Life Insurance Policies (12%)
When are settlement options available in a Whole Life Policy?
Settlement options are available upon the death of the insured or upon the policy's maturity.
Explain Graded Premium Whole Life Insurance.
Specifies two premium rates: a guaranteed maximum, and a lower rate the insured actually pays. The lower premium level is for a set period of time. Then the company establishes a new rate that may be higher or lower than the initial premium but the premium will never be more than the guaranteed maximum.
Explain Joint Survivorship Life (Last to Die) policy.
A Whole Life policy is written to cover 2 or lives (matures at age 100). Couples who plan to defer estate taxes until the second spouse does purchase this policy. Death benefit is not paid until the last insured dies. Premiums are based upon a joint issue age determined from a special table.
What are the two death benefits available in Universal Life Policies?
A. Level death benefit that builds more cash value or B. Increases the death benefits by paying the face amount plus the cash value.
In an adjustable Life policy, what does an increase in premium effect?
An increase in premium has the effect of increasing future cash values and either: A. lengthening the period of protection if it's a term policy B. Shortening the premium payment period if the policy is in the whole life range.
Juvenile Life
Any policy written on the life of a minor. Premium remains level for the life of the policy, and the usual increase in the face amount is 5 times the issue amount. Popular type is commonly called "Jumping Juvenile" because it automatically increases the face amount at a given age (usually age 21 to 25).
Explain Continuous Premium (Straight Life) Whole Life Insurance.
Both the premium and the face amount remain level to age 100 or death of the insured, whatever comes first.
What is endow (endowment)
Endowment is the matury date or time at which the cash value equals the face amount. If the policy matures, it is said to endow, and the proceeds are paid to the policyowner.
In an Adjustable Life policy, what is required when insured wants to increase death benefit?
Evidence of Insurability.
What is face amount?
Face amount is the death benefit payable on a life policy; may also be called limit of liability.
Explain interest in a Universal Life policy.
Interest is credited to the cash value. The interest is credited at the current interest rate with a guaranteed minimum rate established.
Explain Modified Whole Life policies.
The applicant needs a greater amount of protection that what he/she can presently afford. Allows applicant to purchase a reduced amount of whole life with a term rider attached to make up the difference. Within a stated period of time the dividends will purchase additional insurance until the face amount plus the additional term insurance equals the original need. If the actual dividends are not sufficient to provide the additional coverage over the stated time, the dividends will be diverted to buy 1 year renewable term until such time as the original contract limits are reached.
Explain a decreasing term life insurance policy.
The death benefit decreases, but premiums usually remain level for the policy term; often utilized as "Mortgage Redemption" or "Credit Life Insurance."
What is a Whole Life insurance policy? Also known as Ordinary Whole Life or Continuous Pay Life.
Whole life is used for a permanent need of protection.
Are nonforfeiture values available to policyowners in case the policy lapses from nonpayment?
Yes, nonforfeiture values are available.
Do Whole Life policies build cash, loan and nonforfeiture values.
Yes, whole life policies build cash, loan and nonforfeiture values.
When does a Whole Life policy mature?
A Whole Life policy matures at insured's age 100. It pays the face amount to owner if insured lives to age 100. Premiums are paid to age 100 or to time of premature death which ever occurs first.
Explain Adjustable Life.
Adjustable Life is a level-premium, level-death benefit policy that can assume the form of Term or Whole Life within a single policy. All common features of level premium cash value life insurance are still present. Policyowner may change or make adjustments without adding or exchanging existing policies. The type or amount of coverage and the premium amount may be changed.
What is amortization?
Amortization is the reduction of the value of an asset by prorating its cost over a period of years.
Explain Current Assumption (Interest Sensitive) Whole Life:
Current Assumption Whole Life is a Straight Whole Life policy with the following variations: A. Flexible premiums, with adjustments made on specific anniversaries, specified by the insurer. B. Face amount does not fluctuate. C. Current interest rate is higher than the insurer's rate for traditional whole life policies which provides inflation protection.
What is the main difference between Universal Life and other Whole Life policies?
Flexible premium schedule.
When does term life insurance expire?
It expires at an attained age (term to 65) or after a specified period of time (10-year term).
Explain Joint Life (First to Die) policy.
Joint Life is a Whoe Life policy written to cover 2 or more lives (matures at age 100). Death benefit is paid upon the death of the first to die. Premiums are based upon a joint issue age; which is obtained by an average of both insured's' ages resulting in a lower premium than two separate policies. Policy provides income protection for spouses when both have earned income. Also used to fund Buy-Sell Agreements.
Is cash value guaranteed in a Universal Life policy?
No cash value is never guaranteed in a Universal Life policy.
Explain Variable Universal Life.
Premium and death benefits are flexible but instead of a cash account, the excess cash is placed in a separate account or accounts as an investment. Insurer allows policyowner to select the type of separate accounts from those available within the policy. Policyowner is allowed to transfer funds between these accounts during the life of the policy. Transfers are never taxed as the funds remain within the confines of the policy. This allows the owner to choose where funds will be invested, allowing flexibility in the timing and amount of premium payments, and also providing more participation as well as responsibility. The separate accounts (mutual funds) offered are grouped under account headings showing the actual investment participation and the historical performance of each account.
