Chapter 4

Front 1

The foundation of all life insurance.

Back 1

Original Life or Whole Life

(Permanent Insurance)

-Only one to buy if you live to be 100 Years Old

Front 2

Cash values must have started by the _______ of the ______ year.

Back 2

Cash values must have started by the END of the THIRD year.

No money the 1st three years. As cash value increases, company's net amount at risk decreases.

Front 3

Premiums remain ___ _____ throughout the premium payment period.

Back 3

Premiums remain THE SAME throughout the premium payment period.

Front 4

Methods of Whole Life Premium Payment

(3)

Back 4

1. Single Pay - pay all at once

2. Continuous Pay - pay until death or 100.

3. Limited Pay - Pay until a certain age

#3 Ex. 10 pay life, 20 pay life, or life paid up at age 65.

Front 5

The ______ the premium duration, the _______ the premium will be per payment.

Back 5

The SHORTER the premium duration, the HIGHER the premium will be per payment.

Front 6

Types of Term Policies

(3)

Back 6

1. Level Term - premiums and protection remain level during the policy period. Premiums go up when renewed based on current age at renewal

2. Increasing Term - Face amount increases (Best for PARTNERSHIPS)

3. Decreasing Term - Face amount decreases (LEAST EXPENSIVE) aka CREDIT LIFE

Front 7

Policy Riders
(9)

Back 7

1. RENEWABILITY (Term only)

2. CONVERTIBILITY (Term only)

3. ACCIDENTAL DEATH (DOUBLE INDEMNITY)

4. WAIVER OF PREMIUM

5. WAIVER OF PREMIUM W/DISABILITY

6. GUARANTEED INSURABILITY

7. AUTOMATIC PREMIUM LOAN

8. ADDITIONAL INSUREDS

9. ACCELERATED DEATH BENEFITS/LIVING BENEFITS PROVISIONS

Front 8

Which policy matures (endows) before age 100 and is the most expensive?

Back 8

ENDOWMENT OR PURE ENDOWMENT

Front 9

Which policy doesn't pay until the insured reaches a specified age and what it pays out (death benefit AND living benefit) is tax free?

Back 9

PURE ENDOWMENT

Front 10

Which policy has to pass the "seven year test"?

Back 10

MODIFIED ENDOWMENT CONTRACT (MEC)

Front 11

What is the "Seven Year Test"?

Back 11

Any withdrawal, loan, or collateralizing of the cash in these policies is TAXABLE. The 7 year test is used to limit the amount that may be paid into the policy during the 1st 7 policy years. (If paid off before 7 years, the policy would be classified as a MEC and any withdrawals or loans would be taxed as INCOME b/c of the GAIN in the policy.

Front 12

This is a package program designed to cover the entire family by providing Whole Life on the head of the house and Convertible (Level) Term coverage on the other family members. Children are added at 15 days old and added at no extra cost. The largest amount of coverage is on the head of the house.

Back 12

THE FAMILY POLICY

(All others coverage cannot be greater than the head but can equal the same amount)

Front 13

Only 1 person insured. A combination of Whole Life and Decreasing Term. The term benefit is always paid to the beneficiary in installments, beginning when the insured dies and ending when the term coverage would have expired.

Back 13

FAMILY INCOME POLICY

(Policy on the highest earner in the household)

Front 14

This policy provides coverage on two insureds under the same policy. They usually name EACH OTHER AS THE BENEFICIARY and when one dies, the other collects benefits and the policy expires

Back 14

JOINT LIFE POLICIES

Front 15

This is a variation of a joint life policy, the difference is that the death benefit is not paid until the second one dies. --used for Estate Tax

Back 15

SURVIVORSHIP LIFE

Front 16

Any policy insuring a minor is referred to as a ___________ policy. It can be any type (Whole Life, Endowment, or Term). All these policies are issued on the application of an adult but insures a child.

Back 16

JUVENILE POLICIES

Front 17

Riders for Juvenile Policies

(2)

Back 17

1. Jumping Juvenile-the face amount jumps when the juvenile reaches a stated age w/out an increase in premiums.

2. Payor Benefit-It requires the company to waive its right to collect premiums if the payor dies or becomes disabled before the child reaches a stated age. (2 people have to prove insurability)

Front 18

Which two policies are the only ones where the premium changes?

