Types of Life Policies
Jim would like protection and savings from his policy, but only wants to make premium payments until he retires at age 65. Which type of policy is best suited for Jim's situation?
*Limited Pay Whole Life* Limited Pay 10 Year Term Adjustable Whole Life Universal Flexible Premium Life Explanation: *He wants protection, life insurance, savings, cash value, but only wants to make premium payments up to a certain age.*
Joe has a 10 year term policy. At the end of the 10 years he would like to exercise the convertible provision in his policy. He could convert to all of the following except..
.*10 year term* Variable Universal Life Adjustable Life Continuous Premium Whole Life Explanation: *The convertible provision allows the insured to convert to a perm policy at the end of their term without proof of insurability. His new premium would be based on his attained age.*
The type of insurance in a universal life policy is..
.*Term* Permanent Flexible Variable Explanation: *Universal life is the only permanent policy that has term insurance as one of its insurance components.*
How long does it take to build cash value in a Universal Life policy?
*3 years* Depends on the investment vehicle 2 years 1 year Explanation: *It takes 3 years to build cash value in all permanent policies and annuities, except for a single premium, which builds immediate cash value.*
Which form of term insurance contains the least expensive first year annual premium?
*ART* Level Increasing Decreasing Explanation: *ART starts out the lowest because every year the premiums can be increased.*
There are 2 distinct periods in an annuity, what are they?
*Accumulation and Annuitization* Immediate and Deferred Pay In and Deferred Single and level Explanation: *The 2 periods in an annuity are the accumulation period, also called the pay in period and the annuitization period, also called the pay out period.*
Which type of policy is best suited for someone who wants the ability to change their premium, increase or decrease their face amount or change their period of protection?
*Adjustable Life* Variable Annuity Variable Universal Life Decreasing Term Explanation: *Adjustable life gives the policyholder the best of both worlds between term and permanent protection.*
Which type of policy is best suited for a real estate agent who is dependent on straight commission for their lively hood?
*Adjustable Life* Variable Universal Life Interest Sensitive Term Equity Indexed Universal Life Explanation: *Adjustable Life is best suited for someone who has a fluctuating income. They have the ability to adjust the premium, premium payment period, period of protection and face amount.*
What determines the amount of the payout of a Variable annuity?
*Age and value* Underlying investment and guaranteed minimum interest rate Earnings of the insurer Premiums paid and guaranteed minimum interest rate Explanation: *The payout of a Variable annuity will be determined by the annuitant's age and the amount of principle and interest in the annuity on the date of annuitization.*
What is the only thing that can cause the premium to go up in an issue age policy?
*An increase in benefits* Age Health Changing occupation Explanation: *In an issue age policy, the premiums are based on the date the policy was first issued and they do not change throughout the term.*
Joe wants to take out a $30k loan to buy a car. The bank will loan him the money at 8.9% for 78 months. What type of coverage is best suited for Joe's situation
*Decreasing Term* Variable Universal Life Decreasing Whole Life 7 Year Renewable Term Explanation: *Any time a policy is used to cover a loan, it will be written as decreasing term insurance.*
The death benefit in a variable universal life policy..
*Depends on the performance of separate account. Is fixed.* Is guaranteed to be more with the guaranteed interest rate. Depends on general account assets. Explanation: *The death benefit may increase or decrease, depending on the performance of the underlying investment, however, it will never go below the initial amount that was purchased.*
A person selling Variable annuities must be registered with...
*FINRA* Dept of Insurance SEC State Guarantee Association Explanation: *A Securities license is registered with FINRA, formerly call NASD. The SEC is the oversite.*
What would the premium be like in a joint life policy, compared to a survivorship life policy?
*Higher* Lower Same 2 premiums that are higher Explanation: *The insurer is going to be issuing 1 policy covering 2 lives. In a joint life, they would be paying the death benefit after the first person dies, so they would charge more for that one.*
Which answer is true about the premium payment on a variable whole life policy?
*It has a fixed premium* It has a fluctuating premium It has a variable premium It has an adjustable premium Explanation: Any "whole" life policy will have a fixed premium.
Which policy would be the most cost effective for 2 business partners starting a new business?
