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48 Cards in this Set

  • Front
  • Back
maturity date or time when cash value equal face amount

when policy matures, it's "endowed" and proceeds are paid to the policy owner
Term Policies
- temporary
- expire at an attained age (Term to 65) or after a specific period (Ten-year Term)
- face amount is only paid if the insured dies during the specified term of the policy
- low initial premiums; higher the age, the more costly the premiums
- age limit usually 70
- can be written separately or with other insurance as a rider
- rates based on age, gender, and time period
Term Policy Types
1. Level
2. Decreasing
3. Increasing
4. Re-entry Term
5. Life-Expectancy Term
Level Term
benefits and premiums remain level (applies to most group life insurance)
Decreasing Term
- benefit decreases but premiums remain level
- Utilized as "Mortgage redemption" or "Credit Life Insurance"
Increasing Term
- benefit increases and premiums remain level
- usually a rider for the return of premium on a permanent policy over a set number of years
Re-Entry term
- low premiums at issue
- can be renewed at lower premiums w/proof of insurability
- premiums increase annually (re-entry) if health declines
Life Expectancy term
- level benefit over life expectancy based on a mortality table
- contract is pure protection, but with the level premium concept, a cash value accumulates to help offset the required premiums in the later years
Term Options
1. Renewability
- renew w/o evidence of insurability
- based on attained age
- decreasing term is never renewable
2. Convertibility
- convert policy without evidence of insurability
- based on attained age and issue age
Whole Life Policies (Ordinary Whole Life or Continuous Pay Life)
- permanent need of protection
- matures at 100
- policy builds cash, loan, and nonforfeiture values
- Pure Protection is face value minus cash value (as the cash value increases, the pure protection decreases, but face amount would remain the same)
- owner may borrow from cash value with a fixed/variable interest rate
- policy lapses from nonpayment of premium, nonforfeiture values are available for use by the policyowner
- level premium and face amount
- early years, premiums are more than cost and vice versa
- shorter pay period, higher premiums
- settlement options available upon maturity
- cash value equals face value upon maturity
- can add a term rider but cannot convert a whole life policy to a term policy
Whole Life Types
1. straight life (continuous premium or permanent life) - level until maturity or death
2. Limited Payment
- premiums are fixed within a time frame but face amount remains level
3. Single Premium
- entire cost is paid upon purchase
- face amount remains level
- cash builds faster than 1 or 2
4. Current Assumption (Interest Sensitive)
- Flexible premiums
- face amount doesn't fluctuate
- interest rate is higher than insurer's rate for inflation protection
5. enhanced ordinary (economatic)
- using dividends to purchase
- needs more protection than one can afford
- purchase reduced amount of whole life with a term rider attached to make up the difference
- 70/30 split (whole/term)
- if dividends aren't enough, dividends diverted to buy one year renewable term until such time as the original contract limits are reached
Endowment Policies
- permanent protection until policy endows (prior to age 100)
- contain cash, loan, and nonforfeiture values
- owner may borrow from the cash value
- level premium and face amount
- shorter premium paying period, higher the premium
- settlement options available upon death
- place more emphasis on savings than insurance
- not a long term solution
- higher premiums than whole life; most expensive policy
- forced savings with a life insurance benefit
Adjustable Life (Flexible)
- level premium, benefit
- term or whole life
- common features of level
- increase in benefit requires proof of insurability
- when premiums paid exceeds cost of a policy, cash value develops
- increase in premium can increase future cash values by lengthening protection period for term or shorting premium payments for whole
- good for those with fluctating incomes
- high cost of administration
Universal Life (Flexible)
- flexible premium payment schedule
- owner select face amount
- death benefit is in the form of a one year renewable term while cash value earns an interest rate
- premiums are placed in cash value account; mortality charge is deducted monthly from policy's cash value account for the cost of the insurance protection and expenses
- interest is credited to the cash value at the current interest rate with a guaranteed minimum; cash value is never guaranteed
- owners can borrow or make partial withdrawals
- cash value cannot be disproportionately larger than the term insurance portion of the policy
- surrender charges must be stated in the policy showing the costs upon surrender
- adjusts to interest rate changes and allows owner to make additional contributions that will increase the cash value or skip some premiums
Variable Life (Flexible)
- fixed premium whole life
- benefits or cash value based on separate accounts of investments