Back 18

MODIFIED LIFE AND GRADED PREMIUM

Front 19

Designed for young professional people, it has a lower than average premium during the first few years (3-5 yrs usually) that automatically increases to slightly higher than average and remains level thereafter.

Back 19

MODIFIED LIFE

Front 20

This policy is similar to Modified except the premium increases gradually during the first few years then levels off. (Less drastic)

Back 20

GRADED PREMIUM

Front 21

A flexible premium-adjustable benefit life insurance contract that accumulates cash values. A policy with flexibility for the insured in regard to changing the premium and death benefit. Insured can skip payments, change from increasing to level and vice versa, BUT when changing from level to increasing INSURABILITY MUST BE PROVEN.

Back 21

UNIVERSAL LIFE --goes up and down once a month

Front 22

Which policy do you need both a life license and a Series 6 or 7 FINRA license to sell? Uses stocks, bonds, and money market instruments.

Back 22

VARIABLE LIFE --goes up and down every day

Front 23

The flat or level death benefit is not truly level under IRS rules, there must be an "amount at risk" (amt of protection over and above the CV) until age 95 in order for the death benefit to be exempt from federal income tax. The amount at risk is called the "risk corridor".

Back 23

OPTION 1 OR OPTION A

Front 24

The "increasing" type benefit is simply when the growth of cash value is added directly to the face amount of the policy. This increased the death benefit by the amount of cash value in the policy at any point in time. The insured will pay a higher premium for this increasing benefit.

Back 24

OPTION 2 OR OPTION B

Front 25

This rider allows renewal w/out proving insurability based on attained age. (ex. G.R. 70)

Back 25

RENEWABILITY (Term only)

Front 26

This rider allows to convert to Whole Life w/out proving insurability. If at Original age, must pay back all premiums if Whole Life had been in place. (can do either attained or Orig.)

Back 26

CONVERTIBILITY (Term only)

Front 27

This rider provides for the face amt to be doubled if death occurs by accident. Exclusions: self-inflicted, suicide, crime death, war, riot death, and death of a passenger in other than a regularly scheduled commercial airline flight

Back 27

ACCIDENTAL DEATH (DOUBLE INDEMNITY)

Front 28

With this rider, the company agrees to waive its right to collect premiums if the insured becomes totally and permanently disabled, with a presumption that disability is permanent if it has persisted for 6 MONTHS. Premiums paid during the first few months are usually refunded.

Back 28

WAIVER OF PREMIUM

Front 29

With this rider, the amount of monthly income is usually stated as $10 per $1,000 of the face amount of the policy.

Back 29

WAIVER OF PREMIUM WITH DISABILITY INCOME

Front 30

This rider allows the insured to purchase additional insurance on himself at specified times in the future without proving insurability, just using age.

Back 30

GUARANTEED INSURABILITY

Front 31

This rider does not cost an additional premium. This allows the company to borrow money from the policy loan value, on the insureds behalf, to PAY a premium that is due and unpaid. Since this is a loan to the insured, it will require interest charges and if not repaid, will be deducted from the death benefit --Always put on Whole Life

Back 31

AUTOMATIC PREMIUM LOAN

Front 32

Riders are often attached to life insurance policies which provide coverage on the lives of other family members. Usually issued as Level Term coverage, these riders can cover a spouse, one or more children, or all family members in addition to the named insured.--Used on family policies (G. C. LT.)

Back 32

ADDITIONAL INSUREDS

Front 33

This rider option allows the insured to draw cash amts from the insurance policy to help pay for hosp. and med. exps or the costs of permanent confinement in a nursing home if the insured has been DIAGNOSED AS TERMINALLY ILL. Insured is generally able to draw out the majority of the face amt with no added cost if certified terminally ill.

Back 33

ACCELERATED DEATH BENEFITS / LIVING BENEFITS PROVISIONS

Front 34

A person who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death with 24 months following the certification. 12 months with 1 physician, 24 months with 2 physicians at 2 separate clinics.

Back 34

TERMINALLY ILL