Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
36 Cards in this Set
- Front
- Back
|
Term Insurance: |
• Pure insurance and pure death benefit• Does not offer any cash value or living benefits• Rates charged are based upon underwriting class, the age and gender, or the insuredupon the length of time protection is provided |
|
|
Types of policies: • Level |
The death benefit remains level and the premiums remain level |
|
|
Types of policies: • Decreasing |
The death benefit decreases, but premiums remain level.− The premiums paid for decreasing term are lower than the premiums payable for levelterm since the benefit decreases throughout the term of the policy |
|
|
Types of policies: Credit Life Insurance |
Special form of decreasing term− The policy cannot be written for more than the outstanding debt, since that is the limitof the creditor’s insurable interest− The policy generally pays the outstanding balance of the debt at the time of theborrower’s death, subject to policy maximums |
|
|
Types of policies: Increasing |
The death benefit increases− Premiums remain level− Normally written as a rider to provide cost of living or return of premium benefits |
|
|
Types of policies: Annually Renewable Term |
− The simplest form of term life insurance is for 1 year− The death benefits remain level− Premiums increase yearly as the policy renews up to a specified age |
|
|
Types of policies: Re-Entry Term Option |
− Will allow the insured, upon the end of the original term, to renew based on attainedage and may qualify at a discounted rate by providing evidence of insurability− Will allow the insured to renew at a lower rate than renewable term as long as theinsured meets the qualifications of insurability |
|
|
Special Features: • Renewable |
A benefit that will renew the contract on the renewal date without evidence ofinsurability− Premiums will increase at the beginning of each renewal period− Renewal is based upon attained age− Renewability is important because the risk is that the insured’s health may deteriorateand the insured may be unable to obtain a policy at the same rates or even at all,leaving the insured without coverage |
|
|
Convertible |
− The right to convert the existing term policy to a permanent policy without evidence ofinsurability during the conversion period specified in the contract− The premiums will be higher− If the conversion is based on the issue or original age, back premiums plus interest willbe required to be paid at the time of conversion |
|
|
Permanent Insurance-Traditional Whole Life: |
Characteristics:• Designed to provide coverage for an entire lifetime• Endows at age 100• Cash value increases over time, the net amount at risk decreases• Level premium• Level face amount• Cannot be convertible or renewable |
|
|
Ordinary Whole Life: |
Provides insurance protection to age 100− Cash value accumulation to age 100− Fixed level premium payments |
|
|
Straight Life (Continuous Premium) |
− Premium is level− Payable to age 100 or the death of the insured (whichever comes first)− Death benefit remains level− Highest total premium outlay |
|
|
• Limited payment |
− Premium payments are for a specified period of time− Death benefits remain level− Cash value continues to earn interest and mature to age 100− While the annual premium is higher than straight life, it is paid for a shorter period oftime and will have a lower total premium outlay |
|
|
• Single Premium |
− The entire premium is paid in a lump sum at the time of purchase and createsimmediate cash value− Death benefit remains level− Cash value continues to earn interest and mature at age 100− Lowest total premium outlay for the life of the policy |
|
|
Indetermined Premium |
• Non-participating whole life plan of insurance; it provides for adjustable premiums• The company will charge a “current” premium based on its current estimate ofinvestment earnings, mortality, and expense costs |
|
|
Modified Premium |
• Provides a level death• Requires that premiums be paid for the life of the policy• Premiums do not remain level• Begins with a premium lower than ordinary whole life for the initial 5 years (premiumswill increase and remain level)• Designed for individuals who cannot afford the premium in the earlier years• Does NOT offer immediate cash value |
|
|
Adjustable Life |
Type of permanent life insurance that combines features of term and whole lifecoverage• Most appropriate for those whose income is expected to fluctuate from year to year orthose whose may have a change in needs• Changes can be exercised annually and are not retroactive Example: A policyowner is not allowed to decrease the premium starting on a previousdate. Changes can only be made on a policy anniversary date as approved by the insurer |
|
|
Interest/Market- Sensitive Whole Life Products (Nontraditional Whole Life) Current Assumption or Interest-Sensitive |
− Form of whole life− Company can change the premiums or interest rate being credited to the account basedon current money market rates− Guaranteed death benefit, but may increase due to cash value |
|
|
Indexed Universal Life (Equity Indexed) |
Gives the policyowners the opportunity to decide the percentage of cash value that isinvested in traditional fixed income securities When there is an increase in the market, a given percentage of the gain is used todetermine the interest credited to the policy− When the market declines, the policy is credited with the minimum guaranteed interestrate or zero interest |
|
|
Universal Life (Flexible Premium Adjustable Life Insurance) |
