STUDY chapter 4) Variable products
Applicants for variable products must receive a prospectus at the time of policy application, which:
-Describes the investments, -Any charges imposed on the contract owner, and -Policy features to help the applicant make an appropriate purchase.
_____ ______ = No Rate Greater Than 12% Can Be Used In Selling Policies
12% Rule = No Rate Greater Than 12% Can Be Used In Selling Policies
A Securities __________ is required to sell Variable Products.
A Securities License is required to sell Variable Products.
Prospectus
A document that must be given to policyowners of variable insurance products which describes the investments, charges on the contract and policy features.
An insurer's general account is for non-variable products, in which premium dollars are invested in conservative funds such as bonds and certificates of deposit. Variable products premiums are invested in more aggressive investments such as stocks and securities, requiring the insurer to keep a _______ ______.
An insurer's general account is for non-variable products, in which premium dollars are invested in conservative funds such as bonds and certificates of deposit. Variable products premiums are invested in more aggressive investments such as stocks and securities, requiring the insurer to keep a separate account.
Because of these risks, the SEC ( _______ and ________ _______ federally regulates variable products.
Because of these risks, the SEC ( Securities and Exchange Commission) federally regulates variable products.
Insurance producers selling variable products must be registered with FINRA (The Financial Industry Regulatory Authority) by passing the ________ ______ or ____ examinations.
Insurance producers selling variable products must be registered with FINRA (The Financial Industry Regulatory Authority) by passing the series 6 or 7 examinations.
Insurance producers selling variable products must be registered with FINRA (The ______ ________ ______ ________) by passing the series 6 or 7 examinations.
Insurance producers selling variable products must be registered with FINRA (The Financial Industry Regulatory Authority) by passing the series 6 or 7 examinations.
Universal Life (unbundled life/flexible premium adjustable life)
Life insurance that allows the policyowner to buy term and invest the difference. Synonymous with unbundled life insurance and flexible premium adjustable life.
Since the insurance company does not insure the ______ _______ in a variable policy, the investment risk is borne upon the policyowner.
Since the insurance company does not insure the separate account, the investment risk is borne upon the policyowner.
State insurance departments also regulate variable products. In some states, producers are required to have not only a life and securities license, but also a variable license.
State insurance departments also regulate variable products. In some states, producers are required to have not only a life and securities license, but also a variable license.
SEC
The U.S. Securities and Exchange Commission (SEC), which oversees the operations of FINRA.
Variable life policies have a guaranteed minimum death benefit, which is the policy face amount, but the ______ ______ ______ is not guaranteed since it is tied to the separate account. Therefore, the death benefit will increase or decrease over time according to the investment performance. (Remember that the separate account is a more "aggressive investments")
Variable life policies have a guaranteed minimum death benefit, which is the policy face amount, but the policy cash value is not guaranteed since it is tied to the separate account.Therefore, the death benefit will increase or decrease over time according to the investment performance.
Which of the following policies allows the policyowner to buy term and direct the investments made in the cash value account? Select one: a. Variable b. Universal c. Variable universal life d. Equity indexed universal life
Variable universal life is universal life insurance with a separate account. The correct answer is: Variable universal life
All of the following policy elements are not guaranteed in a variable whole life policy, EXCEPT: Select one: a. Value in separate account b. Accumulation units c. Death benefit d. Cash value
Variable whole life policies have a guaranteed minimum death benefit. The cash value is tied to the separate account, which is not guaranteed. The correct answer is: Death benefit
Variable universal life (VUL) is a mixture of:
Whole life insurance, Universal life insurance and Variable life insurance.
With universal life, sales, administrative, and loading charges are deducted from the policy's cash value along with the cost of death protection.The interest rate is credited to the cash value.
With universal life, sales, administrative, and loading charges are deducted from the policy's cash value along with the cost of death protection.The interest rate is credited to the cash value.
Variable Universal Life
-Universal life insurance with a separate account. -The variable portion of premiums is invested in the insurer's separate account.
Within the insurer's separate account, policyowners have a choice of ____-accounts in which to invest funds.
Within the insurer's separate account, policyowners have a choice of sub-accounts in which to invest funds.
Variable Whole Life
-Premiums are paid at regular intervals. -If the policyowner does not pay a premium after the policy grace period, the policy will lapse. -The policy cash value is not guaranteed.
Donna is getting ready to look at variable life insurance as an option for her insurance. Which of the following statements is TRUE about variable life insurance? Select one: a. The benefits of variable life insurance vary according to the premiums paid b. The insurance company assumes the investment risk of a variable policy c. Cash values are guaranteed d. To sell a variable life insurance policy, the proposal must be accompanied by a prospectus
A variable life policy cannot be proposed in a sales scenario unless a prospectus precedes or accompanies the proposal, because it is considered a security. The correct answer is: To sell a variable life insurance policy, the proposal must be accompanied by a prospectus
Another regulation regarding variable life policies is the 12% Rule, which states that when soliciting a new policy, the producer may not use an interest rate greater than 12%.
Another regulation regarding variable life policies is the 12% Rule, which states that when soliciting a new policy, the producer may not use an interest rate greater than 12%.
Insurers are required to provide policyowners with an annual statement itemizing the charges and interest earned.
Insurers are required to provide policyowners with an annual statement itemizing the charges and interest earned.
All of the following statements are correct regarding variable universal life contract charges and fees, EXCEPT: Select one: a. Sales and loading charges are deducted from the policy's cash value. b. The full cost of death protection is deducted from the policy's cash value. c. Insurers must provide policyowner's with an annual statement of charges and interest earned. d. Interest earned is credited to the death benefit.
Interest earned is credited to the cash value. The correct answer is: Interest earned is credited to the death benefit.
Which of the following laws defined a security product? Select one: a. Securities Act of 1933 b. Securities Act of 1934 c. Investment Company Act of 1940 d. None of the above
The Securities Act of 1933 ruled that applicants for a variable product must receive a prospectus. It also laid out a clear definition of a security product. The correct answer is: Securities Act of 1933
All of the following are guaranteed features in a variable life insurance policy, EXCEPT: Select one: a. Death benefit b. Cash value c. Premium rate d. Period of death protection
The cash value is invested in the insurer's separate account, and is, therefore, not guaranteed. The correct answer is: Cash value
Universal life and Variable Universal Life (VUL) have _________ premiums.
Universal life and VUL have flexible premiums.
_________ __________ = Have Separate Accounts
Variable Products = Have Separate Accounts
Which life insurance policy allows the policyowner to choose where they want their funds invested? Select one: a. Straight life b. Adjustable life c. Variable life d. Universal life
Variable life insurance policies permit policyowner's to choose where they want premiums invested. The correct answer is: Variable life
Gerald wants a life insurance policy in which he can choose the investment vehicle. Which policy would you recommend to him? Select one: a. Ordinary whole b. Variable life c. Universal life d. Adjustable life
Gerald would be able to choose where he wants his premiums invested with a variable life insurance policy. The correct answer is: Variable life
In which fund are premiums for a variable whole life insurance policy invested? Select one: a. The insurer's general account b. The insurer's separate account c. The state guaranty fund d. The insurer's reserves
Premiums for variable products are invested in the insurer's separate account. The correct answer is: The insurer's separate account
Variable life insurance provides permanent protection; it has _______ level premiums and a guaranteed minimum _______ ________, just like ordinary whole life, but differs in that it offers higher interest rates, defending the policyowner against the effects of inflation.
Variable life insurance provides permanent protection; it has fixed level premiums and a guaranteed minimum death benefit, just like ordinary whole life, but differs in that it offers higher interest rates, defending the policyowner against the effects of inflation.
Policy cash value in a variable life policy is connected to the insurer's: Select one: a. general account b. separate account c. fixed account d. variable account
Variable life policies have a guaranteed minimum death benefit, which is the policy face amount, but the policy cash value is not guaranteed since it is tied to the separate account. The correct answer is: separate account
_________ premiums allow the policyowner to vary the amount of the premium payment.
Flexible premiums allow the policyowner to vary the amount of the premium payment.
VUL ( Variable Universal Life) policies provide ________ premiums, control of where cash value is invested, and a _________ death benefit.
VUL policies provide flexible premiums, control of where cash value is invested, and a flexible death benefit.
Variable Insurance
Insurance that is comprised of variable life and variable annuities. Variable insurance products invest premium dollars in securities, which carry more risk due to price fluctuations. A requirement of selling variable products is a securities license and a life insurance producer license.
