Chapter 2 Types of Life Policies

joint life

A single policy that is designed to insure two or more lives. premium based on joint average age between the insureds death benefit is paid upon first death only

fixed annuity

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.

indexed annuities

Interest rate tied to an index. Earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds has guaranteed minimum interest rate

Adjustable Life

Life insurance which permits changes in the face amount, premium amount, period of protection, and the duration of the premium payment period. Could convert to whole life/Convert to term requires proof of insurability , may face higher premiums

Classification of annuities

Premium payment method: single premium vs. periodic When income payments begin: immediate vs. deferred How premiums are invested: fixed vs. variable Disposing of proceeds: pure life, annuity certain, or life refund annuity

interest sensitive whole life

Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors. added benefit of current interest rate

Most term insurance policies are

Renewable, Convertible or Renewable and Convertible (R&C)

regulations of variable products

SEC and FINRA Securities and Exchange commission Financial Industry Regulatory Authority 1. registered with FINRA 2. licensed by state to sell life insurance 3. received securities license

Beneficiary

The person who receives annuity assets if the annuitant dies during the accumulation period

annuitant

The person who receives benefits or payment from the annuity consider life expectancy Must be a natural person

owner

The purchaser of the annuity contract, but not necessarily the one who receives the benefits

the accumulation period

The time before an annuitant's retirement during which the annuitant is making payments or investments in an annuity.

Survivorship life

Two or more insureds. Pays upon death of the last

single premium life

When the entire premium is paid in a lump sum at the time of purchase and creates immediate cash value. Face amount remains level to age 100.

Cash value

a policy's savings element or living benefit

variable universal life

a universal policy where the premiums are invested in variable rate earning assets flexible premium increasing and decreasing the amount of insurance cash withdrawals or policy loans

Universal Life

a whole life policy that combines term insurance and investment elements flexible premium adjustable life could increase amount of premium paid and decrease it later option 1: pay minimum premium 2. pay target premium

Interest Sensitive Life Products

adjustable life, universal life

producer evaluate these factors for annuities

age income financial situation & experience needs and objectives intended use of annuity risk tolerance tax status

renewable

allow policyowner to renew the coverage at the expiration date without evidence of insurability premium for new term policy based on the insured's current age

option B

allows the beneficiary to collect both the death benefit and cash value upon the death of the insured death benefit increase by the amount of increase in cash value total death benefit= face amount + current cash value

Level benefit payment amount (annuities)

annuitant knows the exact amount of each payment received

Nonforfeiture values

benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Annuity

contract- payment received every year protects individuals against outliving their money do not pay face amount upon death of the annuitant

Liquidation of an estate

converting a person's net worth into a cash flow

Securities

financial instruments that may trade for value (for example, stocks, bonds, options)

option A

gradually increasing cash value and a level death benefit

Term insurance

greatest coverage, lowest premium no cash value

2 types of universal life interest rate

guranteed and current

short life expectancy=

higher benefit

term insurance provides pure death protection (temporary)

if the insured dies during term, policy pays death benefits to the beneficiary if policy canceled/ expires prior to death, no payment no cash value or living benefits

income payment begin

immediate = within 1 year (single premium) deferred= after a year

Policy maturity

in life policies, the time when the face value is paid out

increasing term insurance

level premium death benefit increases each year ideal to handle inflation and increasing cost of living

Variable Life Insurance

level premium investment based guaranteed minimum death benefit cash value is not guaranteed Owner bears investment risk assets are not kept in insurance company's general account, held in separate accounts

Decreasing Term Insurance

level premium death benefit decreases each year used when amount of needed protection is time sensitive not renewable as death benefit ultimately reaches $0

3 types of coverage

level, increasing, decreasing

permanent life insurance

life insurance that provides a death benefit plus a savings plan and lasts for the policyholder's lifetime Whole life insurance

whole life insurance provides

lifetime protection and accumulates cash value

long life expectancy=

lower benefit

Other uses of annuities

lump-sum settlement when you got a lot of money qualified retirement plans education funds

I fan insured skips a premium payment on universal life policy

missing premium deducted from policy's cash value Policy will NOT lapse

level term insurance

most common death benefit does not change premium is the same during term, if term ends and renew, the premium base on attained age at the time of renewal

premium payment method

one time lump-sum payment periodic payment over time

2 options of universal life

option A, option B

Endowments

permanent level death protection accumulated cash value matures at an earlier age (before 100)

convertible

policyowner can convert the policy to a permanent insurance policy without evidence of insurability premium based on insured's attained age at the time of conversion

Limited-pay Life

premiums are paid for a specified number of years or to a specified age of the insured. Protection continues for the entire life of the insured.

Ordinary (Straight) Life

premiums are payable over the whole life of the insured to age 100 lowest annual premium

Whole life insurance

provides lifetime protection, includes savings element (cash value) Endow at the insured's age 100 (cash value = face amount) level premium, death benefit, cash value, living benefits

main use of annuities is to provided

retirement income

3 forms of whole life insurance

straight, limited-pay, single premium

2 categories

temporary protection = only provides coverage for a specific period of time, aka pure life insurance greatest coverage for lowest premium permanent protection

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

Attained age

the insured's age at the time the policy is issued or renewed

annuity period

the payout period of an annuity

Level premium

the premium that does not change throughout the life of a policy

annually renewable term (ART)

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 premium increases annually according to the attained age, as the probability of death increases.

Deferred

withheld or postponed until a specified time or event in the future

variable annuities

- Payments fluctuate according to the value of an account invested primarily in common stocks - provides conservative to aggressive investments that are not guaranteed protect against inflation doesn't guarantee minimum interest rate require securities license + life insurance license

annuity income amount is based upon

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