Life & Health Insurance Exam Colorado
USA PATRIOT Act/Anti-Money Laundering
-2001 -Amends bank security act -Requires every financial institution to file a currency transaction report (CTR) with the Financial Crimes Enforcement Network (FinCEN) within the department of the treasury, for each cash transaction that exceeds $10,000 -Requires the reporting of wire transfers in excess of $3,000
Nonforfeiture Provisions or Options
-3 options -Cash Surrender; most up front---TEST -Tax on profit only -Amount received in excess of premiums paid is taxable -Extended Term--Best death benefit--TEST -Don't break-even until 10 years -Reduced Paid-up--Most Years---TEST
Assignments
-Absolute assignment is permanent change of ownership--TEST -Collateral assignment is temporary -Often used when insurance is required as a condition to a loan---TEST
Policies with Flexible Premiums
-Adjustable whole life -Universal whole life-Target premium -Variable/universal whole life -Interest sensitive whole life
Accelerated Death Benefits
-Also known as Living Benefits Rider, 12 months or less -Apply when insured gets a terminal illness -Insurer will pay out a portion of death benefit -Face amount paid to beneficiary at death is reduced by the amount paid out while living -Money must be used to pay hospital bills
General Features of Annuities
-Always have beneficiary during the pay-in or accumulation period -May or may not have a beneficiary during the pay-out or annuity period -During pay-out period all Pmt's are for the life of the annuitant -Long-term investments subject to 10% early withdrawal penalties on withdrawals taken prior to 59.5 -Immediate annuities have no pay-in or accumulation period--single premium -Variable annuities use a separate account (Like Mutual fund) -Have 30-day grace period
Consideration Clause
-An exchange of values -Pays first premium then answers questions on application -Representation is truth to the best of your knowledge -Company agrees to provide coverage in exchange -No coverage unless premium is paid
Policy Loan Provisions
-Applies only to polices with cash value-not term -Maximum fixed interest rate usually 8% might have dropped -Loans need to be paid back while insured is still alive -Interest will accrue if loan is not paid---TEST
Reinstatement Provision
-Applies when a policy lapses at the end of the grace period -Allows insured to apply for reinstatement for up to 5 years after lapse -Insured maintains original age -A policy surrendered for cash may not be reinstated
IRA; Individual Retirement Account
-Available to anyone with earned income---TEST -If you have a non working spouse a Spousal IRA is allowed--TEST -ROTH IRA's are always funded with after tax dollars, exception to pre-tax of qualified plans; tax free when taken out
Risk Classification
-Average client known as standard risk -Nonstandard or substandard pay higher rate -Preferred risk client receives a lower than standard rate -Most risk classification is done by adding premium surcharges -May not use marital status as an underwriting factor--TEST
Key Employee Life Insurance
-Benefits company not person -Business is beneficiary -Premiums paid are not tax deductible -Proceeds paid are not taxable -In the event that the key employee no longer works for the company, yet premiums are still paid, and they die, policy proceeds would go to company--TEST
Stranger-Originated Life Insurance (STOLI)/ Investor-Originated Life Insurance (IOLI)
-Both illegal in Colorado because of insurable interest does not exist
Personal Insurance Needs
-Capital Needs approach - Make sure client has enough insurance to meet needs should they die tomorrow for things like paying off the house, putting kids through college, funeral expenses, etc. -Human Value approach - Deals with what would be the loss, income wise, generally results in higher needs
Types of Dividend Options
-Cash -Interest--the interest is taxable -Paid-up Additions -Apply to premium when due -One-year term insurance -New additional term policy expires in 1 year -Selected by people who might die that year
Variable Whole life
-Cash value deposited into a separate account -Requires FINRA series 6 or 7 to sell -Used to be called NASD -Regulated by SEC -Regulated by FINRA (Financial Industry Regulatory Authority) -NYSE license not required -Minimum death benefit (face amount) is guaranteed---TEST -Has fixed premium---TEST
Consequences of Accepting an Incomplete Application