All of the following policy features may change throughout the policy term of a variable universal life policy with option 2, EXCEPT: Select one: a. Face value b. Death benefit c. Cash value in the separate account d. Premiums
The face value of a variable universal life policy with option 2 stays constant. The death benefit increases because the cash value is allowed to increase. The correct answer is: Face value
Variable life has _________ premiums
Variable life has fixed premiums
Variable Life Insurance
Policies that earn a fluctuating rate of interest and do not guarantee a certain cash value. Policies have fixed level premiums and a guaranteed minimum death benefit.
Which life policy offers the owner the opportunity to invest in products such as money -market funds, long -term bonds and the stock market? Select one: a. Adjustable Life b. Term Life c. Variable Life d. Universal Life
Variable life offers the policy owner the opportunity to invest in equities, bonds and money - market products. The correct answer is: Variable Life
Joanna has selected a variable universal life policy because it meets her needs. Which of the following is not a characteristic of a variable universal policy? Select one: a. It is backed by equity investments. b. It allows the policyholder to adjust the premium. c. It has no cash value. d. It allows the policyholder to adjust the death benefit.
The variable universal life policy DOES have cash value that varies with the performance of the investment. The correct answer is: It has no cash value.
Of the following policies, which has a guaranteed minimum death benefit, fixed premiums and nonguaranteed cash values? Select one: a. Variable life b. Universal life c. Variable universal life d. Whole life
These are all characteristics of variable life insurance. Universal life and variable universal life insurance have flexible premiums. The correct answer is: Variable life
Features of variable universal life:
-Flexible premiums -Cash value based on investment in separate account -Policyowners choose sub-account investments -Access to cash values (policy loans and withdrawals) -Death protection deducted from cash value -Death benefit option 1 or option 2
Agents selling variable products must have which of the following? Select one: a. FINRA representative license. b. Life Insurance license. c. FINRA representative license and Life license. d. Agents are required to be licensed to sell variable products.
Agents selling variable products must have a life insurance and a FINRA representative license. The correct answer is: FINRA representative license and Life license.
What is the primary purpose of the Securities Act of 1933? Select one: a. Defines a securities product b. Regulates sales representatives' duties c. Requires insurer to maintain a separate account for variable investments d. Sets a cap for sales fees
The Securities Act of 1933 defines a securities product. The correct answer is: Defines a securities product
Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values? Select one: a. Whole life b. Universal life c. Variable whole life d. Variable universal life
These are all characteristics of variable whole life insurance. Universal life and variable universal life insurance have flexible premiums. The correct answer is: Variable whole life
VUL policies are issued with a minimum scheduled premium based on the policy's initial death benefit. This minimum amount covers the cost of death protection.
VUL policies are issued with a minimum scheduled premium based on the policy's initial death benefit. This minimum amount covers the cost of death protection.
FINRA
FINRA; The Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD).
With ________ ________insurance, premiums are invested in the insurer's general account, which contains conservative investments carefully selected and insured by the insurance company. Interest rates provided by the general account are fixed and conservative, in the 3% - 5% range.
With whole life insurance, premiums are invested in the insurer's general account, which contains conservative investments carefully selected and insured by the insurance company. Interest rates provided by the general account are fixed and conservative, in the 3% - 5% range.
Variable insurance provides a way for policyowners to earn higher investment returns on life insurance policy cash values
Variable insurance provides a way for policyowners to earn higher investment returns on life insurance policy cash values
With ______ _______ insurance, on the other hand, policyowners have the opportunity to earn higher interest rates. The interest rate is _________ because it is linked to the insurer's separate account, which fluctuates according to its investment performance.
With variable life insurance, on the other hand, policyowners have the opportunity to earn higher interest rates. The interest rate is variable because it is linked to the insurer's separate account, which fluctuates according to its investment performance.
Variable life insurance products are securities contracts and are regulated by the _______ and ________ __________ (SEC). Agents selling variable products must have a life insurance and a _______ __________ license.
Variable life insurance products are securities contracts and are regulated by the Securities and Exchange Commission (SEC). Agents selling variable products must have a life insurance and a FINRA representative license.
With a level death benefit the policyowner designates a death benefit amount that will remain constant.
With a level death benefit the policyowner designates a death benefit amount that will remain constant.
With the variable death benefit, the policyowner chooses an amount of pure death protection that remains constant. The death benefit is comprised of the policy's cash value and the amount of pure insurance specified by the policyowner.
With the variable death benefit, the policyowner chooses an amount of pure death protection that remains constant. The death benefit is comprised of the policy's cash value and the amount of pure insurance specified by the policyowner.
