Term Life Policies
Universal Life Insurance (Option A and Option B)
Option A: Level death benefit (less expensive) Option B: Increasing death benefit gradually over time (more expensive)
Joint Life Policy
-2 people covered on one policy -Average age of the 2 people covered -Death benefit paid out when the first person passes away
Group Conversion
-Must have at least 5 years under group plan -Can convert to Whole Life (must be some type of cash value policy, cannot be individual) -Must do conversion within 31 days to avoid having to do a physical -Premium will increase because you are going from group to individual and going from term to whole life
3 Biggest Factors in Cost of Insurance
1. Age 2. Gender 3. Smoker/Non-Smoker
What must an agent receive to sell variable life insurance?
1. FINRA registration 2. A securities license 3. A life insurance license
Universal life policies have 2 types of interest rates. What are they?
1. Guaranteed 2. Current
What are you able to adjust with adjustable life insurance?
1. The premium or premium payment period 2. The face amount 3. The coverage period
What do Modified Life and Straight Life policies have in common?
Accumulation of cash value
A man decided to purchase a $100,000 annually renewable term life policy until his kids graduate college. He discovered that his policy requires what each renewal?
An increase in premium payment
What happens to the cash value when a whole life insurance policy matures
Cash value is paid to the policyowner
Family Policy
Covers the whole family in a single contract
What component must decrease in the decreasing term on term insurance
Death Benefit Face Amount
What type of life insurance is best suited to cover a mortgage?
Decreasing term
Annually (aka yearly) Renewable Term
Every year at the end of a term, you have to renew your policy. The older you get, the higher your premium goes up.
What does level refer to?
Face amount
Securities
Financial instruments that may trade for value. For example, stocks bonds, and options
What type of premium do both universal life and variable universal life policies have?
Flexible
Adjustable policy
Good for people with commission based jobs -Can be term or permanent
What type of policy is typically issued without proof of insurability from the insured?
Group policy
Policy Maturity
In life policies, the time when the face value (amount of benefit stated in the life insurance policy) is paid out
Flexible Premium Adjustable Life (Universal Life)
Insured can skip a payment as long as the cash value exceeds the premium
In term policies, what happens to the premium throughout the term of the policy?
It remains level
A policy will pay the death benefit if the insured dies during the 20-year premium paying period and nothing if the death occurs after the 20-year period. What type of policy is this?
Level term
A whole life policy that requires the policy holder only pays the premiums for a set number of years is known as what kind of policy?
Limited Pay Whole Life
What type of insurance could be life paid up to age 65?
Limited pay whole life
What universal life option has a gradually increasing cash value and a level death benefit?
Option A
Which type of policy would have an IRS required corridor or gap between the cash value and death benefit?
Option A (Level Death Benefit option)
What are the death benefit options in a universal life policy
Option A- Level death benefit Option B- Increasing death benefit
Lapse
Policy termination due to non-payment of premium
What is the major difference between the 3 major types of whole life policies: Single Premium, Straight Life, and Limited Payment?
Premium payment mode
What license must someone have to sell variable life policies?
Securities
A domestic insurer issuing variable contracts must establish one or more what?
Separate accounts
What type of whole life policy generates immediate cash value?
Single premium whole life
Death Benefit
Stays the same or is level
What type of insurance policy offers pure death protection?
Term
Face amount
The amount of benefit stated in the life insurance policy
Increasing Term
The death benefit increases and the premium stays the same for a few years
Under option B in a universal life policy, what happens to the death benefit?
The death benefit increases each year by the amount of the cash increases
Attained Age
The insured's age at the time the policy is issued or renewed
Family Income Policy
The principle wage earner is the only family member insured
Endow
To have the cash value of a whole life policy reach the contractual face amount
What is the purpose of establishing a target premium for universal life policies?
To prevent the policy from lapsing or to keep the policy in force
How many loan features are there for term insurance?
Two -Renewable: You can renew for another period of time -Convertible: Can be converted to another cash accruing policy later on as clients make more money
In group life insurance policies, when is the benefit paid?
Upon the first death
What type of life insurance has an investment component?
Variable
When would a 20-pay whole life policy endow?
When the insured reaches age 100
Are group life insurance policies annually renewable terms?
Yes
Does Variable Universal Life Insurance have many features of Whole Life Insurance?
Yes
Straight Life (Whole Life Insurance)
You make the same payment every year until the policy reaches maturity
Limited Pay (whole life insurance)
You pay a set number of years to a specified age
What are the living benefits of whole life insurance?
Loan values
Who owns a group life insurance policy
The employer (AKA the sponsor of the group)
Who bares the investment risk on variable life insurance?
The policyowner
Level term
The premium and the death benefit stay level. You get to choose the length of the term.
Level Premium
The premium that does not change throughout the life of the policy
Graded premium whole life
The premiums are lower in the early years of the policy and increase over time to the point where the become level for the remainder of the policy
Graded-Premium Whole Life policy premiums are typically lower to start with and then increase for 5-10 years gradually. What happens after that period of increase?