-Constitutes a waiver, the voluntary act of giving up legal rights -Estoppel- Inability to enforce legal rights once given up - 2 years
Annuity Pay-Out Options
-Contractual; cannot be changed once selected -Amount received in excess of cost are taxable as ordinary income -For life -Cash surrender under age 59.5 subject to IRS 10% penalty -Non-qualified=Funded with after tax dollars
Entire Contract Clause
-Defines what is admissible in court -Only policy, endorsements & attached papers if any -Prevents company from changing the policy after policy delivery
Free Look
-Enables insured to examine policy after delivery -May return policy and get full refund if not satisfied---TEST -15 days to do so
Life Insurance Policy Provisions & Options
-Entire Contract Clause -Insuring Clause or Agreement -Free Look -Consideration Clause -Owner's Rights -Beneficiary Designations -Premium Payment Provisions -Reinstatement Provision -Policy Loan Provisions -Nonforfeiture Provisions or Options -Dividend and Dividend Options -Incontestability Clause -Assignments -Suicide Exclusion -Misstatement of Age & Gender Clause -Settlement (Pay-out) Options -Accelerated Death Benefits
Decreasing Term
-Face amount goes down but premium remains the same -Usually convertible to whole life regardless of health -Premium stays the same but cost increases as face amount decreases
Increasing Term
-Face amount goes up instead of down -Allows beneficiary to receive the face amount + premiums or cash values -Also known as Universal Life option B
Fair Credit Reporting Act---TEST
-Federal law protecting applicants privacy -Applies when ordering consumer reports on applicants -Must give applicant pre-notification -Obtain applicant's written consent -If insurer takes adverse action based on report: -Post notification must be given to applicant -Must state specific reason -State where a copy can be found -Insurer cannot give applicant copy of form -If report wrong, applicant may sue to have it corrected
Keogh Plan (HR-10)
-For self-employed, partners and their employees --TEST
COAL
-Four elements required to have a legal contract -C=Consideration -O=Offer -A=Acceptance -L=Legal
Variable Annuity
-Goes into separate accounts -Valued in annuity units---TEST -Buyer bears risk -Need FINRA/securities license and annuity course -Subject to state and federal regulation -Insurance under state law
Universal Whole life
-Guaranteed minimum interest rates -Extreme flexibility regarding premium PMTs----TEST -Most flexible product -Target premium based on projected earnings -Option A UL has level death benefits -Option B UL will pay beneficiary both face amount + cash value
Disclosures at Point of Sale
-HIPAA -HIV-Must have written informed consent and can only be disclosed to applicants doctor -Credit Report -Must have written informed consent
Types of Qualified Plans
-IRA; Individual Retirement Account -SEP IRA; Simplified Employee Pension IRA -Keogh Plan (HR-10) -TSA; Tax Sheltered Annuity -401K
Combination Plans & Life Insurance Policy Variations
-Joint Life Policy -Survivorship Life Policy
Types of Business Insurance Needs
-Key Employee Life Insurance -Partnership Life Insurance -Split Dollar Life Insurance
Term Life
-Level Term -Decreasing Term -Increasing Term
Specific Annuity Pay-Out Options (Annuitization)
-Life Income -Life Income with period certain -Life Income with refund -Joint life annuity -Joint survivor annuity
Premium Payment Provisions
-Mode of payment -The more frequent the mode, the higher the premium -Annual mode of payment has lowest cost -Grace periods -30 day grace period for individual life insurance -31 day grace period for group life -Automatic Premium loan rider -Will automatically borrow the amount of the premium if insured does not pay by end of grace period -Creates a policy loan
Legal Purpose and Capacity
-Must be of legal age and sound mind -Must be purchased for a legal purpose
Insurable Interest
-Must exist at the time of application -May be based on economics or kinship
Qualified Retirement Plans in General ---TEST
-Must follow federal ERISA guidelines (Employee Retirement Income Security Act of 1974--TEST -100% vesting must occur; Pre-tax -Cost basis measures amount of $ that has been taxed -Funded with before tax dollars -Employee's cost basis is 0
Owner's Rights---TEST
-Must pay premium-usually -May designate beneficiary, may also change beneficiary -Can assign ownership rights to others -May select dividend options and nonforfeiture options
