Insurance

What is the purpose of a prospectus?

It contains information about the nature and purpose of the insurance plan, the separate account, and the risk involved.

what does the "Spendthrift Clause" do?

It helps protect beneficiaries from the claims of creditors by sheltering life insurance proceeds that have not yet been paid. It does not apply to proceeds paid in lump sums. If the beneficiary is receiving installed payments of proceeds and falls in debt by a creditor, the proceeds are protected and guarded from the creditor's claim. However, the beneficiary's normal assets are still at risk.

Modes of Premium payment

On any policy anniversary date(or at other times, if company rules permit) a policyowner may change from one payment mode to another, provided that the payment is not less than a minimum specified by the company.

What is Adjustable Life Insurance

The policyowner determines the desired amount of coverage needed and how much he wants to pay. The insurer will then select the appropriate plan to meet his needs. Or the policyowner may specify a desired plan and face amount, and the insurer will calculate the appropriate premium, As financial needs and objectives change the policyowner can make adjustments to the coverage, such as changing premium amount and length or face amount and length of protection. Changes consequently can convert the policy from Whole Life to Term, or Term to Whole Life, or from a high premium to a lower premium or limited pay contract. Typically, increases in the Face Amounts on these policies require evidence of insurability. Also due to the design and flexibility, Adjustable Life is usually more expensive than conventional Term or whole Life Policies.

Define Last Survivor Policy also known as the Second To Die Policy.

...

What separates a loan from a withdrawal when dealing with cash values?

A Loan is withdrawn witht he assumption it will be paid back, later resulting in future benefits being reduced by the balance and interest accrued if unpaid. A withdrawal has the same impact on benefits but there is no presumption it will be repaid. The balance deducted does not include interest because it was not a loan withdrawal. But from an actuarial perspective its identical with either approach. Generally only UL and VUL, with their inherent flexibility, permit withdrawals.

Define Jumping Juvenile Policy also known as the Junior Estate Builder.

A special policy typically written on children ages 1 to 15 in units of $1,000, which automatically increase to $5,000 - (or 5 times the face amount) - at age 21. Although the face amount increases automatically, premiums remain the same and evidence of insurability isn't required.

What is the ''Policy Loan Provision''?

All cash value life insurance policies must include a ''Policy Loan Provision''. Within prescribed limits, the policyowner may borrow money from the cash values of their policies if they wish to do so. They can be paid back at anytime, and if it isn't repaid by the time benefits are payable, the amount borrowed plus any accrued interest is deducted from the proceeds at the time of the claim. If the policy is surrendered, the amount borrowed is deducted by any outstanding loan plus the interest accrued. Interest rates vary, but most states stipulate a maximum rate. In FL the max is 10%. Some newer policies are issued with a variable interest rate tied tot he moody's corporate bond index; older policies stipulate a flat rate of interest, such as 5-8%. Loan values and Cash values are identical amounts in a policy, often listed under the single column heading of ''cash or Loan Value''. Keep in mind if there is an irrevocable beneficiary, loans are only applicable if the beneficiary gives written consent.

What Is the ''Grace Period Provision''?

Allows a policyowner a specified amount of time to make a premium payment after the due date to keep the policy from lapsing. It allows an extra 30 days (4 weeks for industrial policies which must be paid by the 1st) If the insured dies during the grace period and premium hasn't been paid, benefits are payable but the premium amount due is deducted from the benefits payable.

What is the ''Free Look provision''?

Allows the policyowner the right to return the policy for a full premium refund within a specified period of time, if they decide not to purchase the insurance. In florida this time period is 14 days from policy delivery.

What exceptions exempt a Life Insurance policy from being a MEC with payments other than those stated in the contract? Using a $100,000 7yr limited pay whole life policy as an example, with payments specified for $7,500 a year.

As long as the payments never exceed the $7,500 cap per year, the payments must meet the amount specified to be paid by the 7th year when all premiums are due to be paid. Ex. The policyowner paid $7,500 the first year and the second year $7,000 was paid, the policyowner is then eligible to pay $8,000 the third year. But no more or the cap will exceed the amount specified to pay

when dealing with General Accounts versus Separate Accounts what are the distinguishing factors?

General Accounts support the contractual obligations of an insurers fixed, traditional policies; they represent the general assets of the company. Typically invested in conservative investment instruments. Separate Accounts are maintained solely to allow policyowners to participate directly in the account's investment performance and contract values earn a variable, rather than a fixed, return. Separate accounts are not subject to the claims of the insurers general creditors. Many consumers purchase variable contracts for this reason. Variable contract holders are assured that their share of separate account assets will never be compromised, even in the event of company insolvency.

What is the ''Insuring clause'' and its purpose?

Guarantees the company's basic promise to pay benefits upon the insureds death. Generally it is not titled but appears on the cover of the policy and undersigned by the president and secretary of the company.

Define Juvenile Insurance.

Insurance written on the lives of children (ordinarily age one day to age 14 or 15yrs). Application and ownership of the policy rests w/ an adult who is usually the premium payor until the child is old enough to pay premiums.

Order of succession when dealing with Beneficiaries.

Incase the Primary beneficiary predeceases the insured, policyowners are encouraged to designate Primary, Secondary, and, occasionally, tertiary beneficiaries. The primary beneficiary is the party designated to receive proceeds when they become payable. A second beneficiary stands second in line to receive proceeds if the primary beneficiary(s) die(s) before the insured. Also known as ''Contingent" or "Successor" beneficiaries. A Tertiary beneficiary is third in line to receive proceeds only if all primary and secondary beneficiaries have predeceased the insured. If all beneficiaries have died the proceeds are payable to the policyowner, or the policyowners estate, if the policyowner is deceased. There may be more than one beneficiary per category and they should specify the percentage or dollar amount of the proceedsthat each is to receive. It is mainly recommended that each share be indicated as a fraction. for instance a policyowner may have a $20,000 loan against the policy. The policyowner/insured listed his wife(primary) $25,000 and his son(contingent) $25,000. When the policyowner/insured dies his wife will receive 25,000 and his son will receive $5,000. Had the policyowner specified that his wife and son split the proceeds 50/50 the remaining death benefit after the loan was deducted would be distributed as $15,000 each. If a beneficiary dies, proceeds are generally distributed by the "Per Stirpes" or "Per Capita" approach. Per Stirpes means "By Way Of" or "By Branches". This states that a beneficiary's proceeds will be passed down to the beneficiary's living child or children in equal shares if he predeceases the insured. Per capita meaning "Per Person" or "By Head". This states that proceeds are only payable to the beneficiaries who are living and named in the policy. When dealing with irrevocable beneficiaries there are a few specifications when it comes to changes. Technically for all practical purposes the policy is owned by both the policyowner and the beneficiary. A policyowner cannot borrow from the policy, assign the policy, or surrender it without written consent of the beneficiary. Irrevocable clauses can be ''Absolute'' or "Reversionary" Absolute Irrevocable Clause means the beneficiary has an absolute vested interest in the contract even if he predeceases the policyowner. A Reversionary irrevocable clause gives all rights of ownership revert back to the policyowner when the beneficiary dies.

What is the ''Consideration Clause''?

It specifies the amount and frequency of premium payments that the policyowner must make to keep the insurance in force. generally listed I the ''Schedule or Specifications'' page. A separate page will provide details of the manner in which premiums must be paid, as well as the consequences of not paying.

What is the "Guaranteed Insurability rider"?

Must be attached to a permanent life insurance policy at the time of purchase. It permits the insured, at specified intervals in the future to purchase specified amounts of additional insurance without evidence of insurability available at the Standard premium Rates, whether or not the insured is still insurable. Usually available at 3 year intervals beginning at the policy anniversary date nearest the 25th birthday and terminating at the anniversary date nearest the insureds 40th birthday. (this rider usually doesn't extend past age 40). The insured normally has 90 days to exercise this option. Company practice varies but if a waiver of premium or accidental death benefit is included with the original policy, most companies allow these benefits to be added to the additional life insurance purchased under this option as long as the policyowner wants to pay the additional premium.

When are or aren't premiums tax deductible

Premiums are not deductible on personal, business or key person life insurance. Premiums are deductible if owned by a qualified charitable organization, premiums are paid by an ex spouse as part of an alimony decree, premiums are paid by a business creditor for life insurance purchased as collateral for a debt, or premiums paid by an employer for employee group life insurance as long as certain conditions are met.

tax treatment of proceeds.

Proceeds are taxed if interest paid on death benefits left with the company, Proceeds paid in installments because they include interest earned on the proceeds, and, Interest accumulated under dividends are taxable, though the dividend itself is tax free. when it comes to death proceeds and payment of proceeds is made through installments the ''interest'' portion of each payment is taxable. Which is based under the "Annuity Rule''. When surrendering a policy, any gains are taxable.

The ''Entire Contract clause'' falls under different names, what are they?

The contract, Entire contract, and general

What is the ''Beneficiary designation provision'' and the ''Settlement options provision''

They appear in all policies. ''Beneficiary designation'' indicates who is to receive the proceeds. ''Settlement option'' is the way proceeds can be paid out, or ''settled''.

What rights does a policyowner have?

They can change beneficiaries(if stated revocable), the way death benefits are paid out. They can cancel the policy or select the nonforfeiture option. They can take out loans(if irrevocable beneficiary is ; if its a whole life or other permanent plan and cash value exist. If its a participating policy they can choose how they want to receive dividends. Lastly, they can assign right of ownership to somebody else.

What is Equity Index Universal Life Insurance?

This policy features an equity index feature that offers the potential for cash value accumulation and basic interest guarantees. These features help plan for family security and offer a number of interest crediting strategies that allow the potential to build up cash value in the policy, resulting in more flexibility for the policyowner. Policy cash value can be transferred from a fixed account to an indexed account that uses an outside index in the calculation of interest credits. The impact of negative index returns is limited (normally 0%-2%), the maximum is limited by a growth cap which varies from 7%-12%. Each index is made up of different companies and measures a slightly different mix of industries. Policyowners should examine and select the index that meets there overall objectives.

How are premiums based/factored?

They are expressed as an annual cost per $1,000 of face amount. 3 primary factors are considered when computing the basic premium for life insurance: Mortality, Interest, and expense. Of these 3 the "Mortality" factor has the greatest effect on premium calculations. Commonly termed "Rate-Making". Generally interest and expense factors are generally the same for all of its policyholders. But the Mortality factor can very greatly, depending on personal characteristics of individuals insureds. Two primary purposes of a mortality table are to indicate the expectation of life and the probability of death to provide a basis to estimate how long its insureds will live, how long they will be paying premiums, and at what future dates the company will have to pay out benefits. Large insurance companies base their rates on their own statistics and experience or from their own mortality tables from a "Data Pool" based on the esperience of many insurers. Actuaries use the experience of several years. "Interest" is earned by a specific amount of funds from premiums that are combined with other funds and invested. Interest is based off two assumptions, one being that it assumes a specific net rate of interest will be earned on all investments. some will earn more as others will earn less than the assumed rate so the company selects an average rate for its assumption. it may seem low (generally3-4%0, but it directly affects the premium levels guaranteed to policyowners for years into the future. Giving reason why the assumed rates are reasonably conservative. The second assumption made by the company is that one full years interest will be earned by each premium policyowners pay. therefore it must be assumed that all premiums are paid at the beginning of the year. The higher the assumed rate of interest, the lower the premiums charged to policyowners. The "Expense" factor is based off of operating expenses. As does any business, an insurance company has various operating expenses. Personnel must be hired and paid; sales forces must be recruited, trained, and compensated; supplies must be purchased; rent must be paid; and building must be maintained. In addition taxes must be paid. each premium must carry its small proportionate share of these normal operating expenses. Sometimes known as the "Loading Charge". When evaluating individual applications for Life Insurance premiums other factors come into play, such as... Age Sex Health Occupation or Avocation Habits. These factors are considered carefully by insurance company underwriters, whose job is to evaluate and select risks. The three risk classifications typically used are.. Preferred(low risk) Standard(normal risk) And Substandard(higher than normal risk)(may be denied or offered a higher premium to reflect the increased risk) The way insurance companies adjust substandard premiums has a few different approaches like... Extra Percentage tables involves using a numerical system that assumes there are a certain number of extra deaths per thousand that will increase with age for all kinds of cases. Permanent Flat Extra Premium adds a fixed charge per $1,000 of insurance coverage but doesn't increase cash values or nonforfeiture values. The extra premium may be removed once the condition is believed to have changed to a point where the risk is reduced Temporary Flat Extra Premiums is the same as Permanent Flat extra Premiums but is only charged for a specified number of years. Rate-Up in Age assumes the insured is a number of years older than he actually is, resulting in a higher premium. This method is rarely used these days. Lien System issues the policy at standard rates but with a lien against the policy. In the event the insured dies of a cause cited in the policy(and which resulted in the rating of a substandard risk) the lien reduces the amount of insurance.

What is the "Facility-Of-Payment'' provision?

This provision is normally found in Industrial Policies. When dealing with limited situations in which an insurer must pay proceeds to someone not designated as a beneficiary. It permits an insurer to pay all or a portion of the proceeds to someone who, though not named in the policy, has a valid right. These situations include... Named beneficiary is a minor, Named beneficiary is deceased, No claim is submitted within a specified period of time, or Costs were incurred by another party for the deceased insured's final medical expenses or funeral expenses.

Define Payor Provision.

Typically dealing w/ Juvenile policies. This provision provides that in the event of death or disability of the adult premium payor, premiums will be waived until the insured child reaches a specified age (such as 25) or untilt he aturity date of the contract, whichever comes first.

When must insurable Interest Exist when dealing with Beneficiaries?

When a person applies for Life insurance making himself the Insured he can purchase as much Life Insurance as the company will issue naming anybody the Beneficiary.( Whether or not insurable interest exist, because by law individuals are presumed to have an unlimited insurable interest in their own lives) When the policy applicant is not the insured but names himself beneficiary , insurable interest must exist between himself and insured. If the Applicant names yet another person as beneficiary, insurable interest must exist between the beneficiary and the Insured. If a business is a beneficiary, there is no question insurable interest exists in business relationships.

tax treatment of cash values.

they are not taxed as they accumulate inside the policy. if the cash value is taken out while the insured is living for exampleas retirement income each payment is tax free because it represents a return of principle. cash values are only taxed when a policy is surrendered and that amount exceeds the amount of premiums paid into the policy, then the difference of the cash value and premiums paid is the amount that is taxable.

What are the Universal Life death benefit options?

when dealing with Universal Life Insurance death benefits there are two options: OPTION ONE: A specified amount may be designated. The death benefit equals the cash value plus the remaining insurance (decreasing term plus increasing cash value). If the cash value approaches the face amount before the policy matures, an additional amount of insurance (called the corridor) is maintained in addition to the cash value. OPTION TWO: The death benefit equals the face amount plus the cash value (level term plus increasing cash value). **To comply with the tax code's definition of life insurance, the cash values cannot be disproportionately larger than the term insurance portion.

What is Interest Sensitive Whole Life Insurance? Also known as Current-Assumption Whole Life.

Characterized by premiums that vary to reflect the insurers changing assumptions involving death, investment, and expense factors. In this respect It is similar to Indeterminate Premium Whole Life. However, Interest sensitive products also provide that the cash values may be greater than guaranteed levels. If the company's assumptions are more favorable policyowners have two options: Lower Premiums or Higher Cash Values. If assumptions are less favorable the policyowner may pay a Higher Premium or reduce the policy's Face Amount.

what is the ''Entire contract provision?''

It states that the application, and any attached riders constitute the entire contract and not incorporated by reference by any outside documents. It also prohibits the insurer from making any changes to the policy, either through policy revisions or changes in the company by laws after issue. This clause doesn't prevent mutually agreeable changes like changing the face amount of an adjustable life policy.

A Variable Insurance Sales Presentation cannot be conducted without being accompanied by a _________?

Prospectus, prepared and furnished by the Insurance company and reviewed by the SEC.

What is the ''Reinstatement Provision'' and its general requirements?

Gives a policyowner the right to reinstate a lapsed policy with the general exception that, All back premiums must be paid Interest on past due premiums may be required to be paid Any outstanding loans on the policy may be required to be paid Policyowner may be asked to provide insurability. The period which allows a policy to be reinstated is usually 3 years, but may be as long as 7 years in some cases. A new contestable period may go into effect with a reinstated policy, but there is no new suicide exclusion period.

How can a Guaranteed Insurability rider and waiver of Premium work together as a benefit to the insured? If the insured becomes totally disabled at the age of 29?

Her premiums will be waived under the waiver of premium rider and at age 31 she can increase the face amount of the policy to the maximum permitted under the guaranteed insurability rider, all without paying any premiums.

What are variable Insurance products?

Introduced in the 1970's to give the opportunity to policyowners to achieve higher than usual investment returns on their policy cash values by accepting the risk of the policy's performance. There are no guarantees as to either interest rates or minimum cash values, but these policies offer the possibility of investment gains that exceed those available with traditional life insurance policies. Investment of funds is done through a separate account that backs their variable contracts. Their loss, or gain is directly related to the performance of the assets underlying the separate account. Because the risk is transferred from the insurer to the policyowner variable products are considered Securities Contracts as well as insurance contracts. Therefore, they fall under the regulatory arm of both state offices of insurance regulation and the Securities and Exchange Commission (SEC).

what is the ''Suicide Provision''?

It is found in most life policies. It protects the insurer and it's policyowners against the possibility that a person might buy a life insurance policy and commit suicide to provide a sum of money for the beneficiary. This provision discourages suicide by stipulating a period of time (usually 1-2 years from the date of policy issue) during which the death benefit will not be paid, but the premiums will be refunded. If an insured takes his own life after the specified time period the company will pay the entire proceeds as if death were from a natural cause. Most courts will assume a death was unintentional unless there is strong evidence to the contrary, in which they must prove it beyond a reasonable doubt otherwise benefits are still payable.

What is Variable Life Insurance

It is similar to Traditional Life Insurance but the main difference is the manner in which the policy's values are invested. The policy values are invested in separate accounts which house common stock, bond, money-market, and other securities investment options. There is a minimum guaranteed death benefit, it is equal to the policy face amount at issue and is based on an assumed rate of return, usually 3%-4%. Each year that the actual rate of return exceeds the assumed rate of return the death benefit increases, when the actual rate of return is less than the assumed, the death benefit decreases, but never less than the guaranteed amount guaranteed at policy issue. Premiums must be payed on a scheduled basis, failure to do so results in policy lapse. Cash values may be accessed by receiving a policy loan, but usually limited to 75%-80% of the cash value.

What does the ''uniform simultaneous death act'' do?

It prevents the confusion of proceeds if by chance the insured and beneficiary die as result of the same accident. If this case arises and there is not enough evidence to show who died first this act distributes proceeds as if the insured died last. Proceeds would then go to either a secondary or other contingent beneficiary. if no beneficiary has been named, proceeds will go to the insureds estate. However, there are situations where the primary beneficiary clearly outlives the insured, but only for the briefest time(minutes, hours, or a few days). If the provisions of the contract were strictly followed, the primary beneficiary's estate would receive the proceeds. To avoid this matter so the remaining beneficiaries(secondary/contingent) receive the benefits the "Common Disaster Provision'' was developed which gives policyowners greater control over payment of the proceeds. It may be part of the policy itself or incorporated into the beneficiary designation and activates when the insured and primary beneficiary die in the same accident, the primary beneficiary must outlive the Insured by a definite period of time, as stipulated by the policyowner(14 or 30 days are typical choices) in order to receive benefits, if the beneficiary doesn't outlive the insured by the specified time period, benefits go to the next beneficiary stated in the contract or the insureds estate if no other beneficiary is stated.

What is the ''Misstatement of Age or Sex Provision''?

Its an important provision because the age and sex of an applicant are critical factors establishing the premium rate for a life insurance policy. To guard agaist the misunderstanding about the applicants age, the company reserves the right to make an adjustment at any time. Likewise for the applicants sex. Females generally have lower premiums than males. At the time of death of an insured being younger than the application stated, proceeds would increase by refunding the extra premiums paid into the policy. If the applicant was older than the application stated the proceeds would decrease due to the difference of the unpaid premiums owed deducted from the benefit. If the error is discovered while the insured is living and he is younger than the application states a refund of the extra premiums paid will be issued to the policyowner. if the insured is older there are two options, one being the premium will be adjusted upward and require the difference in premium

Who can be a Beneficiary?

Naming a Trust as beneficiary is a legal arrangement for the ownership of property by one party to another. Proceeds are paid to the trust, which is managed by Trustees who have the fiduciary responsibility to oversee and handle the trust and its funds for its beneficiaries. If no beneficiary is designated or if all the beneficiaries predecease the insured before a new beneficiary is designated, proceeds will go to the estate of the insured. estates may intentionally be designated as beneficiaries to pay off remaining debts, etc. When a Charity is named beneficiary, the gift cannot be contested by disgruntled heirs as could in a will. Naming a minor as beneficiary can present legal and logistical complications, including not having the legal capacity to give the insurance company the signed release for receipt, if no receipt is signed the minor could legally demand payment a second time once he has reached the specified age.(Some states have adopted laws that allow minimum specified ages, such as 15, to sign a valid receipt) Proceeds may be paid to the minor in different scenarios, including... Making limited payments to a guardian for the benefit of the minor beneficiary. Retain the proceeds at interest and pay them out when the minor reaches the specified age. Place the proceeds in a Trust for the present or future benefit of the minor, as determined by the Trustee. It is also applicable to name a class or group of beneficiaries known as Class Designation. Ex. ''Children of the Insured'' / ''My Children''

What is the ''Accelerated Benefits provision''?

This provision provides early payment of some of the portion of the policy face amount should the insured suffer from terminal illness or injury. The death benefit is still payable with the accelerated payment deducted. Accelerated payment can be made in a lump sum or in monthly installments over a special period, such as one year. This provision is given without an increase in premium. Some companies deduct an interest charge to make up for what the company would have made had the money ot been withdrawn.

What is the ''Assignment Provision''

Allows the policyowner to make changes to their policy as they please. They can give them away, which is known as assignment. This procedure usually requires that the policyowner notify the company in writing of the assignment. The company will then accept the validity of the transfer without question. The new owner is known as the assignee, insurable interest does not have to exist between the insured and the assignee. Assignee is given all rights to the policy, meaning they can change the beneficiary as long as the beneficiary designation was revocable. If the beneficiary was an irrevocable beneficiary the policyowner must get the beneficiary's agreement to any assignment. There are 2 types of assignments: 1. Absolute Assignment - This type of transfer is complete and irrevocable, and the assignee receives full control over the policy and full rights to its benefits. 2. Collateral Assignment - This type of transfer makes a creditor as security, or collateral, for a debt. if the insured dies the creditor is entitled to be reimbursed out of the benefit proceeds for the amount owed. The beneficiary is then entitled to the excess policy proceeds over the amount due to the creditor, because once the debt is paid the policyowner is entitled to the return of the right assigned. Though there are excpetions, most jurisdictions will not allow an assignee to change the beneficiary designation if it was originally designated irrevocable.

What are Common types of policy exclusions and how do they effect the policy at time of death?

An exclusion is a restriction that excludes coverage for certain types of risks including, War - death benefits will not be paid if the insured dies from war. Aviation - Commonly found in older policies. Though today some insurers will exclude aviation deaths for anything other than fare-paying customers. Hazardous occupations/hobbies - people with hazardous occupations, such as stunt people, or who engage in hazardous hobbies, such as auto racing may find their life policy may exclude death as a result of their occupation or hobby. Or they will be covered with an increased premium. Commission of a Felony - Excludes death when it results from the insured committing a felony. Suicide - Which is only excluded during the specified time. Any which one of these exclusions may be included at the discretion of the insurance company. they are also called ''Optional Provisions'', though the term ''exclusions'' more precisely defines their purpose.

what are the 3 ''Nonforfeiture Options''? What are there purposes?

Cash Surrender Option - Allows the policyowner upon request an immediate cash payment of their cash values when their policy is surrendered. The received is reduced by any outstanding policy indebtedness. Cash surrender values are available for ordinary whole life after the first 3 years, and for industrial after the first 5 years. However most policies start to generate cash values in as little as one year. Most states allow the insurer to postpone payment up to 6 months after policyowners request payment, which is a protective measure should an economic crisis arise, but such delays are rarely invoked. Reduced Paid-Up Option - The policyowner stops making payments and the cash value accumulated is used as the premium for a single-premium whole life policy at a lesser face amount than the original policy, its the same kind as the original policy, but for a lesser amount of coverage. any term insurance rider and disability or accidental death benefits from the original policy are excluded when the amount of paid-up life insurance is calculated. Once the paid-up policy has been issued, the new face value remains the same for the life of the policy, which also builds cash value. Extended Term Option - Allows the policyowner to purchase a term insurance policy in an amount equal to the policy's face value, for as long a period as the cash value will purchase. Moreover all supplemental benefits included with the original policy, such as term rider or accidental death or disability benefits, are dropped. When an endowment insurance policy is extended, the extended term insurance will not be provided beyond the maturity date of the original endowment policy. The cash value will eventually exceed the amount needed to buy the extended term insurance so, the excess cash value is used to purchase a pure endowment policy with the same maturity date as the original policy.

what options can Dividends be paid out?

In cash, usually on the policy anniversary date; after the company approves a dividend. They can be applied directly to the policyowners premium payments. They can be left with the company to accumulate interest, for withdrawal at any time. Though dividends are not taxable, any interest accumulated on them is taxable income the year the interest is credited to the policy whether or not it is actually received by the policyowner. They can be used to purchase Paid-Up additions of life insurance, premium is based off of the attained age the Paid-Up Additions are purchased Though not utilized as frequently as the others, is to use dividends to purchase as much ''one-year term insurance as possible or to purchase one year term insurance equal to the base policy's cash value. This is done through specific application for the issue of a separate rider. Allows for any excess dividend portions to be applied under any of the other regular options.

What is the "Automatic Premium Loan Rider"?

It is a standard feature in some life insurance policies; in others, its provisions are added by rider. Either case it is available at no extra charge. It allows the insurer to pay premiums from the policy's cah value if premiums have not been paid by the end of the grace period. They are treated as ''loans'' and are charged interest; in time, if the loan is not repaid the interest is deducted from the cash value. If the insured dies the loan and the interest will be deducted from the benefits payable. This rider provides that as long as premiums are not paid, the loan procedure will continue until the cash value is depleted, in which the policy lapses. It can be elected at the time of policy issue, or with some insurers added after the policy is issued.

What is the ''Automatic Premium Loan Provision''?

Its commonly added to most cash value policies. It authorizes the insurer to withdraw from the policy's cash value the amount of premiums due if the premium has not been paid by the end of the grace period. The amount withdrawn becomes a loan against the cash value, bearing the amount of interest stated in the contract. Interest will also be deducted from the cash value if the loan is not repaid over time. if the insured dies, the loan plus interest will be deducted from the benefits payable. It is either standard with the contract or added as a rider, with no additional charge to the policyowner. Policy wont lapse until their is no cash value to support the premiums due, if it does lapse the policyowner will have to reinstate the policyand pay back the loans.

What is the "Waiver Of Premium''?

Prevents a policy from lapsing for nonpayment of premiums while the insured is disabled and unable to work. Available to both Term and Whole life insurance. If the company determines that the insured is totally disabled, the policyowner is relieved of paying premiums for as long as the disability continues. some companies include this rider as part of the contract, with cost built into the premium. Other companies it may be added to a policy by rider or endorsement for a small, additional premium. Some policies state the insured must be totally and permanently disabled for the waiver to take effect. It does not apply to short term illness or injuries. In fact, an insured generally must be seriously disabled for a certain length of time, called the ''waiting period'' (usually 90 days or 6 months). Policyowner must pay premiums during the waiting period and if the insured is still disabled at the end of this period, the company will refund all of the premiums paid from the start of the disability. As the disability continues the insurer will pay the premiums due. If the insured recovers and can start back to work, premium payments must be resumed by the policyowner. No premiums paid by the company have to be repaid. For this rider to become operative it must meet the policy's definition of ''Totally Disabled''. Totally disabled can be defined as the insureds inability to engage in any work for which the insured is reasonable fitted by education, training, or experience. Or as with some policies it is stated with the insured inability to work for a stated period (for example 24 months) and at any occupation thereafter. This rider generally remains in effect until the insured reaches a specific age, such as 60 or 65. Premiums are reduced accordingly when the provision expires. Even if the insured becomes disabled prior to the specified age, all premiums usually are waived while the disability continues- even those premiums falling due after the insured passes the stipulated age.

What is the ''Incontestable Clause''?

