Chapter 2 - Sensitive Products & Annuities

Question 1

Adjustable Life

Answer 1

• Policy that can be either term or permanent and can switch between the two.
• Changing types requires proof of insurability.

Question 2

Features of Adjustable life?

Answer 2

• Increase or decrease the premium or premium paying period.
• Increase or decrease the face amount.
• Change the period of protection.

Question 3

How is the cash value effected by an adjustable life policy?

Answer 3

The cash value only develops when the premiums paid are more than the cost of the policy.

Question 4

Features of Universal life:

Answer 4

• Flexibility to increase or decrease premium amount.
• Policy owner can skip premiums and it will not lapse.
• Insurance component is always annually renewable term (aka level term).

Question 5

What are two premiums for universal life?

Answer 5

• Minimum premium: Makes policy perform as an annually renewable term product.
• Target premium: paying covers cost of policy and keeps it in force throughout it’s lifetime.

Question 6

What happens if payment is skipped on universal life?

Answer 6

The policy will not lapse but will be deducted from the policies cash value.

Question 7

What are two components of universal life?

Answer 7

The cash account and the insurance component. The cash account is interest sensitive.

The insurance is always annually renewable term.

Question 8

What are the two options for Universal life?

Answer 8

Option A: Level death benefit and increasing cash value.

Option B: Increasing death benefit from annual increase in cash value. The benefit will always be equal to the cash value of the policy. This is more expensive option compared to A.

Question 9

Variable Whole Life:

Answer 9

A level, fixed premium investment product. Has guaranteed death benefit. The cash value is not guaranteed and fluctuates with the portfolio.

Question 10

Variable Universal Life:

Answer 10

Combines whole life, flexible premiums of universal life, and investment from variable.

Question 11

Features of Variable Universal life:

Answer 11

• Flexible premium, that can be skipped if enough cash to fund death benefit.
• Flexible insurance amount.
• Cash withdrawals or policy loans.

Question 12

What are variable products?

Answer 12

Interest sensitive accounts and need securities license to sell it.

Question 13

Interest Sensitive whole life:

Answer 13

Aka current assumption life, Provides a minimum guaranteed rate of interest, guaranteed death benefit to age 100, and cash value can be higher than guaranteed amount.

Question 14

Indexed Life:

Answer 14

Cash value is dependent upon a index fund.

Question 15

What is an annuity?

Answer 15

A contract that provides income for a specified number of years.

Question 16

When do annuities stop?

Answer 16

Upon the death of the annuitant, in most cases.

Question 17

Must the annuitant be a natural person?

Answer 17

Yes, because the annuity is based of the life of the annuitant.

Question 18

How does life expectancy affect annuities?

Answer 18

Shorter life expectancy = higher benefit
Longer life expectancy = lower benefit

Question 19

Who assumes risks for interest(variable) annuities?

Answer 19

The annuitant and funds are not invested in company general account.

Question 20

Universal life has what two types of interest?

Answer 20

Guaranteed and Current.

Question 21

Terms that describe how an annuity is funded?

Answer 21

Single and periodic premiums

Question 22

Which annuity requires security license?

Answer 22

Variable annuity, not equity indexed annuity.

Question 23

Describe annually renewable term insurance:

Answer 23

• Level death benefit
• Increasing premiums based on insureds age
• Policy is guaranteed renewable every year without proof of insurability.
• Cheapest option, highest value.

Question 24

Decreasing term:

Answer 24

• Level premium
• Decreasing death benefit
• Used for things like mortgage.

Question 25

What is a convertible policy?

Answer 25

Policy owner can convert to a permanent policy without proof of insurability and based on age.

Question 26

Immediate vs deferred annuity:

Answer 26

• Immediate is purchased with lump sum and usually start 1 month after purchase.
• Deferred annuity can be single or periodic payment that begins 1 year after purchase.

Question 27

Describe Joint and survivor:

Answer 27

• Joint life is where couple receive payments until one of them dies.
• Survivor is if the payments continue after the first death.
• Survivors is the cheaper option.

Question 28

What is return of equity indexed annuity?

Answer 28

It offers a guaranteed rate of return.

Question 29

How do annuities grow?

Answer 29

Tax deferred.

Question 30

What must agent selling annuities, or variable annuities, be registered with?

Answer 30

FINRA

Question 31

Describe the annuity settlement options:

Answer 31

• Pure life (life-only/straight life):
  
  • Has the highest benefit.
• Life with guaranteed minimum (refund life):
  
  • Ensures that entire principal will be paid.
  • Benefit is taxable for both lump sum and payments to the beneficiary.

Question 32

Describe life income with 20 year period certain:

Answer 32

It has a guaranteed payout for 20 years and if insured dies in that time the benefit is payable to beneficiaries.

Question 33

What is annuity certain?

Answer 33

A short term annuity that is either fixed period or fixed amount and ensures benefits will be paid out.