Immediate Annuity
-No accumulation period -Pays in single premium -Annuitizes right away
Discrimination in Retirement Plans
-No discrimination may exist in favor of higher paid workers -May be set up either as a defined benefit-everyone gets the same benefit-or as a defined contribution-401 K -everyone gets the same percentage contributed
Offer & Acceptance
-Offer made by applicant -Paying premium and completion of application or applicant's offer to buy insurance -Acceptance made by underwriter -Occurs when application is approved -Producer does not make acceptance -Also known as mutual agreement -A meeting of minds has occurred between applicant and insurer -Producer not a party to actual contract, even tho they sign
TSA; Tax Sheltered Annuity
-Only annuity that is considered qualified -2 types of eligible employees -IRC 403b, employees of school teachers, administrators, and staff -IRC 501c-3, employees of religious affiliated organizations & non-profits
Traditional Whole Life
-Ordinary (Straight) Life -Limited-Pay & Single-Premium Whole Life -Adjustable Whole Life
Policies with Level Premiums
-Ordinary whole life -Limited-pay whole life -Single premium whole life -Variable whole life -Equity indexed whole life -Term insurance -could be 1 year or more
Indexed Annuity
-Pays 2% on cash value -Securities license not required -Cash accumulation usually linked to an index (S&P) -If index outperforms guaranteed interest rate, difference credited to cash value -Premiums do not change
Joint and Survivor Annuity
-Pays until the last party dies -Payment often adjusted upon the death of the first party because of age difference
Suicide Exclusion
-Period of time after buying a policy where suicide is not covered -1 year
Eligibility Requirements in Retirement Plans
-Plan must cover all who are: -Full time employees -At least age 21 -Employed for at least 1 year
General Features of Term Insurance
-Premium goes up every year -May be converted to whole life at current attained age regardless of health -May be renewable up to certain age without physical
Limited-Pay & Single-Premium Whole Life
-Premium paying period is shorter -Cash value still equals face amount at age 100 -20 pay life will be paid up in 20 years PL -Life Paid up at age 65, will be paid up at 65 LP -A single premium policy will have an immediate cash value (1-pay life)---TEST
Tax Treatment of Individual Life Insurance
-Premiums are not tax deductible -Proceeds are included in the value of the deceased's estate
Beneficiary Designations
-Primary beneficiary receives proceeds when insured dies -Can have as many primaries as wanted -Guardian must be appointed for children -Company may designate irrevocable beneficiary -Common disaster clause -Applies if insured and primary beneficiary both day as a result of the same accident -Insured always dies last even if not the case -Primary beneficiary must die within 10 days for clause to be enacted
Explaining the Policy to the Client
-Producer should personally deliver the policy to the client -If policy was issued with surcharge or an exclusion this is known as the counteroffer -Counteroffer must now be accepted by applicant
Collecting Initial Premiums & Issuing Conditional Receipts
-Producers gives applicant a conditional receipt -C.O.D. Collect on delivery submittal applications -No coverage exists since no premium has been paid -Producer delivers policy and collects premium, now the coverage begins -Producer also obtains a statement of good health -Life and health producers never use binders-verbal agreement, they are not allowed
Insuring Clause or Agreement
-Promise to pay -States that coverage is provided in accordance with the terms of the policy -Located on first page -States coverage, effective date, and parties -Promise can be legally enforced
Life Insurance Policy Exclusion
-Protects insurance companies -Aviation Exclusion, student pilot can be removed once insured has obtained certain amount of hours -War or Military, covered by military term insurance -Life insurance policies have few exclusions
Special features of Term Insurance
-Renewable/Convertible to whole up to certain date or age regardless of health -Conversion based on current age -May only convert to more expensive option -Cannot convert to term -Cannot convert to more coverage than you have
Warranties and Representations on the Application
