graded premium, but increases over 3-5 years vs 5-10 -used for young professionals to entice them to buy whole life 6. Interest-sensitive - company can raise or lower premium based on changes in risk, interest, & expense -cash value is credited w/ the current interest rate comparable to money market rates -provides guaranteed death benefit to age 100 & a minimum guaranteed interest rate -Can provide a shorter premium-paying period & greater cash value accumulation 7. Equity indexed - Cash value is dependent upon performance of the equity index, such as the S&P 500 -has a minimum guaranteed interest rate -face amount increases annually to pace w/ inflation

Compare and contrast Whole Life vs. Variable Life

1. Whole Life: -guaranteed death benefit & living benefits (i.e. taking out cash value, etc.) -cash value (w/ guaranteed interest rate) in a general account -Insurer bears the investment risk 2. Variable Life: -investment-based product (mutual funds) -cash value (in separate accts.) that fluctuates w/ investment portfolio performance -Policyholder/Insured bears investment risk

2-part: 1. Can you convert a group policy into an individual policy? 2. If yes to #1, what are the stipulations?

1. Yes 2. 4 rules: -must be covered under group plan for 5+ years -convert to whole life (must be a cash value policy) -must convert w/in a 31-day period after leaving -premiums go up (recall, group is cheaper than individual)

What is Variable Universal Life?

A hybrid of Variable & Universal Life that's regulated by the state's insurance dept & SEC/FINRA -can have a flexible premium, investment component

What is Variable Life insurance?

A level, fixed-premium, investment-based product w/ a guaranteed minimum death benefit -cash value is not guaranteed b/c it fluctuates w/ stock market performance --> policyowner bears responsibility for the investment risk -Important to figure out your client's risk tolerance!

What is Universal Life insurance?

A type of flexible premium adjustable life policy w/ 2 benefits: -a level death benefit (increases as cash value increases) that usually has a cheaper premium -an increasing death benefit (increases over time no matter the cash value) *NOTE: a missed premium payment on a UL policy can be taken from the cash value to prevent the policy from lapsing