- premiums minus expenses and mortality charge are invested
- guaranteed minimum face and a maximum loan value (up to 90%) with an 8% or variable interest rate
- no guarantee of minimum cash value
- created to protect against inflation
- need NASD license to sell
- buyer must receive a prospectus
- owner has no control over investment fluctuations and assumes investment risk
Variable Universal Life (VUL)
- premium and death benefits are flexible
- excess cash placed in a separate account or investment vehicles
- allows the owner to choose investment vehicles (accounts). transfers are allowed and aren't taxed or charged fees
- buyers need a prospectus
- need NASD license to sell
Family Income (Policy or Rider)
- combination of whole life and decreasing term insurance
- provides monthly income from insured death until a future date
- income period begins from the effective date of the policy
- if the insured dies within the term period the benefits are paid for the remainder of the term followed by the Whole Life benefits. if the insured lives beyond the income period, only the while Life benefits remain to be paid upon death
- may be added to any permanent policy
Family Maintenance
- combination of Whole Life and Level Term insurance
- provides monthly payments for a selected period of years beginning from the date of death of the insured, if the death occurs during the stated term
- term insurance is calculated using multiples of thousands in the face amount
- whole life is paid at the time of death
- if insured lives beyond the term, only the face amount of Whole Life is paid upon death
- more expensive than Family Income Policy of a like amount
Family Policy (Family Protection Plan)
- single contract for entire family
- whole life on the breadwinner that may include riders
- Level term on spouse and children (Family Rider)
- spousal is term to 65; guaranteed convertible
- child rider is to age 25. covers adopted and stepchildren. upon 25, coverage is convertible without evidence of insurability
- premium of base plan is longer than the term rider
- if the primary dies, family rider is paid up until each member term is expired
- written for a minor
- "Jumping Juvenile" - automatically increases the face amount at a given age (21-25)
- premiums remain level; face amount increases 5x
Modified Whole Life
- premiums are lower than typical Whole Life in the early years
- later years, premiums are higher than a typical WL policy
- for those with limited funds and the potential to increase funds later
Graded Premium
- similar to Modified Whole Life but premiums increases each year during the early years of the policy and then remains level
- later years, premiums would be greater than whole life
Joint Life (First to Die)
- written to cover two or more lives
- death benefit paid upon the death of the first to die
- based on joint issue age (average of both ages)
- provides income protection for spouses when both have earned income; used to fund Buy-Sell Agreements
- written on a whole life basis (matures at joint age of 100)
Joint Survivorship Life (Last to Die)
- written to cover two+ lives
- death benefit not paid until last insured dies
- premiums based on joint age
- for couples who plan to defer state estate taxes until second spouse dies
- rates are lower than two separate policies; coverage in larger amounts
- written on a while life basis (matures at joint age of 100)
Comparing Policy Values
1. Surrender Cost Index
- compares policies of the same type
- cannot be used on policies that don't have a fixed interest rate and a systematic accumulation of cash value
2. CIR (Comparative Interest Rate)
- determines amount of interest necessary to compare a cash value policy with a term policy and investing the premium difference

- term policies do not have a characteristic of cash value accumulation
- universal life, variable life, variable ul do not have a guaranteed cash value
Policies with Guaranteed Cash Value
1. Whole Life (all types)
2. Endowment Policies
3. Family and some Juvenile policies
4. Graded Premium
5. Join Life (both types)
6. Modified Whole Life
Waiver of Premium
- when insured becomes disabled, company waives premiums for the duration of the disability
- before waiver, there's a 6 month elimination period
- becomes inoperative at an age stipulated in the contract
- cash value and dividends continue as under normal premium payments
Disability Riders
1. Waiver of Premium
2. Waiver of Payors Premium (Payor Benefit)
3. Waiver of Premium/Disability Income
Waiver of Payors Premium (Payor Benefit)
- premium is waived if the payer becomes disabled or dies
- usually for juvenile policies or policies in which the owner and insured are two different policy (ie: cross Purchase Buy-Sell Agreement)
- when added a juvenile policy, waiver cancels at the age of 21-25
Waiver of Premium/Disability Income
- premiums are waived for a disability and insured gets a monthly income
Waiver of Cost of Insurance
- when disabled, after 6 months of continued disability, the rider waives the deduction of the monthly cost of insurance and expense charges associated with a universal life policy
- disability must occur prior to a stipulated age
Spouse Rider (the other insured rider)
- level or decreasing term to cover the spouse
Child Rider
- term rider for children
- up to age 21-25
- after maximum age, the coverage is convertible without evidence of insurability
- if insured dies, rider becomes a term policy
Family Rider
- spouse and child rider on one policy
- for each $1000 or $5000 of coverage on the primary, the spouse and child are covered for less
Riders Affecting the Death Benefit
1. Accidental Death (Double Indemnity)
2. Guaranteed Insurability
3. Return of Premium
4. Return of Cash Value
5. Cost of Living (COL)
6. Living need/Accelerated Benefit
Accidental Death (Double Indemnity)
- policy pays double or multiple in the case of an accident
- payable only if death occurs before a specific age and within 90 days of the accident
- added to any type of individual life policy
Guaranteed Insurability
- allows the insured to purchase additional amounts of insurance at certain ages, events, or specified dates without evidence of insurability
- premiums are based on attained age
Return of Premium
- increasing term insurance equal to the amount of premiums paid
- if the insured dies, beneficiary receive face amount plus the amount of premiums paid
Return of Cash Value
- increasing term insurance equal to the cash value
- provides payment of term insurance equal to the cash value amount at time of death
- does not relieve the obligation to pay loans from the claim proceeds at time of death
Cost of Living (COL)
- Increasing Term insurance that increase as the Consumer Price Index increases
- adjustments made each anniversary
- premiums adjusted to pay for adjusted coverage
Living Need (Accelerated Benefit)
- allows the early payment of a portion of the face amount before death for the terminally ill
- upon death, the early payment will be deducted from the benefit paid to the beneficiary
- may include nursing home benefits and dread disease benefits, but does not include a disability income benefit
- rider normally provided without a premium charge because it is an advance of the death benefit
Viatical Trust Settlement Agreements
- between a business and the life insurance policy owner insuring the life of an individual with a terminal illness with a life expectancy of >2 years
- firm purchases policy at 60%-80% of the face amount
- insured provided with tax exempt discounted value during the illness
- discounted proceeds are received by the insured at the time of the agreement
- policy must be in force when the agreement takes place
Chronically III
– A condition which means a person is unable to perform at
least two activities of daily living.
Fraudulent Viatical Settlement Act
– An act or omission committed
by any person who knowingly deprives another of property or intentionally
defrauds for pecuniary gain.
Terminally Ill
Having an illness or sickness that can reasonably be expected
to result in death in 24 months or less.
The owner of a life insurance policy or a certificate holder under
a group policy insuring the life of an individual with a catastrophic, life threatening
or chronic illness or condition who enters or seeks to enter into a
viatical settlement contract.
Viatical Settlement Contract
A written agreement entered into between
a viatical settlement provider and a viator. The agreement shall establish the
terms under which the viatical settlement provider will pay compensation or
anything of value, which is less than the expected death benefit of the insurance
policy or certificate, in return for the viator’s assignment, transfer, sale, devise
or bequest of the death benefit or ownership of all or a portion of the insurance
policy or certificate of insurance to the viatical settlement provider.
CA Viatical Laws
a. No person may enter into or solicit viatical settlements unless licensed by the
b. The person must file an application for license and pay the appropriate licensing
fee. There is an annual renewal fee for periods commencing on July 1 of each
year and ending June 30 of each year.
c. The licensee must file for approval with the Department a copy of all viatical
settlement forms used in this state.
d. A viatical settlement licensee is required to disclose or advise any applicant for
a viatical settlement, at time of solicitation for the viatical settlement, of all of
the following:
1) Possible alternatives to viatical settlements for persons with catastrophic or
life-threatening illness, including, but not limited to, accelerated benefit options
that may be offered by the life insurer;
2) Tax consequences that may result from entering into a viatical settlement;
3) Consequences for interruption of public assistance as provided by information
through the State Department of Health Services and the State Department of
Social Services under Section 11022 of the Welfare and Institutions Code.
e. Each licensee must file with the Commissioner on or before March 1 of
each year an annual statement documenting information as required by the
f. Any person who enters into a viatical settlement with a viatical settlement
licensee has the absolute right to rescind the settlement within 15 days of
execution of the settlement.
g. A violation of this section of the California Code is a misdemeanor.