types of life insurance florida 215
example of level term
100,000 10 year level term policy, provides coverage for 10 years if the insured dies in those 10 years the beneficiary will receive the benefit, if the insured dies after the 10 years the beneficiary gets nothing.
Features of Term life
Option to renew and option to convert
cash value accumulations
are not taxed to the policyowner as they build inside a policy.
decreasing term
benefit amounts that decrease gradually over the term. pays the death benefit in the beginning of the term and that amount gradually declines over the term period.
indexed whole life
face amount increases as the consumer price index (CPI) increases. two methods. the policy owner pays additional premium for increased amounts or insurer assumes risk of increase and policyowner does not pay a higher premium with face amount increases. evidence of insurability is not required for face amount increase.
amount of a policy's cash value depends on:
face amount of policy duration and amount of premium payments how long the policy has been in force.
modified whole life
first few years (5) low premium and higher thereafter. makes whole life more affordable to clients that have an improved financial position in the future. redistributes premiums (premiums are equivalent in the end to standard whole life policies)
adjustable life
flexible due to combination of term and whole life into one plan. client picks face amount and premiums. policyowner can make adjustments to his or her coverage. can be converted from term to whole life or visversa. more expensive due to flexibility.
Universal life
flexible on the amount and frequency of premium payments and adjustable benefits. (face amount) surrender charge for full withdrawal unless policy has been in force for 10 or 12 years. ART policy + cash account cash values accumulate based on current interest rate or guaranteed interest rate declared by company.
option to convert
gives the insured the right to convert or exchange the term policy for a whole life plan w/out evidence of insurability.
term policies with both options
more expensive but are best for clients as they may want to renew or convert.
policy loans
not taxed unless full a full policy surrender takes place.
policy withdrawals
not taxed until the amount withdrawn exceeds the total amount the policyowner paid into the contract.
cash value
often regarded as a savings element because it represents the amount of money the policyowner will receive if the policy is ever cancelled. often called "cash surrender value"
single premium whole life
one lump sum payment at the beginning of policy period. from that point on the policy is completely paid for. coverage until death.
which life insurance permits withdrawals
only UL and VUL, WL only loans.
multiple protection policy
pays a benefit of double or triple the face amount if death occurs during a specified period. if death occurs after only face amount is given. period may be 10,15 or 20 or to a specified age like 65.
straight whole life
permanent level protection and level premiums from the time of the policy issue to insured's death (or age 100). client pays for his/life until age 100.
variable life
permanent life insurance that allows policyowners to assume the risk of investment and invest the policy values into a separate account. DB rises and falls depending on the performance of the cash values in the acct. minimum DB guaranteed equal to the face amount in policy issue.
5 year renewable term policy
permits policyowner to rewnew the same coverage for another 5 years at the end of the first five year term. PREMIUMS FOR RENEWAL PERIOD WILL BE HIGHER THAN INITIAL PERIOD.
variable universal life
premium and DB flexibility, cash value investment control, cash value in separate account.
intermediate premium whole life
premium rate depends on company's future. maximum premium that can be charged is stated on contract. premium payable at issue is lower and is fixed at a lower rate for a specified initial period (2 or 3 yrs) and after that premium can be raised, kept the same, or lowered depending on the company.
graded premium whole life
premiums are lower during the first year and increase each year until leveling off after the preliminary period (5 to 10 years) at just above the typical whole life rate.
increasing term
provides a death benefit that increases at periodic intervals over the policy's term. amount of increase is usually stated as specific amounts or as a % of the original amount. may be tied to a consumer price index. may be sold as individ. policy usually purchased as rider.
level term
provides a level amount of protection for a specified period after which the policy expires.
Annually renewable term or YRT
provides coverage for a year and allows policyowner to renew each year without evidence of insurability. most insurers limit the # of times such a policy can be renewed or specify an age limit. not uncommon though for ART policies to be renewable at 65 or beyond.
7 pay test
this test states you can not pay more into the policy than what the the net level premiums in 7 years would accumulate to. if you do then it is a mec.
cash surrender value
this value is a result of the way premiums are calculated and interest is paid, as well as the policy reserves that build under this system.
living benefits (feature of whole life)
through cash value accumulations, a policyowner has a ready source of funds to borrow at rates of interest. loans do not have to be repaid but will be subtracted in the death benefit plus interest.
payor provision
typically attached to juvenile policies, in the event of death or disability of the adult, the premiums will be waived until the insured child reaches a specified age (25) or until maturity date of contract, whichever comes first.
securities contracts as well as insurance contracts
variable insurance products are considered
If insured has not died by 100
whole life provides death benefit if death occurs before 100, if insured has not died the full maturity value of the policy is paid out to policyowner or beneficiary and the policy terminates.
to sell variable insurance products you must have
FINRA license, life insurance license, regulated by SEC, and a 6 or 7 license.
guaranteed renewable policy
allows policy owner to renew the term before its termination date, without having to provide evidence of insurability.
maturity at 100
at age 100, the cash value of the policy has accumulated to the point that it equals the face amount. at that point no more premiums are owed the policy is paid up. if insured lives to be 100, the company will write a check for the full value of the policy.
endowment policy
cash values that grow at a rapid pace so that the policy matures or endows at a specified date (before 100)
pure endowment
contract that guarantees a specified sum payable only if the insured is living at the end of the stated period. nothing is payable in the case of prior to death.
last survivor policy
covers two lives and premium is based on joint age, pays when the second insured has died. (cheapest way to pay estate tax)
joint life policy
covers two or more people using permanent insurance, pays when the first insured dies. premium based on the insureds average joint age.
endowment policy benefits
death benefit- to beneficiary if insured dies within the specified period (endowment period). living benefit- to policyowner if insured is alive at the end of the endowment period. (95)
credit life insurance
decreasing term that covers the life of debtor and pays the amount due on a loan if the debtor dies before the loan is repaid. term is matched to length of loan period (10) and amount of insurance is matched to declining loan balance.
family plan policy
designed to insure all family members under one policy. Coverage is sold in units and premium is based on breadwinners age. children dropped off at 18 or 21 but may convert. all future children born or adopted are covered after 14 days old. no increase in premium. whole life written on breadwinner and term for kids and wife.
VUUL has investment options and separate accounts.
difference between universal life and VUL
modified endowment contracts (MEC)
due to TAMARA 1988, endowment policies, under the revised tax law, no longer qualify as life insurance. if cash value reaches the death benefit too fast it will be a MEC. must pass 7 pay test to avoid being a mec. once a mec always a mec.
endowment premiums
due to rapid cash value build up , premiums are comparatively higher. the shorter the policy term the higher the premium.
tax treatment for MECS
if policyowner receives any amount in the form of a loan or withdrawal, that amount will be taxted first as ordinary income and second as return of premium. if there is any gain in the contract over premiums paid a 10% penalty tax is imposed if they are received before age 59 1/2.
adjustments for adjustable life can be
increasing or decreasing the premium and/or the premium-paying period. or increasing or decreasing the face amount and/or the period of protection. for increase in face amount you need to show proof of insurability.
juvenile insurance
insurance written on the lives of children up to age 14 and 15. adult or guardian is the premium payer and policyowner until child is able to take over payments.
larger face amount (whole)
larger cash value
limited pay whole life
level premiums that are limited to a certain period. this period can be of any duration. (20 pay life or paid up at 65). after the 20 years no more premiums are owed but protection continues until insured's death.
UL death benefit options
option a- beneficiary only gets DB option b- beneficiary gets DB and cash value (cash value cannot be larger than term insurance TAMRA)
whole life insurance (straight/permanent life)
provides lifetime protection, face amount and premium are set at the time of policy issue and they remain level for the policy's life. cash value and maturity at age 100.
term life insurance
provides protection for a specified term and pays a benefit only if the insured dies during that term. (no cash value in term)
Tamara 1988
purpose: abuse of using life insurance for investment and as tax shelter. must pass 7 pay test to avoid becoming a mec.
shorter premium payment (whole)
quicker cash values grow
advantage of renewal option
renewal options w/ term policies typically provide for several renewal periods or for renewals until a specified age. allows the insured to continue insurance protection, even if the insured has become uninsurable.
indexed universal life
same flexibility as UL, cash values are tied to an index like s&p 500 or NASDQ-100. there is a 0-2% growth rate guaranteed. is a securities product so must provide prospectus and all sales presentation materials must be reviewed by SEC.
premium periods
shorter paying period- higher premium shorter paying period- quicker cash values grow longer paying period- slower cash values grow.
jumping juvenile or estate builder
sold to ages 1-15 in units ($1,000 x number desired) jumps five times(face amount) at age 21 no increase in premium amount of insurance that can be written on children at the early ages is limited.
cash value
term insurance has no
difference between Term and whole life
term only provides death protection while whole life combines protection with a savings element called CASH VALUE that builds over the life of the policy. whole life plans are credited with a guaranteed rate of interest that is credited to the policy on a regular basis and grows over time.
rate of return
the gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost.
longer the policy has been in force (whole)
the greater the build up of cash values.
time limit for converting
the later of 10 years or age 55
option to convert (attained age)
this exchange involves the issuance of a whole life policy at a premium rate reflecting the insured's age at the time of the exchange.
option to convert (original age)
this exchange involves the issuance of a whole life policy at a premium rate that reflects the time when the original term policy was taken out. premium will be lower, however policyowner has to pay additional amount to make up for the difference between term and time of conversion.