What is the primary purpose of the Investment Company Act of 1940? Select one: a. Defines a securities product b. Regulates sales representatives' duties c. Requires insurer to maintain a separate account for variable investments d. Requires sales representatives to have a Series 6 license
The Investment Company Act of 1940 requires insurers to maintain a separate account for variable investments and establishes a cap for sales fees. The correct answer is: Requires insurer to maintain a separate account for variable investments
Which of the following laws requires sales representatives selling variable products to have a Series 6 license? Select one: a. Securities Act of 1933 b. Securities Act of 1934 c. Investment Company Act of 1940 d. None of the above
The Securities Act of 1934 requires sales representatives who sell variable products to have a Series 6 license. The law also regulates sales representatives_ duties. The correct answer is: Securities Act of 1934
Variable life insurance is regulated by three pieces of legislation:
-Securities Act of 1933: applicants must receive a prospectus, and defines a security product Securities Act of -1934: requirement for sales representatives to have a Series 6 license and regulates the duties of sales representatives -Investment Company Act of 1940: requirement for insurers to maintain a separate account for variable investments and establishes a cap for sales fees
Death Benefits and Cash Value; Variable Whole Life
-The death benefit will never drop below the guaranteed minimum face amount. -Cash value is figured daily and varies based on the investment in the separate account. -Cash value may be borrowed or withdrawn at any time. Policy loans are subject to interest. -If policy loans are not repaid, the death benefits are reduced by the amount of the loan PLUS interest. -Policy loans are typically limited to 75% - 80% of the policy's cash value.
Which of the following is true with regards to a Variable Universal life policy? Select one: a. The policyowner has no say in the investment choices, but can choose the premium payment b. The policyowner controls the investment choices and the premium amounts c. The insurer controls the investment choices in their general account d. The death benefit fluctuates, but only the insurer has a say in premium choices
Variable Universal Life Polices allow the policyowner to control the investment of cash values and select the timing and amount of premium payments. The correct answer is: The policyowner controls the investment choices and the premium amounts
Which of the following policies has premiums that are fixed and level? Select one: a. Adjustable life b. Variable life c. Universal life d. Variable universal life
Variable life policies have fixed, level premiums. Variable life policies guarantee a minimum death benefit, which is why premiums are fixed and level. The correct answer is: Variable life
Variable products are inherently riskier because the policyowner bears the risk of the choice of investment, and nonguaranteed ______ ________.
Variable products are inherently riskier because the policyowner bears the risk of the choice of investment, and nonguaranteed cash value.
Insurance agent Sam would need a securities license to sell this policy: Select one: a. Joint life b. Adjustable life c. Variable life d. Universal life
Any agent selling variable products must have a securities license in addition to a life insurance license. The correct answer is: Variable life
As long as there is enough cash value to cover the cost of insurance protection, the policyowner can decrease or skip premium payments. The coverage will then resemble term insurance.
As long as there is enough cash value to cover the cost of insurance protection, the policyowner can decrease or skip premium payments. The coverage will then resemble term insurance.
Growing cash values will replace a corresponding amount of pure death protection until the corridor is reached. Once policy cash values reach the corridor, the death benefit will increase to keep the policy tax-sheltered.
Growing cash values will replace a corresponding amount of pure death protection until the corridor is reached. Once policy cash values reach the corridor, the death benefit will increase to keep the policy tax-sheltered.
Because variable contracts are equity products, they are subject to various regulations. Which of the following applies to variable contracts? Select one: a. NAIC regulations b. The 12% rule c. Flexible premium amounts d. Insurance regulations only
The 12% rule prevents producers from using illustrations with projected interest rates greater than 12% to induce people to purchase policies. They are not bound by NAIC, and they are regulated as both insurance and securities. The correct answer is: The 12% rule
The _______ ________ fluctuates based on the investment experience in the insurer's separate account.
The death benefit fluctuates based on the investment experience in the insurer's separate account.
VUL policies have a level death benefit until the policy's cash values reach the corridor, at which point the variable death benefit applies, providing a variable death benefit according to investments in the separate account.
VUL policies have a level death benefit until the policy's cash values reach the corridor, at which point the variable death benefit applies, providing a variable death benefit according to investments in the separate account.
VUL policies have the flexible features of ________ life and the investment choices of _________ life. Variable universal life policies are regulated as variable products.
VUL policies have the flexible features of universal life and the investment choices of variable life. Variable universal life policies are regulated as variable products.