They become level
When a breadwinner that is insured by a family policy dies, what rights are provided to other family members that are covered under the policy?
They can convert their coverage to permanent life insurance without evidence of insurability
What type of life insurance have flexible premiums?
Universal
Which life insurance policy is interest sensitive?
Universal Life
Between adjustable life and universal life policies, which provides more flexibility to the policyholder?
Universal life
In what type of insurance policies can the policy holder skip premium payments without the policy elapsing?
Universal life insurance policies
Master Policy
What the employer (group sponsor) of a group life policy receives when the insureds receive certificates of insurance
When does an adjustable life policy accumulate cash value?
When the premiums paid are most than the cost of the policy
Variable Life Insurance
-Best when stock market is high -Must have securities + life license -Sells mutual funds through the account -Owner of policy chooses mutual funds -Gives stock market exposure (variable) so cash value goes up and down -Riskier product
Variable Universal Life Insurance
-Combination of Variable and Universal -Dually regulated by State Insurance Dept. so just like variable it's regulated by SEC/FINRA so you must have more than just your life insurance license to sell it
Types of Group Life Policies
-Employer/Employee Group -Debtor/Creditor Group -Labor Union -Association
Group Life Policy
-Inexpensive death benefit -Employer/Employee group is often what this type of insurance is for -Must be full time employee
Benefits of Term Insuance
-Maximum protection -Lowest cost -Increasing term for riders -Decreasing term for debt
Survivorship Life Policy
-Often used in estate planning process when the beneficiary is the child for example -Death benefit not paid out until the 2nd person dies
Single Premium Whole Life
-Permanent -Grows cash value over time -You are able to pay in lumpsum or annually
Whole life insurance
-Permanent -Goes up to age 100 -Cash value accrues -Cash value = death benefit and it is paid out to you if you are alive at the end of the term or goes to your beneficiary if you pass away -Guaranteed death benefit -Cash value with a guaranteed interest rate
What do underwriters consider before issuing a group life policy?
-Purpose -Size -Financial Strength -Turnover
Universal Life Insurance
-Stated interest rate to grow cash value -Stated for 1 year at a time then insurance company looks at what universal policy is paying you and re-evaluates the cash value based on interest rates, expenses, current loans and withdraws. -Minimum interest rate of 1-2% incase interest rates drop lower than that -Annual rate is reviewed and changed according to the rates at the time that it comes up for renewal each year -Excess money goes into cash value
What elements of adjustable life policy can be changed by the policyowner?
-The amount and payment period of the premium -The face amount -The period for protection
What type of premium payment is charged on straight life policy?
A level premium for the life of the insured
The death protection component of universal life insurance is expressed as what type of coverage?
Annually renewable term
Nonforfeiture Values
Benefits in the life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Endowment policy
Best for a customer who does not mind paying a higher premium for a life insurance product that would allow for faster growth of the cash value
What feature of Indexed Whole Life Policy is NOT fixed?
Cash Value Growth
Invariable universal life insurance, what are the 2 variables?
Cash value and death benefit
Variable Life Insurance
Cash value in SEPERATE accounts *Whenever you have a question about SEPERATE accounts, the answer will be variable
If an employee wants to join a group policy outside of the enrollment period, what would they have to provide?
Evidence of insurability
When the amount of insurance increases in an adjustable life policy, what will the insurer require from the insured?
Evidence of insurability
What is the main advantage of switching from group life insurance to individual coverage?
Evidence of insurability is not required
Adverse Selection
Insuring to risks that are more prone to losses than the average risk
What type of insurance policy is life-paid up at age 65?
Limited pay whole life
Decreasing term
Premium stays the same but the death benefit goes down. This is mostly caused by financial debt. Matched by what you owe on the loan.
Regarding taxation, how does the cash value in a universal life policy accumulate?
Tax deferred
Term Insurance
Term Insurance: -AKA temporary insurance -First and most simple type of life insurance. -Always going to be the cheapest and never has a cash value, so the premium is lower. -No loans allowed because you have no cash value. -Matures at death (is paid out to beneficiary when you pass)
What type of policy is described as the "Greatest"?
Term Policy (term policies provide for the greatest amount of coverage for the lowest premium
Term vs. Whole Life (aka Permanent)
Term: -Temporary -Specific period of time -No cash value -Cheaper in early years Whole life: -Goes out to age 100 -Cash value you can access for a loan against cash value
In annually renewable term insurance policies, what is the annual premium rate determined based off of?
The insureds attained age
Who bares the investment risk in a whole life insurance policy?
The insurer because they guarantee you an interest rate
Premium
The money paid to the insurance company for the policy
What determines the cash value of a variable life insurance account?
The performance of the policy portfolio
Proposed Insured
The person applying for insurance