Does term insurance have a cash value? What does it provide?
Term life insurance does have a cash or loan value. It provides purely protection.
What is term life insurance?
Term life insurance is temporary protection for a specified period of time.
Explain an increasing term life insurance policy.
The death benefit increases over the life of the policy and the premiums remain level. This type of term is normally written as a rider for the return of premium on a permanent policy over a set number of years.
Explain the death benefit and cash value in a Univeral Life policy.
The death benefit is in the form of 1 year renewable term while the cash value account earns interest at the current rate.
Explain a level term life insurance policy.
The death benefit remains level and the premiums remain level during the policy term. Most group life insurance is written level term.
Explain Single Premium Whole Life Insurance.
The entire cost of the policy is paid at the time of the purchase. The face amount remains level to age 100.
When would the face amount of a term life policy be paid?
The face amount is only paid if the insured dies during the specified term of the policy.
Explain an Annually Renewable Term life insurance policy.
The simplest form of term life insurance is for a term of one year. The death benefit is paid by the insurer if the insured if the insured dies during the one-year term, while no benefit is paid if the insured dies one day after the last day of the one-year term.
Adjustable Life policies are most appropriate for whom?
Those whose income is expected to fluctuate from year to year or those persons who may have a fluctuation in needs.
Explain cash value and complying with the IRS' tax code in relation to Universal Life.
To comply with the IRS Tax Code's definition of "Life Insurance," the cash value cannot be disproportionately larger than the term insurance portion of the policy.
True/False. Can term insurance be written separately or with other types of insurance (as a rider) to suit individual needs?
True.
True/False. Whole Life policies have level premiums and face amounts. Premiums will be more than the cost of the policy in early years and less than the cost in the alter years.
True.
Explain Universal Life.
Universal Life allows the policyowner to select the face amount, within an insurer's allowable minimum and maximum. It is usually purchased to provide the policyowner with flexibility not found in Whole Life policies. It adjusts to interest rate changes and allows the owner to make additional contributions that will increase the cash value or skip some premiums. The frequency of premium is also chosen by the policyowner within the limits set by the insurer. Adjustments to the face amount, up or down may be requested by the policyowner to reflect changes in need. The policyowner may borrow or make partial withdrawals without terminating the policy but loans may reduce the interest amount credited to the cash value. The policyowner receives an annual statement detailing expenses, mortality and interest expenses.
Explain Equity-Indexed Universal Life.
A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index. Indexed universal life insurance policies typically contain a minimum guaranteed fixed interest rate component along with the indexed account option. Indexed policies give policyholders the security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns. Indexed universal life insurance differs from variable universal life insurance in that indexed policies follow a stock market index, while variable policies can allow policyholders to allocate funds to a variety of investment vehicles, such as stocks, bonds and equity funds. Indexed policies tend to be less expensive than variable policies, and offer greater security against stock market declines.
When does cash value equal the face value in a Whole Life policy?
Cash value equals face value when policy matures-age 100.
Explain Limited Payment Whole Life Insurance.
Premium payments are a for a specified period of time, such as 20-pay (pay premiums for 20 years), 30-pay or to age 65.
Explain a Life-Expectancy term life insurance policy.
Provides a level term benefit over the life expectancy of the insured using a specific mortality table. The contract is pure protection, but with the level premium concept, a cash value accumulates to help offset the required premiums in the later years.
In a term life policy, what are the rates charged based upon and would rates be higher for a 10-year policy or a 5-year policy?
Rates charged are based upon the age and gender of the insured and upon the length of time protection is provided; rates are higher for a 10-year level term than for a 5-year level term.
Explain the insurance protection in a whole life policy.
The insurance protection is the face value minus the cash value (as cash value increases, pure protection decreased but the face amount remains the same).
Explain the premium outlay for a term life insurance policy.
The low, initial premium outlay when the insured is young increases at renewal or conversion, and as the insured's age advances, the policy becomes more expensive.
In a Whole Life policy, would premiums be higher or lower if the premium paying period is shorter?
The shorter the premium paying period, the higher the premium (Limited Pay Life of 20 years would have a higher premium than a Straight Whole Life).
Can you add riders to a whole life policy? Can you convert a whole life policy to a term policy?
You may add a term rider to this policy but you cannot convert a whole life policy to a term policy.
What is the maximum age limit for term life coverage?
Maximum age for issue or renewal of coverage is 70 years old.
Can a policyowner borrow from the cash value in a whole life policy? If so, what type of interest rate is used?
The policyowner may borrow from the cash value, policy loans carry a fixed or variable loan interest rate.
Explain the payment of premium and mortality charge deduction in a Universal Life policy.
The premium is paid and placed in the policy's cash value account and each month a mortality charge is deducted from the policy's cash value account for the cost of the insurance protection and expenses.
