NWM Exam types of life insurance polices

Annuity Payout Options

1. Life Annuity/Straight Life/Pure Life -periodic payments over lifetime (usually monthly) -largest periodic payment 2. Life Annuity with Period Certain -periodic payments for life with certain minimum period guaranteed -if annuitant dies before period certain expires, payments made to beneficiaries -if annuitant lives beyond the period certain, payments continue until his death 3. Joint Life with Last Survivor Annuity -covers two or more people -payment is conditioned on both (all) lives 4. Mortality Guarantee -guarantee payments for as long as they live (even if life expectancy changes) 5. Operating Expense Guarantee -expenses projected by the company for administering the plan -if higher than expected, they cover the difference

Decreasing Term

A type of life insurance that features a level premium and a death benefit that decreases each year over the duration of the policy.

convertible

Policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability

Increasing Death Benefit

The death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.

level death benefit

The death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years.

owner annuity

The purchaser of the annuity contract, but not necessarily the one who receives the benefits the owner has all the rights

what are the two components of a universal life policy

insurance component and cash account

interest rate

issuing insurance company does not guarantee a minimum interest rate

Joint life premium is based on

joint average age and death benefits paid upon the first death only

types of term coverage

level increasing decreasing based on how the face amount (death benefit) changes during the policy term

periodic payments can be what two options

level premium and flexible premium = amount and frequency of each installment varies

underlying investment

payments are invested in the insurers separate account, not their general account

Level Premium

the premium that does not change throughout the life of a policy

two types of refund life annuities

Cash refund and installment refund

Indexed Life

Main feature is that the cash value is depended upon the performance of the equity index, guaranteed minimum interest rate. policys face amount increases annually without requiring evidence of insurability

annuity

a contract that provides income for a specified period of years or for life a vehicle for the accumulation of money and the liquidation of an estate. not life insurance payments stop upon the death of an annuitant

The annuitant must be?

a natural person

cash value

a policy savings element or living benefit

Joint life (first to die)

a single policy that is designed to insure two or more lives. can be term insurance or permanent insurance. premium is less together can it would be separate

license requirements

a variable annuity is considered a security and is regulated by the securities exchange commission in addition to state insurance regulations. an agent selling variable annuities must hold hold a securities license in addition to a life insurance license. agents or companies that sell variable annuities must also be properly registered with FINRA

renewable

allows the policy owner to renew coverage at the expiration date without evidence of insurability. the premium for the new term policy will be based on the insureds current age

Variable Life Insurance

also variable whole life insurance is level, fixed premium, investment based product, policy owner bears the investment risk (Assets on a separate account)

life with period term certain

annuity payments are guaranteed for the lifetime of the annuitant and for a specified period of time for the beneficiary

Agents selling variable life insurance products must:

be registered with FINRA be licensed by the state to sell life insurance have received a securities license

nonforfeiture values

benefits in a life insurance policy that the Policyowner cannot lose even if the policy is surrendered or lapses

variable universal life insurance

combines many features of the whole life with the flexible premium of universal life and the investment component of variable life making it a securities version of the universal life insurance

liquidation of an estate

converting a persons net worth into a cash flow

Single Life Annuities

cover one life, and annuity payments are made with reference to one life only. Contributions can be made with a single premium or on a periodic premium basis with subsequent values accumulating until the contract is annuitized.

multiple. life annuities

covers 2 or more lives

nonforfeiture or cash value

does not usually accumulate until the third police year it grows tax deferred

during the annuity period how are funds paid

during the annuity period funds are paid OUT to the annuitant

annuity period or annuitization period/ liquidation period/ pay out period

during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant

securities

financial instruments that may trade for value (for example, stocks, bonds, options)

indented annuities

fixed annuities that invest on a relative aggressive bias to aim for higher returns

Universal life

flexible premium adjustable life increase the amount of premium paid into the policy and to later decrease it again. can even skip paying a premium and the policy will not lapse as long as sufficient cash value at the time to cover monthly deductions for cost of insurance. if the cash value is too small the policy will expire

how are funds paid for the accumulation period

funds are paid INTO the annuity

fixed annuity

guaranteed minimum rate of interest to be credited to the purchase payments income annuity payments that do not vary from one payment to the next the insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant

Term insurance provides pure death protection

if the insured dies during this term, the policy pays the death benefit to the beneficiary if the policy is cancelled or expires prior to the insureds death, nothing is payable at the end of the term and there is no cash value or other living benefits

immediate vs deferred annuity

immediate = payments begin within a year. purchased with a single premium deferred = payments begin after 1 year

policy maturity

in life policies, the time when the face value is paid out

what is a decreasing term commonly purchased for

insure payment of a mortgage or other debts if the insured dies prematurely

Interest sensitive whole life or current assumption life

is a whole life policy that provides a guaranteed death benefit to age 100 same benefits of current interest rates, which may allow for either greater cash value accumulation or a shorter premium- paying

return of premium

is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. paid if the death occurs within a specified period of time or if the insured outlives the policy term

Term Insurance (pure life insurance)

is temporary protection because it only provides coverage for a specific period of time

whole life insurance

lifetime protection and includes a savings element or cash value they endow which means the cash value by accumulation of premium should now equal the face amount of the policy at age 100 accumulates cash value

what is the basic function of an annuity

liquidating a principal sum, regardless of how it was accumulated

joint and survivor

modification of the life income option that is guarantees an income for two receipiants that neither can outlive 1/2 or 2/3 survivor

universal life offers one of two death benefit options to the policy owner

option a = level death benefit option b - increasing the death benefit

accumulation period

or pay in period is the period of time over which the owner makes payments (premiums) into an annuity. payments earn interest on a tax deferred basis

living benefits

policy owner can borrow against the cash value while the policy is in effect or can receive the cash value when the policy is surrendered

straight life or ordinary life or continuous premium whole life

policy owner pays premium until time of death or age 100 has lowest annual premium of whole life policies

survivorship life (second to die)

premium based on joint age insures two or more lives pays the last death rather than the first often used to offset the liability of the estate tax upon the death of the last insured

classification of Annuities

premium payment method = single premium 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

limited pay life

premiums coverage will be completely paid up before ago 100 good for people who do not want to pay beyond a certain point in their life

single premium whole life

provides a level death benefit to the insureds age 100 for a one time lump sum payment. generates immediate cash

Annually renewable term

purest form of insurance. death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases

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

permanent life insurance

remain in effect until age 100 as long as the premium is paid. most common type is whole life

Policy special features include

renewable, convertible, or renewable and convertible

Accumulation Units

represent ownership interest in the separate account upon annuitization the accumulation unites are converted to annuity units

variable annuity

serves as a hedge against inflation underlying investment interest rate license requirements

How does life expectancy affect benefits

shorter life expectancy = higher benefit longer life expectancy = lower benefit

Adjustable Life Policy

term and permanent coverage how much coverage is needed and the affordable amount of premium as there needs change they can make adjustments to the policy

Short term annuities

that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated

Minimum premium

the amount needed to keep the policy in force for the current year

what is annuity income based upon

the amount of premium paid or cash value accumulated the frequency of the payment the interest rate the annuitants age and gender annuitant with a longer life expectancy will have smaller income installments

face amount

the amount of the benefit stated in the life insurance policy

life with guaranteed minimum or refund life

the annuitant dies before the principal amount has been paid out the remainder of the principal amount will be refunded to the beneficiary

fixed period installments

the annuitant selects the time period for the benefits and the insurer determines how much each payment will be, based on the value of the account and future earnings projections.

Endow

the cash value of a whole life policy has reached the contactual face amount

What does level mean in insurance

the death benefit... which does not change

what does term insurance provide

the greatest amount of coverage for the lowest premium it has no cash value

Attained age

the insured age at the time the police is issued or renewed

What happens if an insured skips a premium payment on a universal life policy

the missing premium may be deducted from the policy cash value. the policy will not lapse

Annuitant

the person who receives benefits or payments from the annuity

annuitization date

the time when the annuity benefit payouts begin (trigger for benefits)

pure life/ life only / straight life

this payment ceases at the annuitants death, highest monthly benefits no guarantee that the entire principal will be paid out

why are annuities normally purchased

to provide or supplement retirement income or to help fund a college education they provide structured settlements

Partial Withdrawal

universal life policies allow this of the policy cash value but there may be a charge for each withdrawal and usually come with limits

cash refund

when the annuitant dies, the beneficiary receives a lump sum refund of the principal minus benefits payments already made to the annuitant. cash refund option does not guarantee to pay any interest

installment refund

when the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out

three basic forms of whole life insurance

whole life or straight whole life limited pay whole life single premium whole life

deferred

withheld or postponed until a specified time or event in the future