-Representations required of applicants---TEST -Misrepresentation of a material fact may void the policy = Concealment -Fraud- lying, intent to deceive the company
Consideration
-Required for legal contract -Applicant's consideration is the premium paid + applicant's statements on application -Insurer's consideration is their promise to provide coverage in return
Distribution Rules in Retirement Plans
-Required minimum distributions (RMD) must begin no later than age 70.5
Variable/Universal Whole life
-Requires Finra(series 6 or 7) licenses to sell -Allows client to self-direct cash values into sub-account---TEST -Flexible premium
Partnership Life Insurance
-Requires buy-sell agreement drafter by lawyer -Each partner buys policy on the life of the other -If partner dies, policy pays proceeds to the surviving partner -Sometimes called a cross purchase buy-sell agreement -If there are 3 partners a total of 6 policies would have to be sold
Group Life Insurance
-Same for life and health -Employee receives certificate of insurance stating coverage -Convertible to whole life within 31 days of termination without evidence of insurability -Conversion based on current attained age of insured -Can only convert amount of policy not more -Cannot convert term to term -75% of eligible employees must participate (Most)---TEST -100% of eligible employees must participate (All)--TEST
Misstatement of Age & Gender Clause
-Separate from the incontestability clause -Applies indefinitely -If age misstated, benefits are adjusted -Beneficiary only receives what the premium the insured would have purchased had they told the truth -Premiums are not adjusted just benefits payable
Types of Annuities
-Single Premium Deferred Annuity (SPDA) -Level Premium Annuity -Flexible Premium Annuity -Immediate Annuity -Fixed Annuity -Regular -Variable Annuity -Indexed Annuity
Social Security Benefits
-Small death benefit-only $255 -Has survivors' benefits -Benefits indexed for inflation -Some benefits are based upon the Primary Insurance Amount (PIA)- The amount a person would receive if they elect to begin receiving retirement benefits at normal retirement age
Adjustable Whole Life----TEST
-Sold to clients with fluctuating incomes----TEST -Combination of term and whole life----TEST -Coverage may not be increased without physical exam---TEST
Dividend and Dividend Options
-Stock vs. Mutual -Own insurance in stock, no dividend -Own insurance in mutual, yes dividend -Dividends paid by a mutual insurer are not taxable because it is a return on an over payment of a premium -Dividend options may be changed at any time by owner
HIPAA
-The privacy rule protects all individually identifiable health information, Protected health information includes: -Health data -Name -Address -Social Security Number -Birth Date
Life Income with Period Certain
-Type of ---Annuity Pay out-option -5,10,15, or 20 years-----TEST -Guarantees PMT's -Longer the period certain, the lower the monthly PMT -Has beneficiary during the period certain only -Less risk than life income option, payout lower -Doesn't guarantee all monies, just those that would have been paid out during the certain period
Joint Life Annuity
-Type of Annuity Pay-out option -Pays only until first annuitant dies
Life Income
-Type of Annuity pay out-option -Also known as straight life option -Has no beneficiary, considered risky -Highest monthly pay out---because of risk
Life Income with Refund
-Type of Annuity pay-out option -If annuitant dies before recovering all monies, refund goes to beneficiary -Beneficiary may choose cash refund or installment refund -Will pay as long as annuitant lives
Joint Life Policy (First to Die)
-Type of Combination Plans & Life Insurance Policy Variations -Covers 2+ on same policy -No further coverage for remaining party
Payor Benefit Rider
-Type of Insurance Rider -Added to policy on child -Waives premium if payor dies or becomes disabled -Expires when child reaches age 18-----TEST
Other Insured Rider---TEST
-Type of Insurance Rider -Added to whole life policy under certain circumstances -Adds coverage for new spouse on whole life -Subject to insurability (Physical Exam) -Could be used to add coverage on newborn, on current policy, term insurance rider on child
Long-Term Care Rider
-Type of Insurance Rider -Costs extra and may be added to a cash value policy -Allows policy owner to take money out of policy's cash value to pay for qualifying nursing home or home health care
Accidental Death Benefit Rider
-Type of Insurance Rider -Death must occur within 90 days of accident or it is assumed to be form of natural causes -Doesn't cover death due to sickness only accidents
Guaranteed Insurability Rider(GIR)
-Type of Insurance Rider -Enables insured to increase coverage later regardless of health -Option dates usually occur at 2 or 3 year intervals, if skipped the date is lost -At each increase, rates are based upon current age
Term Insurance Rider
-Type of Insurance Rider -Often added to whole life policy to increase coverage -Some whole, some term -Term portion will not cover unless insured dies within the term period
Return of Premium Rider
-Type of Insurance Rider -Same as term -Could be added to term depending upon company -Also called return of premium term insurance (ROPT) -If insured should live to end of term, premium is returned tax-free
Waiver of Premium & Waiver of Premium with Disability Income (WP)
-Type of Insurance Rider=Add on to coverage -Disability income insurance added to a life policy -6-month waiting period; if satisfy waiting period insurer will reimburse insured for paid premiums within that period -Premiums waived, and policy still enforced as long as insured is disable -If added with disability income, policy pays insured's net income during disability
Interest/Market Sensitive Whole Life Products
-Universal Whole life -Variable Whole life -Variable/Universal Whole life -Equity-Indexed Life
Ordinary (Straight) Life
-Until 100 or Death, whichever comes first -Permanent Protection -Rates & benefits based on law of large numbers (Mortality Rate) -Guaranteed, tax-deferred interest rate -Premium level, company's risk goes down as cash value goes up -Insurer keeps the cash value if death to offset risk -Lowest net cost in long run -Client has access to cash through cash surrender or policy loan -Rates are per unit of protection (1,000 is 1 unit)---TEST -Cash value is guaranteed -Cash value will equal face amount at policy maturity
Non-Qualified Retirement Plans
-Usually no vesting until retirement-often discriminatory -Usually set up as deferred compensation by small companies
Survivorship Life Policy (Last to Die)
-Usually used to pay estate taxes -Used in estate planning--TEST
Medical Information and Consumer Reports
-Verifies finances, credit history, and character -Verifies medical history through ordering Medical Information Bureau (MIB) report -Insurers who are MIB members report adverse health information to them -MIB procedures require a disclosure to the applicant of data in MIB files upon written request of applicant
Life Insurance Policy Riders
-Waiver of Premium & Waiver of Premium with Disability Income(WP) -Guaranteed Insurability Rider(GIR) -Payor Benefit Rider -Accidental Death Benefit Rider -Term Insurance Rider -Long-Term Care Rider -Other Insured Rider -Return of Premium Rider
Third Party Ownership
-When a policy owner buys a policy on someone else -First party is the insurance company -Third party is often a spouse, child, partner, or key person, must have insurable interest -Owner can assign ownership to third party at a later date; absolute assignment -3 people must sign application, unless minor is involved
Coverage Begins When
-When all conditions have been satisfied or when the underwriter approves the application ; whichever occurs first -Never any coverage unless premium has been paid
Settlement (Pay-out) Options
-When insured is dead -5 choices -Cash -Lump Sum, only option that guarantees proceeds are not taxable -Intrest option-Taxable -Fixed amount option-monthly payments set -Fixed period option-pay certain amount of money for certain period -Annuity option
Equity-Indexed Life
-cash value, where minimum death benefit is guaranteed as well as the minimum earning on the cash value in the general account -Securities license is not required -Fixed Premium
Producer
= Agent
Split Dollar Life Insurance
A type of non-qualified plan
Level Term
Both premium and face amount are level for period of time
Changes in the Application
Can never make changes unless the applicants initials have changed
Rollover Rules in Retirement Plans
Must be done within 60 days of a distribution
Return of Premium under Term
The premium for a return of premium policy is generally more than that for a term policy, but less than that of a traditional whole life policy
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies
