Life and Health Insurance Chapter 2
annuity
A contract that provides income for a specified period of years, or for life.
Annuitant
A person who receives an annuity contract's distribution.
Qualified Plan
A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.
Joint Life Insurance
A single life policy covering two or more lives. Can be written as a term or permanent. The benefit is paid upon first death only and rates are based on a joint average age.
Annuity Units
A variable annuity contract owner's interest in the separate account after annuitization.
Accumulation Units
A variable annuity contract owner's interest in the separate account prior to annuitization.
Annually Renewable Term Insurance
Always the insurance component of a universal life policy
Fixed Annuity
An annuity that offers fixed payments and guarantees a minimum rate of interest to be credited to the purchase payment or payments.
Return of Premium (ROP)
An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.
what is the purest form of term insurance?
Annually Renewable term (ART). It remains level
Variable Annuity
Annuity that has a varying rate of return based on the mutual funds in which one has invested
Interest Sensitive Whole Life
Guaranteed death benefit to age 100. Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors.
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?
Immediate annuity
Annuity Period
In a variable annuity, the time when the client is receiving benefits from the contract based on the number of units owned, payout option selected and the performance of the separate account
They type of term insurance that provides increasing death benefits as the insured ages is called?
Increasing term
Why is an equity indexed annuity considered to be a fixed annuity?
It has a guaranteed minimum interest rate.
Variable whole life insurance is based on what type of premium?
Level fixed
Indexed Whole Life
Policy whose death benefit increases according to the rate of inflation, usually tied to the CPI.
Universal Life Insurance
Policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again.
What two categories do life insurance fall into?
Temporary and permanent protection
Who bears the investment risk on Variable Life policy?
The Policyowner
The following is NOT true regarding annuitant
The annuitant cannot be the same person as the annuity owner
A policy owner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?
The death benefit will be reduced by the amount of any unpaid loans and interest.
who bears the investment risk on whole life policy?
The insurer
Target premium in a universal life policy
The recommended amount to keep the policy in force throughout its lifetime
The main difference between immediate and deferred annuity's is?
When the income payments begin
cash value
a policy's savings element or living benefit
suitability
a requirement to determine if an insurance product is appropriate for a customer
decreasing term policy
a term insurance policy that maintains a level premium throughout all periods of coverage while the amount of protection decreases
The death protection component of Universal Life Insurance is always
annually renewable term
income payments from deferred annuity
begin sometime after 1 year from the purchase date
Nonforfeiture Values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Variable Life Insurance
contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
What is the most common type of temporary protection purchased?
level term insurance
3 basic types of term coverage
level, increasing, decreasing
what does whole life insurance provide?
lifetime (permanent) protection and accumulates cash value
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
Level Premium
the premium that does not change throughout the life of a policy
the policy will NOT lapse if you miss a premium payment on this type of life policy
universal life policy
converting
when you switch from term to whole life and vice versa
deferred
withheld or postponed until a specified time or event in the future
Variable Universal Life Insurance
• A combination of universal and variable life.
Immediate Annuity
purchased with a single premium
Term insurance provides what?
pure death protection
increasing term policy
level premium, as do all policies, but the face amount increases every year of the policy term
Key Characteristics of whole life insurance
level premium, death benefit, cash value, living benefits
Term Insurance
no cash value; provides the greatest amount of coverage for the lowest premium
beneficiary
one who receives annuity assets if the annuitant dies during the accumulation period, or whom the balance of annuity benefits is paid out.
Cash Value Insurance
only develops when the premiums paid are more than the cost of the policy
Death Benefit Options
option A- level death benefit option B- increasing death benefit
Two parties of annuity
owner and annuitant
classification of annuities
premium payment method: single 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
What is NOT true regarding the accumulation period of an annuity?
It would not occurred in a deferred annuity.
Two ways Periodic Payments can be:
Level: owner pays a fixed installment Flexible: amount & frequency of each installment varies
What are the licensing requirements for someone who sells variable universal life insurance?
Life insurance and securities
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?
Limited-Pay Life
Accumulation Period
The time over which the annuitant makes payments or investments in an annuity, and when those payments earn interest tax deferred.
Liquidation of an estate
converting a person's net worth into a cash flow
Owner of Annuity
has all the rights, naming beneficiary and surrendering annuity
policy maturity
in life policies, the time when the face value is paid out
Survivorship Life
insures two or more lives for a premium that is based on a joint age; pays on the last death. Used to offset the liability of estate tax.
Target Premium
recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime
Fixed Life Insurance
contracts that offer guaranteed minimum or fixed benefits
adjustable life
developed in an effort to provide the Policyowner with the best of both worlds. (term and permeant coverage)
Securities
financial instruments that may trade for value (for example, stocks, bonds, options)
Indexed Annuities
fixed annuities that invest on a relatively aggressive basis to aim for higher returns
2 components of a universal life policy
insurance component (always A.R.T) and cash account
The following is an example of a limited-pay life policy
Life paid-up at age 65
Two components of a universal life policy
insurance component and cash account
What does "level" refer to in level term insurance?
it does NOT change (stay's level)
two ways annuity can be funded
single premium: one lump sum periodic payments: payed in installments over time
3 basic forms of whole life insurance
straight (ordinary) whole life, limited pay whole life and single-premium whole life
Minimum Premium
the amount needed to keep the policy in force for the current year