*Joint Life* Interest Sensitive Whole Life Fixed Annuity Deferred Joint Life Explanation: *Joint Life is one policy covering 2 lives and pays a death benefit after the first person dies.*
Joe and his wife would like to buy one policy to cover both of their lives. Their agent tells them they could do either a Joint Life or a Joint and Survivor policy. Joe wants to know which one is the most cost effective.
*Joint and Survivor will be less expensive* Joint life will be less expensive Joint and Survivor is more expensive The cost would be the same for both Explanation: *Joint and Survivor will be the least expensive because even after the first person dies, the 2nd person will have to continue making premium payments until they die and the death benefit gets paid out.*
Joe wants to purchase a permanent policy. His agent tells him that he has a couple of different options to pay his premium. He could choose a straight life policy or a limited pay policy. Joe wants to know which one will build cash value faster.
*Limited Pay will build cash value faster than a straight life* The will build cash value at the same rate Straight life will build cash value faster They both will take 3 years to build cash value Explanation: *In a Straight Life, the premiums are spread out out to age 100. On a Limited Pay, you would be paying a higher premium to get it paid up quicker, so you will also build cash value faster.*
Another name for the cash value in a permanent policy is...
*Living Benefits* Savings account Annuity value Loan value Explanation: *The cash value in a permanent policy is called Living Benefits, you don't have to die to use it. Another name for it is the Non-Forfeiture value because if you ever decide you don't want the policy any more, you would have 3 Non-Forfeiture options available.*
Who regulates variable insurance products?
*NASD and Dept of Insurance* FINRA and State Exchange Commission (SEC) SEC and Dept of Insurance Dept of Insurance and Guarantee Association Explanation: *NASD(FINRA) is who the securities license is registered with and the Dept of Insurance regulates the life license portion.*
Annually Renewable Term provides an increasing...
*Premium* Death benefit Premium and death benefit Number of years of coverage Explanation: *ART is the purest form of term insurance. Each year as the insured gets older, their premium will be based on their attained age.*
Which insurance policy only requires a payment of premium at inception and no further premium contributions?
*Single Premium Whole Life* Single Premium Renewable Term Single Premium Immediate Annuity One Pay Whole Life Explanation: *A Single Premium Whole Life requires only one payment at its inception and can begin building immediate cash value.*
Joe purchases a flexible, deferred annuity. When does the payout start?
*Sometime after the first year* 10 years from the purchase date He has the option to either start within the first year or after the first year After the first month, but definitely within the first year Explanation: *Deferred annuity will have a payout that begins anytime after the first year of purchase. Depending on the annuitant's age, it could be quite a few years in the future, since annuities are to be used for retirement*
What determines the cash value in a Variable policy?
*Underlying investment* Guaranteed minimum interest rate State Guarantee Association Insurer Explanation: *In all Variable policies, the underlying investment of bonds, stocks, money market or real estate. There are no guarantees of a return.*
Which death benefit option allows the beneficiary to collect both the death benefit and the cash value when the insured dies?
*Universal Life Option B: increasing death benefit* Increasing Universal Life Increasing Term Option A Universal Life Level Death benefit Explanation: *UL has 2 death benefit options. Option A is a level death benefit and Option B is an increasing death benefit.*
Which policy contains a separate account?
*Variable Universal Life* Universal Life Adjustable Universal Life Adjustable Whole Life Explanation: *Variable policies contain a separate account where the funds are kept.*
The words immediate and deferred refer to...
*When the payout begins* When cash value will be available When premium payments will begin When coverage will be available Explanation: *Refers to when the payout of an annuity will begin. Either Immediate, within the first year of purchase or Deferred, sometime after the first year, could be 20 years later.*
The words immediate and deferred refer to...
*When the payout begins* When cash value will be available When premium payments will begin When coverage will be available Explanation: *refers to when the payout of an annuity will begin. Either Immediate, within the first year of purchase or Deferred, sometime after the first year, could be 20 years later.*
Joe purchases a single premium immediate annuity. When does the payout begin?
*Within the first 12 months* When the insurer deposits his funds Between years 1 and 5 After the 12th month, but before the 5th anniversary Explanation: *The word Immediate means that the payout will begin after the first month, but definitely within the first year*.
Joe purchases a single premium immediate annuity. When does the payout begin?
*Within the first 12 months* When the insurer deposits his funds Between years 1 and 5 After the 12th month, but before the 5th anniversary Explanation: *The word Immediate means that the payout will begin after the first month, but definitely within the first year.*
A person selling Variable annuities must be registered with...
A Securities license is registered with FINRA, formerly call NASD. The SEC is the oversite.
annuities and db?
Annuities are for the liquidation of an estate and do not have a death benefit.
Which answer is true about the premium payment in a variable universal life policy?
Any "universal" life policy will have a flexible premium.
The death benefit in a variable universal life policy..
Depends on the performance of separate account. The death benefit may increase or decrease, depending on the performance of the underlying investment, however, it will never go below the initial amount that was purchased.
What determines the cash value in a Variable policy?
In all Variable policies, the underlying investment of bonds, stocks, money market or real estate. There are no guarantees of a return.
What type of policy covering 2 people, would pay a death benefit after the first person dies?
Joint Life. oint Life policy is one policy written on 2 lives and the death benefit would be paid after the first person dies and the policy goes away.
Jim would like protection and savings from his policy, but only wants to make premium payments until he retires at age 65. Which type of policy is best suited for Jim's situation?
Limited Pay Whole Life. He wants protection, life insurance, savings, cash value, but only wants to make premium payments up to a certain age.
Who regulates variable insurance products?
NASD(FINRA) is who the securities license is registered with and the Dept of Insurance regulates the life license portion.
Types of Life Insurance Policies
Permanent Policies, Whole Life, Adjustable Life, Universal Life, Interest Sensitive Whole Life, Equity Indexed Whole Life, Variable Life Insurance, Term Life Insurance,
Another name for the cash value in a permanent policy is...
The cash value in a permanent policy is called Living Benefits, you don't have to die to use it. Another name for it is the Non-Forfeiture value because if you ever decide you don't want the policy any more, you would have 3 Non-Forfeiture options available.
What decreases in Decreasing Term insurance?
The death benefit is the only thing that changes during the term.
The terms most closely tied to how an annuity gets funded are..
The way an annuity gets funded during the accumulation period is either with a level premium, a flexible premium or even a single premium.
Which permanent policy must maintain a required IRS corridor between the cash value and the death benefit?
Under Option A, which has a level death benefit, as the cash value increases over the later years, the policy must maintain a required IRS corridor between the cash value and the death benefit. If not, it will become a MEC.
Which policy contains a separate account?
Variable policies contain a separate account where the funds are kept.
1. Annuities
a. Are not life insurance b. Life insurance creates an immediate estate c. Life insurance has a death benefit d. Annuities are for the liquidation of an estate e. Annuities do not have a death benefit f. Owner -Person,Corp, Trust g. Annuitant - Person only h. Used mainly for retirement purposes (think 401k) i. Most have a Surrender Charge (Early withdrawal penalty) j. Funding an annuity (Paying for it) - Single, Level or Flexible k. When will payout begin i. Immediate - after 1st month but within the 1st year of purchase ii. Deferred - after the 1st year of purchase l. Accumulation Period - Pay in period (Funding your annuity) m. Annuitization Period - Pay out period (Providing you an income) n. Payments are designed to be for the life of the annuitant i. Straight Life - income you can't outlive 1. Die too soon - insurer keeps the rest ii. Life Income with Period Certain - Pays for the life of the annuitant 1. Will have a Period Certain (20 years) for a beneficiary 2. Annuitant dies during this time - beneficiary gets remainder of the time left iii. Life Income with Refund 1. Annuitant dies too soon - remainder will be refunded to a beneficiary iv. Joint Life - Payments for 2 people - stop after 1st one dies v. Joint and Survivor - Payments for 2 people - stop after 2nd one dies o. All annuities are considered to be fixed i. Guaranteed Minimum Interest Rate ii. ExceptforVariable p. Variable Annuities - Same as we saw with Variable Life i. Accumulation Period - Accumulation Units 1. Level premium 2. # of units not known in advance (Underlying Investment) 3. No guarantees of return ii. Annuitization Period - Annuity Units 1. Determined on the date of annuitization 2. Begin withdrawing units 3. Exact monthly benefit not known in advance (Underlying Investment) 4. No guarantees of return p. Equity Indexed - Tied to S&P 500 i. Life license only needed to sell ii. Guaranteed Minimum Interest Rate 2. Combination Life Plans: a. Joint Life Policy i. One policy, covering 2 lives ii. Death benefit gets paid after the first one dies iii. No coverage after that b. Joint and Survivor Policy i. One policy, covering 2 lives ii. Death benefit gets paid after the 2nd dies
1. Permanent Policies
a. Coverage up to age 100 - Policy matures (Endows) - Cash value = Face amount b. Living Benefits - Cash Value (Non-Forfeiture Value) c. Have a Guaranteed Minimum Interest Rate - Usually 3% - 4% d. Takes 3 years to build cash value
4. Universal Life - Interest or Market Sensitive Product
a. Guaranteed Minimum Interest Rate b. Flexible premium i. Minimum - covers cost of insurance - Annually Renewable Term (ART) - Keeps policy in force for a year ii. Target - covers cost of insurance + builds cash value - Keeps policy in force until maturity c. Two Components - Insurance(ART) and Cash Account d. Death Benefit Options i. Option A - Level Death Benefit - Beneficiary collects only original death benefit 1. IRS Corridor Gap ii. Option B - Increasing Death Benefit - Beneficiary collects both
3. Adjustable Life
a. Guaranteed Minimum Interest Rate b. Allows insured to adjust i. face amount, premiums or period of protection ii. Face amount cannot be increased beyond original amount without proof of insurability c. Sold to clients that have a fluctuating income
5. Interest Sensitive Whole Life
a. Guaranteed Minimum Interest Rate b. Level Premium
2. Whole Life
a. Guaranteed Minimum Interest Rate b. Level or Fixed Premium c. Straight Life - Premiums scheduled up to age 100 d. Limited Pay - Premiums paid up in a shorter amount of time i. Builds Cash Value faster than a Straight Life ii. 20 Pay Whole Life iii. Life Paid Up at 65 iv. Still Endows at age 100 e. Single Premium - can build cash value immediately
7. Variable Life Insurance
a. Must have a Securities License i. Registered with FINRA (NASD) ii. SEC is the oversight to all products b. Insured picks investment vehicle (Sub Account) i. Underlying Investment - Bonds, Stocks, Real Estate c. No Guarantees of a Return d. Funds kept in a Separate Account - not the company's General Account e. Hedge Against Inflation f. Minimum Death Benefit Guaranteed ($100k) -could go higher though
8. Term Life Insurance
a. Temporary protection death benefit and cash value from policy . Pure Death Protection 1. No cash value a. Level, Increasing or Decreasing Term - All about the Death Benefit -NOT the premium 1. Level - Death benefit stays the same throughout the term 2. Increasing - Death benefit increases - ROP Rider 3. Decreasing - Death benefit decreases - Credit Life b. Annually Renewable Term 1. Purest form of term insurance 2.Premium goes up every year during the term 1. Based on your Attained Age 2. Proof of insurability not required each year 3. Lowest premium in the early years 3. Group Life insurance is always ART c. Issue Age Premiums 1. Premium based on the date policy was issued and does not change during term 2. Only thing that could affect the premiums would be to *increase the benefits* d. Renewable Provision 1. Policy can be renewed for another term - without proof of insurability 2. Premiums will be based on Attained Age e. Convertible Provision 1. Can be converted to a permanent policy - without proof of insurability 2. Premiums will be based on Attained Age
6. Equity Indexed Whole Life
a. Tied to an index like Standard & Poors 500 (S&P 500) b. Guaranteed Minimum Interest Rate c. Level Premium d. Not invested directly in the index...only tied to it e. *Seeks higher returns*
death benefit
amount payable to beneficiary of the insured once insured dies
cash value
the balance is a forced savings component available to insured while he's still living thru loan or partial surrender. CV of a permanent policy grows tax deferred, can eventually be used to pay premium
When renewing or converting a term policy, the amount of the premium that will be paid is based on
the insured's attained age.
