Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

LLQP MODULE 1 LIFE INS > Chapter 4-Universal life > Flashcards

Chapter 4-Universal life Flashcards

1
Q

Universal life overview

A
  • Combines permanent insurance w/ tax advantaged investing
  • most flexible life insurance
  • Cash value = investment accounts (may/may not be CSV)
  • Premiums are deposits
  • discloses how mortality costs applied, how expenses calculated, guaranteed investment returns applied to policy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Unbundling

A

3 pricing factors unbundled for transparency and they are not fixed

  1. mortality costs
  2. Investment returns
  3. Expenses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Mortality costs for UL

A
  • reflects cost of paying death benefit

- Deducts mortality costs from investment account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Admin expenses of UL

A
  • Deducted from investment account

- charged as % of premium or monthly fee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Expeses of UL policy

A
  • Cost to sell insurance
  • Underwriting
  • issuing policy
  • Income taxes
  • costs to investigate claims
  • profit to shareholders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Investment Income

A

-accumulates tax free within limits of income tax act

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Flexibility of UL policy

A
  • Timing and amount of premium
  • Face amount
  • Life/Lives Insured
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Timing and amount of premium for UL

A

-Policy holder decides how much premiums will be and when to pay

If pay higher premium

  • Tax sheltered growth
  • Builds up cash value

can also decrease premium if investment account has enough

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Factors that cause insufficient account value

A

-Minimally funded
-withdrawals from policy
-Decreased/Stopped premiums
returns lower than expected

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Modal factor for UL

A

1 / NUMBER OF PMTS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

FACE AMOUNT OF UL

A
  • Any increase in face amount requires evidence of insurability (unless if have Guaranteed Insurability)
  • Additional coverage based on attained age
  • can impat cash value growth (
  • inc FA w/o inc prem= less to invest- b/c inc mortality costs deducted from investment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Mortality costing methods

A
  • NAAR
  • Yearly renewable term (YRT)
  • Level Cost of Insurance (LCOI)
  • Choose YRT or LCOI
  • Guaranteed vs Adjustable mortality deductions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Net Amount at risk (NAAR)

A

-Risk for insurance company- DEATH BENEFIT
-Policy reserve decreases risk
NAAR= DB- Investment account value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

2 ways to apply risk of death to NAAR

A
  • YRT

- LCOI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Yearly renewable term (YRT)

A
  • One year term insurance that renews at end of policy year

- lOWER MORTALITY COSTS EARLIER ON- good for growth potential

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Level cost of insurance (LCOI)

A
  • pREMIUMD GUARANTEED TO STAY SAME FOR LIFE
  • RISK OF DEATH SPREAD EVENLY OVER DURATION OF TERM (stays same)
  • Higher mortality costs earlier on- preserves cash value
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Death Benefit options (x4)

A

-Death benefit affects NAAR and mortality deductions from investment accounts

  1. Level Death benefit
  2. Level death benefit + Account value
  3. Level death benefit + Cumulative premiums
  4. Indexed Death benefit
18
Q

Level Death Benefit

A
  • straight forward
  • least expensive
  • Death benefit either satys at original face amount OR equals policy account value or exceeds face amount
  • If deposit excess premiums INVESTMENT GROWS

NAAR=Death benefit - Account value
so when ACCT VALUE RISES, naar DECREASES
- reduced mortality deductions allow investment to groe

19
Q

Level death benefit + Account value

A
  • Inaccuraye name b/c Death benefit= FA + AV
  • NAAR stays level, DB increases
  • DB and AV are tax free when paid out
  • good for those who deposit large premiums
20
Q

Level death benefit + Cummulative premiums

A
  • Most expensive DB option
  • Death benefit= FA + Gross amt of premium (before deductions)–> refund of premiums
  • Maximizes premiums
  • Reduces NAAR–> which reduces mortality deductions, so invesmtnet account groes faster
  • if AV more than FA + CUMM PREM., INS CO KEEPS EXCESS

NAAR= FA + CUMMULATIVE PREMIUMS - AV

21
Q

Indexed death benefit

A

not popular
expensive
keeps up w/ inflation
Death benefit = FA indexed to CPI or rate chose
covers end of life risk thats going to increase over time

22
Q

Ongoing management req by policy holder incl:

A
  • Net premiums
  • Tax deferral
  • Investment Choices
  • Impact of investment return on policy
23
Q

Net Premiums=

A

Gross premiums - Premium tax- Mortality dedcutions and expenses

when mortality deductions decrease, avalable funds to invest increases

24
Q

Exemptions test (re: net premiums)

A

Net premius may be limited to ensure tax exemptions status

- If deposit more then max net premium, exces put in NON EXEMPT side fund that is taxed annually

25
Q

Tax Deferral

A
  • Investment income earned in tax exempt investment account is NOT taxable when earned while in acct
  • the tax growth is deferred until policy surrendered
26
Q

Investment choice (X4)

A
  1. Daily Interest accounts (DIA)
  2. Guaranteed Investment accounts
  3. Index Fund Investments
  4. Mutual fund investments
27
Q

Investment Choice #1: Daily Interest accounts (DIA)

A

-Principal guaranteed

28
Q

Investment Choice #2: Guaranteed Investment accounts (GIA)

A
  • Fixed rate for number of years

- Guaranteed minimum interest rate based on benchmark + prinicpal guaranteed

29
Q

Investment Choice #3: Index Fund investments

A
  • Interest credited to policy investment account based on performance of index chosen
  • investment account may decline
  • any management fees reduce investment account
30
Q

Investment choice #4: Mutual Fund Investments

A
  • Interest income based on performance of select mutual funds
  • possible for investment account to decline
  • any management fees reduce investment account
31
Q

Accumulating fund: Non forfeiture benefits (x7)

A

Provides policy holder with many non forfeiture benefits

  • Surrendering policy
  • Policy withdrawals
  • Premium offsets
  • Policy loans
  • Collateral for 3rd party loans
  • Leveraging
  • Distribution upon death
32
Q

Non Forfeiture benefits: Surrendering policy

A

-Policy holder gets CSV
-CSV= CASH VALUE - SURRENDER CHARGES
-

33
Q

Non Forfeiture benefits: Policy withdrawals (Partial Surrender)

A
  • Withdrawals considered partial surrender
  • may result in taxable income
  • May impose minimum withdrawal amount UP TO max is CSV
  • Surrender charges may apply
34
Q

Non Forfeiture benefits: Premium offsets

A
  • Only for participating policies
  • use dividends to offset premiums
  • Investment account can grow large enoigh to fund future mortality + expenses forever
35
Q

Non Forfeiture benefits: Policy loans

A
  • Gte loan from insurance against CSV (50-90% of csv)
  • Not required to pay back loan but balance + interest reduces Death benefit
  • Taxable disposition, so it is taxable income
  • Advantage: funds co ntinue to grow tax sheltered
36
Q

Non Forfeiture benefits:: Collateral for 3rd party loans

A
  • access to capital in policy w/o taxable disposition
  • using CSV as collateral
  • FULL CV stays in policy to grow tax sheltered
37
Q

Non Forfeiture benefits: Leveraging

A
  • Variation of 3rd party loan
  • get loan or series pf loans from bank, and the CSV nad DB used as collateral
  • not repaid while alive, settled/paid on death
38
Q

Non Forfeiture benefits: Distribution upon death

A

????

39
Q

Advantages of UL

A

??

40
Q

Disadvantages of UL

A

??

LLQP MODULE 1 LIFE INS (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions