Chapter 2: Types of Life Policies - Whole Life - C. Interest/Market Sensitive/Adjustable Life Products
6. Indexed Life (main feature)
aka equity index whole life - cash value dependent upon the performance of equity index (S&P500) - guaranteed minimum interest rate - policy's face amount increases annually to keep pace with inflation (Consumer Price Index) w/o requiring evidence of insurability
Universal Life has two components -
insurance component and cash account ... insurance component is always annually renewable term insurance
6. Indexed whole life insurance (classifications)
based on whether the policy owner or the insurer assumes the inflation risk - policyowner assumes the inflation risk the --- policy premiums increase with the increases in the face amount. - insurer assumes the risk the premium remains level
4. Variable life insurance products are dually regulated
by State and Federal Government - due to the element of investment risk; regulated by the SEC and Financial Industry Regulatory Authority (FINRA) former (NASD) National Association of Securities Dealers. Also regulated by the Insurance Department
Universal Life - Option A -
death benefit remains level while the cash value gradually increases; pure insurance decreases as time passes, lowering the expenses, and allowing greater cash value in the older years
4. Variable universal life investment vehicles
don't guarantee returns
3. Variable Whole Life
level, fixed premium, investment based product. guaranteed minimum death benefit cash value of the policy is not guranteed and fluctuates with the performance of the portfolio in which premiums have been invested by the insurer policyowner bears the investment risk in variable contracts underlying assets need to be kept in a separate account and the insurance company cannot sustain the investment risk. the underlying assets include stocks, bonds, and other security investments. each separate account must maintain assets with a value at least equal to the reserves and other contract liabilities
4. Variable Universal Life Insurance
type of insurance which combines many features of whole life with the flexible premium of universal life and the investment component of variable life; securities version of universal life insurance.
4. Agents selling variable life insurance products must:
- Be registered with FINRA - Have a securities license - Be licensed by the state to sell life insurance
Universal life offers of two death benefits options to policy owner
Option A -Level death benefit Option B - increasing death benefit
5. Interest-Sensitive Whole Life (premium)
- insurer sets the premium based on current assumptions about risk, interest, and expense. - if these values change the premium will go up or down
Universal Life - option A
a gap must be maintained between the cash value and death benefit of the policy % that apply to the corridor are established in a table published by the IRS and vary as to the insured and the amount of coverage If not maintained the tax advantages are lost
5. Interest-Sensitive Whole Life
- also referred to as current assumption life - whole life policy that provides guaranteed death benefit to age 100
5. Interest-Sensitive Whole Life (cash value)
- credit the cash value with the current interest rate that is usually comparable to money market rates and can be higher than guaranteed levels
4. Variable universal life insurance features and characteristics
- flexible premium that can be increased, decreased, or skipped as long as there is enough value in the policy to fund the death benefit - increasing and decreasing the amount of insurance - cash withdrawals or policy loans
5. Interest Sensitive Whole Life (benefits)
- same as traditional whole life with added benefit of current interest rates - may allow for greater cash value or shorter premium paying period
1. Adjustable Life
best of both worlds - term and permanent coverage coverage is needed & affordable amount of premium as needs change ... then adjustments can be made .. 1) increase or decrease the premium or premium paying period 2) increase / decrease face amount 3) change the period of protection option to convert from term to whole life / vice versa paying 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.... cash value only develops when the premiums paid are more than the cost of the policy
2. Universal Life
flexible premium adjustable life policyowner has the flexibility to increase the amount of the premium and later decrease skip paying the premium and policy won't lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance if cash value too small ... the policy will expire. since the premium can be adjusted ... two types minimum premium - amount needed to keep the policy in force for the current year. target premium - recommended amount that should be paid on a policy in order to cover the cost of insurance protection and keep the policy inforce throughout the lifetime
Types of Policies (chart comparison)
https://drive.google.com/drive/u/0/folders/0BzXi5BxdXmtAc2VKTUo2cExVSU0
Universal life allows
partial withdraw (partial surrender) charge for each withdrawal limits to how much and and how often interest earned is subject to taxation death benefit reduced by the amount of any partial surrender partial surrender is not the same as a policy loan
Universal Whole Life Insurance - Death Benefit - Option B
The death benefit includes the annual increase in cash value so the death benefit gradually increases each year by the amount of the cash value increases. the death benefit will always be equal to the face amount of the policy plus the current amount of cash value