Illinois Life Insurance Key Points

Decreasing Term Life Insurance...

Premium remains level for entire policy period. Death benefit decreases over time.

Reinstatement provision

Proof of insurability is requested/ usually required. Overdue premiums must be paid too.

401k

Qualified Employee has investment choices Contributions reduce gross income Contributions grow tax deferred Employer can match

Sally understated her age and is underpaying her premiums, what happens?

Sally's death benefit will be reduced to match the lower premiums she was paying.

Sally overstated her age and is overpaying her premiums, what happens?

She gets overpaid premiums + interest refunded.

Determining amount of Life insurance: Human Life Approach

Specific to client needs, takes in current assetts, income, debt, obligations etc.

Life Insurance creates ____ upon death

an estate

Group Life probationary period

period of time on the job before insured

Whole Life how to get cash value?

- Surrender Policy or - Policy Loan

Ordinary Life Insurance Categories:

- Term - Whole life/ cash value / permanent - Non-traditional -Annuities

Assignment of the Policy

-Absolute Assignment (100% ownership of policy to someone else) OR -Collateral Assignment (giving up partial ownership rights, used in loans regularly)

Required Signatures

-Insured, applicant, and/or owner -Agent

Factors Used To Calculate Premiums:

-Mortality -Interest (guaranteed minimum) -Expenses (load)

All variable products need:

1) Life AND security licensing 2) Presentation of prospectus before or at sale 3) Suitability (ethics)

Insuring Provision

1) Page one 2) parties involved 3) perils insured 4) promise to pay

Coverage Becomes Affective When:

1) Policy is issued 2) Client accepts policy when delivered 3) Consideration (they pay for it) 4) Statement of continued good health

Free look is usually how long

10 days - full refund is awarded within this time

Tax consequences of turning to a Modified Endowment Contract (MEC)

10% penalty AND ordinary income tax

Social Security eligibility

40 Credits

Defined contribution plans are:

401ks, tax sheltered annuities. They are qualified, employer defines the contribution.

How do they test policies?

7 pay test

T/F The more you pay upfront for insurance, the bigger the discount

True

403b

AKA Tax sheltered annuity (TSA) Public school employees Other non-profit 501c organizations Contribution limits similar to 401k

Adjustable Life

Adjust: Premium, Death benefit, Premium durations, how fast you build cash value

Primary Insurance Amount (PIA)

Amount to determine retirement benefits at age 65 or 67

1035 Exchanges

Annuity to an Annuity Endowment to an Annuity or Endowment L.I. to an Annuity, endowment OR L.I

Only fixed annuities offer what provision?

Bailout

Modified Premium

Changes Once (Premium are initially low, after three - five years a one time premium increase is issued)

Survivorship Life Insurance

Covers 2 people, pays benefit when the second person dies. Used almost exclusively for estate planning.

Riders: Waiver of Premium

Disability protection of premium - usually falls off at 65, along with the extra cost of the rider.

Aviation exclusion

Does NOT count for passengers, aviation exclusion is for pilots and flight crew.

Entire Contract Provision

Everything is included in contract - policy, riders, amendments

T/F Group life members are individually underwritten

FALSE - The group is underwritten. There are NO medical questions. There is NO preexisting conditions clause. Average age and sex are factors however.

T/F - Term Life lasts forever

False

T/F Accumulation period is for immediate and deferred annuities

False - Accumulation period is only for deferred. However both immediate and deferred annuities have an annuity period.

T/F Term life is not renewable

False - Term life CAN be renewable, but is not always.

Indexed annuities are designed to

Follow the market like variable annuities while giving a guarenteed minimum pay out like fixed. Only life insurance license and 4 hour annuities course is required to sell indexed annuities.

Determining amount of Life insurance: Income Multiplier

Generic, 7-10 times annual gross income.

Annuity earnings

Grow tax deferred

Riders: Accelerated death benefit

If insured diagnosed with terminal illness, the insurere pays a percentage of death benefit while the insured is still alive.

Incontestibility Clause

Insurer cannot contest a claim based on misrepresentation or concealment after the policy has been in force for 2 years.

Increasing Term Life Insurance...

Mainly designed as a rider. Premium remains level for entire policy period. Death benefit increases over time. This benefit increase is designed to keep pace with inflation.

Graded Premium

Multiple Premium Changes (Premiums increase every year for the early years [10-20] and then remain level)

Buy-sell agreements

Never a tax break on premiums, but when paid out is tax free.

From group term to individual whole life:

No proof of insurability AGE RATED Like face amount Premiums directly billed - 31 days to convert

Medical Information Bureau (MIB)

Non-profit membership designed to aid in underwriting process. Information sharing between insurers

Nonforfeiture options

ONLY on permanent policies. Cash, policy loan, reduced paid up policy, extended term.

Keogh Plan (HR-10)

ONLY qualified plan that can be funded in part with life insurance Exclusively for self employeed

Universal Life Insurance has two death benefit options:

Option 1 or A - Level - face amount Option 2 or B - Increasing - face amount + cash value

Term Life convertability

Option to convert - switching from term to a permanent policy. Converting keeps ratings the SAME. Attained age conversion: Premium at new insurance is based on the age at conversion.

Riders: Guarenteed insurability rider or OPAI

Option to purchase additional insurance @ age 25 and @40 without medical exam or new medical application.

3 Times to enroll in group insurance:

Original enrollment Open enrollment Qualifying event

Key employee/person protection

Owned by company

What are the three parts of a life insurance application?

Part 1 - Non medical Info (general questionnaire) Part 2 - Medical Info (COMPLETE history, biggest part) Part 3 - Agent's Report (only seen by underwriter and agent)

Social Security Blackout period

Time between spousal survivor benefit until age 60 widow benefit

Main purpose of annuities:

To aid in retirement

Why did they pass 1988 tax law?

To stop tax shelter

Fair Credit Reporting Act (FCRA)

Underwriting tool. Must inform applicant within 3 days of report being made. Applicant can dispute information found by agency.

Suicide exclusion

Usually 2 years - can differ though

Attending Physicians Report (APS)

Write-up on applicant by physician

Roth IRA dollars are

after tax

Policy death benefit proceeds

are not taxable as income to beneficiary if received in lump sum.

Variable Life insurance death benefit can...

go UP, but always meets minimum death benefit if paying premium

Variable Universal Life insurance death benefit can...

go UP, but does NOT have a minimum death benefit

Fixed annuities are designed to

produce a fixed income stream that is guarenteed

Variable annuities are designed to

produce an income stream that may vary based on returns (need Life and series 7 licenses). No guarentees.

Application Statements are

representations (true to the best of your knowledge) NOT warranties (100% fact)