Insurance protection and cash value that grows on a tax-deferred basis− Unbundled policy: Mortality risk, policy expenses, and cash value are credited separatelyafter the premium is paid |
|
|
The level of flexibility and the features of a UL policy include: |
− Adjustable face amount− Mortality charges are deducted monthly from the policy’s cash value− Expense charges to cover administrative costs are deducted monthly− Interest is credited to the cash value on a monthly basis at the current interest rate, butwill never be less than the guaranteed minimum rate established at the time of thepolicy was issued− Flexible premium: based on current interest rates, mortality, and expense charges− Allows the policyowner to increase premiums during working years to accumulateenough cash value to make future premium payments in later years |
|
|
General Account |
A portion of the premium is invested by the insurance company and held in its generalaccount− The current return on the investments is credited to the UL policy− A guaranteed minimum interest rate applied to the policy (3-4%)− Expenses, loans or withdrawals, and mortality charges (cost of insurance) are deductedfrom the cash value account |
|
|
• Loans and Partial Withdrawals |
UL policies give the policyowner the option to take a policy loan− Can take a partial withdrawal from the cash value without terminating the contract |
|
|
• Loans |
A loan is taken against cash value remaining in the policy− The loan neither decreases the total cash value nor the face amount− The amounts payable would decrease if the loan is not paid back before the insured diesor the policy terminates− A partial withdrawal is a permanent transaction |
|
|
Partial Withdrawals |
A partial withdrawal is a permanent transaction− Cannot be reversed− Can be taxable |
|
|
• Death Benefit Options − Option A: |
− Pays the face amount of the policy and provides a level death benefit− As the cash value increases, the company’s risk decreases− UL policy must include an amount at risk− Uses a “risk corridor” between the cash value and death benefit to prevent maturing− Corridor is automatic and does not require insurability |
|
|
• Death Benefit Options − Option B: |
− Pays the face amount stated in the contract which is level term, plus any cash valuesaccumulated over the years− Increasing death benefit− Individuals purchasing option A will benefit from larger cash value accumulations whileindividuals purchasing option B will benefit from greater death benefits |
|
|
Variable Life |
• A whole life policy with certain benefits that will vary based on market conditions. |
|
|
Variable Life Characteristics: |
• A fixed premium: determined by the insurer and remains fixed and level• Both a general account and a separate account• The general account is fixed and guaranteed and provides for a guaranteed minimumdeath benefit to age 100• The separate account is invested in equity securities as offered by the insurancecompany (hedge against inflation)• There is NO guaranteed minimum return on the cash value in the separate account• All variable products are subject to FINRA regulation• A prospectus MUST be provided prior to the sale of a variable policy, and there aresuitability requirements that must be met before a variable policy can be sold• Partial surrenders are not allowed from a variable whole life policy |
|
|
Variable Universal Life |
Combination of Universal Life and Variable Life Policies• Provides for flexible premiums and adjustable death benefits• Does not have a general account, only a separate account• No guaranteed minimum death benefit • Because there is no guaranteed return on the separate account, the owner bears allinvestment risk• Typically, 75-90% of the cash value can be borrowed |
|
|
Specialized Policies Juvenile |
Policy written on a minor− Provides an automatic increase in the face amount at a given age (21-25) withoutevidence of insurability− Premium remains level− Increase in the face amount is 5 times the issue amount |
|
|
Specialized Policies Joint Life (first to die) |
− Whole life policy− Cover 2 or more lives− Death benefit is paid upon the first insured to die− Policy no longer exists once paid out− Designed to provide income protection for the surviving spouse when both have earnedincome |
|
|
Specialized Policies • Joint Survivorship Life (Last to Die) |
Whole life policy− Cover 2 or more lives− Death benefit is not paid until the last insured dies− Provides a lump sum benefit to pay estate taxes once the second spouse dies |
|
|
Specialized Policies • Return of Premium Term |
Provides a full refund of premiums if the insured is still living at the end fo the term− Higher premium than level term |
|
|
Life Insurance Policy Riders |
− A rider modifies conditions of the policy by expanding or decreasing its benefits, orexcluding certain conditions from coverage, and are at the option of the insured− Any riders added after the policy has been issued usually require evidence of insurability |
|
|
Viatical Settlements and Life Settlements |
• A viatical settlement is an agreement between a third party and a life insurancepolicyowner insuring the life of an individual with a life-threatening or terminal illness(life expectancy of 2 years or less)• The insured is provided with tax exempt discounted value, relinquishing all ownership tothe buyer• Legal documents, medical records, and life expectancy reports A life settlement is the sale of an existing life insurance policy to a third party for morethan its cash surrender value, but less than the death benefit.• No requirement to be terminally ill |