Specifies after a certain period of time (usually 2 years from issue date while the insured is living), the insurer no longer has the right to contest the validity of the life insurance policy so long as the policy is in force; even on the basis of a material misstatement, concealment, fraud, or a deliberate error made on the application. The incontestable clause is only payable in the case of normal death, when dealing with an accident it generally does not apply because the conditions may vary and are often uncertain, meaning the insurer has the right to investigate. it should also be noted there are three situations in which this clause does not apply, which gives the insurer the right to void the contract, these 3 situations include, Impersonation - meaning the application was made by one person but another person signs the application or takes the medical exam. No Insurable Interest - If no insurable interest existed between the applicant and the insured at the inception of the policy, the contract is not valid to begin with. Intent To Murder - If proven that the applicant applied for the policy with the intent of murdering the insured for the proceeds, the insurance company can contest the policy and its claim.

What is Variable Universal Life Insurance

This policy blends many features of whole life, universal life, and variable life. These features include premium flexibility, cash value investment control, and death benefit flexibility, which makes a VUL policy responsive to the policyowner's needs. VUL policies are issued with a minimum scheduled premium based on an initial specified death benefit. This initial premium establishes the plan, meets first year expenses and provides funding to cover the cost of insurance protection. Once the initial premium is paid policyowners can pay whatever premium amount they wish, with certain limitations. Provided adequate cash value is available to cover periodic charges and the cost of insurance, they can suspend or reduce premium payments. Premiums may even vanish indefinitely if their cash values realize consistently strong investment returns. Earnings or losses accrue directly to the policyowners cash value, subject to stated charges and management fees. Cash value is maintained separately from the rest of the plan. At the time of application, policyowners may elect to have net premiums and cash values allocated to one or more separate account investment options (Usually Mutual funds). Which can be redirected to different accounts periodically, generally once a year, without charge. Providing the policy owner Life Insurance with their own self-directed investment options. They offer either a LEVEL Death Benefit which the policyowner specifies (it remains constant and doesn't fluctuate as cash values increase or decrease), Which provides for a fixed death benefit (until policy values reach the corridor level) and potential higher cash value accumulation if the cash value has increased. Or a VARIABLE Death Benefit, which provides a death benefit that fluctuates in the response to the performance of investments. The policyowner selectsa specified amount of pure insurance coverage. This amount remains constant. The death benefit when payable is a combination of the specified (or face) amount and the cash value within the policy. essentially the cash value is added to the specified amount to create the total death benefit.

What is Universal Life Insurance?

Universal Life Insurance allows policyowners to determine the amount and frequency of premium payments and to adjust the policy face amount up or down to reflect changes in needs. No new policy needs to be issued for changes. Universal life unbundles the basic components of a life insurance policy ''Protection, Accumulation, and Expense element''. As well a mortality charge is deducted from the cash value account each month for the cost of protection and increases with age like term insurance, it may also include an expense, or loading charge. Though the premium may be level, an increasing share goes toward the mortality charge as the insured ages. As premiums are paid and cash value accumulates, interest is credited to the cash value which may be the current Int. rate or the Guaranteed minimum rate specified in the contract. As long as the cash value is sufficient to pay the monthly mortality and expense cost the policy will continue in force whether or not the policyowner pays the premium, if there isn't sufficient funds the policy terminates. A specific percentage of all premiums must be used to purchase death benefits or the policy wont receive favorable tax treatment on its cash value. At stated intervals (usually upon providing evidence of insurability) the policyowner can increase the face amount of the policy. Or a decrease face amount can be requested. An increase in payments is not required as long as the cash values can cover the mortality and expense cost. But, the policyowner can pay more into the policy, thus adding to the cash value account but subject to specific guidelines that control the relationship between cash values and the face amount. Partial withdrawals can be made from the cash value account or the policyowner can surrender the policy for its entire cash value at anytime butt he company will probably asses a surrender charge unless the policy has been in force for a certain number of years. Universal life also has other features involving accidental death benfits rider, accelerated benefit rider, no-lapse guarantee rider, and an additional insured rider.

When does a policy change into a MEC?

When it doesn't meet the 7-pay test. Referring to a $100,000 7yr limited pay whole life policy, if each years net premiums due are $7,500 and the first year premiums paid are 7,500 and the second year premiums paid are $8,000, the policy is then deemed a MEC because the amount paid exceeded the amount specified to pay each year.