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9 Cards in this Set

  • Front
  • Back
Settlement Options
- used when the insured lives to endowment date
- benefits paid in lump sum unless otherwise specified
- policy owner choses option while living which cannot be change by anyone. if one wasn't chosen, upon death, the beneficiary can choose
- policy owner can revise before receiving living benefits
- principal payments after death are not taxable as income; interest is taxed
Optional Modes of Settlements
1. Interest – payments are paid at least annually and are interest only (temporary). The
principal does not decrease and interest may not accumulate. The income generated
is taxed as ordinary income. This method of providing income is known as capital
conservation. The principal (capital) is left with the insurer at interest, conserving the
2. Fixed Amount – payments are a specified dollar amount until the benefits are exhausted.
3. Fixed Period – payments are guaranteed for a specified period of time, regardless of
who may receive the payments, policyowner or beneficiary.
4. Life Income Only – payments are guaranteed for the lifetime of the recipient.
5. Life Income Period Certain – payments are guaranteed for the lifetime of the
recipient or a specified period of time, whichever is longer.
6. Life Income Joint and Survivor – payments are guaranteed for the lifetime of two or
more recipients. Upon the death of the first recipient, payment continues to the survivor(s).
7. Joint Life – payments are guaranteed to two or more recipients until the first recipient
dies, then all payments cease.
Nonforfeiture Options (Guaranteed Values)
- in policies that accumulate cash values
- protect policy owner against total loss of benefits if it lapses or cancels
- 3 types of options
3 Types of NonForfeiture Options
1. Cash Surrender – withdraw the cash value and surrender the policy. Policyowner
receives the total cash value less any outstanding loans and accrued interest.
2. Reduced Paid-Up – present cash value is used to buy a single premium, permanent
paid-up policy of a reduced face amount, the longest period of coverage provided by a
nonforfeiture option.
3. Extended Term – present cash value is used to buy a single premium term policy of
the same face amount for as long a period as it will buy. This option provides the most
protection and is sometimes referred to as the Automatic Option.
Dividend Options
- paid as declared; never guaranteed
- return of excess premiums paid
- not taxable as income
- interest earned on dividends is taxable
- should the total accumulation of dividends exceed the accumulated premiums paid, the exceeding amount is taxable as normal income
- dividends are property of the policy owner; withdrawn anytime it accumulates
- dividends are designated for any option other than cash and all current accumulations withdrawn, option will begin again at the next declared dividend
1. Cash – the policyowner receives the declared dividends on or near each policy
anniversary; however, the cash surrender of the complete policy is not a dividend option.
2. Premium Reduction – dividends are applied toward the next premium due. The
same could be accomplished if the policyowner received the dividends in cash and
remitted the full premium. If the declared dividends equal or exceed the premium, the
premium payment may be suspended.
3. Accumulate at Interest – the dividends are retained by the insurer and the interest
rate paid the policyowner is compounded annually.
4. Paid-up Additions – purchases single premium, additional permanent benefits at
the insured’s attained age. The additional insurance is added to the face amount and
generates cash value and dividends as if the paid-up additional benefit was part of the
original policy.
5. One-Year Term – purchases a single premium, one-year term policy, normally for an
amount equal to the cash value. Premiums are calculated at the insured’s attained age;
(fifth dividend option).
6. Paid-up Option – pays off policy more quickly than scheduled. If the company’s
investment performance declines, premiums may have to be resumed.
7. Acceleration of Endowment – reduces the time period for the policy to endow.
Policy Loans and Withdrawal Options

Cash Loans
1. Any outstanding loans not paid upon the insured’s death (or at policy surrender) will be
deducted from the face amount (or cash value) along with any interest due.
2. The policyowner may obtain a loan once there is a cash value in the policy.
3. The company may defer loans up to six months unless the loan was intended to repay
any premium.
4. Interest charged but unpaid will be added to the loan
5. Interest may be fixed or variable. Variable interest is computed using Moody’s
corporate bond yield, averaged monthly. This must be accomplished at least annually,
but not more frequently than quarterly.
6. Failing to repay a loan or interest will not void the policy until the total amount of loan
and interest equals the total cash value.
Policy Loans and Withdrawal Options

Automatic Premium Loans (APL)
This provision enables the insurer to automatically borrow from the cash value to cover a
premium payment to prevent the contract from lapsing.
1. This provision becomes effective at the end of a grace period.
2. The APL loan is treated as all other loans.
3. The APL is available on cash value policies only and with no additional premium.
Partial Withdrawals or Surrenders
1. A partial withdrawal of cash value is permitted when the policy is a Universal, Variable
or a Variable Universal Life policy (Flexible Policies).
2. In addition to withdrawals, a partial or full surrender is allowed.
3. In the early years of a policy, an insurer may apply a surrender charge (also referred to
as a back-end load) against the cash amount being surrendered. This provides a means
for the insurer to reduce or recapture expenses.