insurance live class deck Flashcards
most companies stop writing policies at
85
the ability to change existing term policy from term to permanent policy without providing medical insurability
convertibility
cash value will equal face amount at age
100
insurance contracts: universal life insurance
flexibility- flexible premium adjustable life
partial CV withdrawals are allowed no loan needed to access CV
combo of a annually renewable term and cash value fund
guraranteed minimum rate
2 death benefits
1.level death benefit
2.level death benefit plus cash value
joint life (first to die)
2 or more ppl under one contract
when the first dies the death benefit is paid to to the beneficiary (or other person under contract)
survivorship life (second last to die)
covers estate taxes over 12.06 mil
death benefit payable after last person die
no benefit payable on death of first person only last person
face amounts exceed 1mil
juvenile life insurance
3 party contract
parent is the owner child is insured when
jumping juevenille
when child comes of age………..
variable life
has the same characteristics of ordinary whole life with one extinct difference
premiums are level and take a portion of premium and put it into a sub account to get invested
separate account
regulate as a mutual fund by the SEC according to the investment company act of 1940
-annual premiums are fixed(variable whole life)
-guaranteed minimum death benefit
-no guarantee regarding cash value because money is being invested
variable universal life
a universal life policy with the ability to invest in stocks, bonds, the most flexible of all life
where does the life insurance policy go if there is no primary, contingent or tertiary
goes to the estate, if there is no will
if trust is established it avoids lawyer and legal fees.
spendthrift provision
protects beneficiary from creditors
creditors cannot attache lien against death benefits left with insurer
lump sum benefits are not protected
crappo is used to remember policy loan rights
false
the death benefit must be paid to a family member
false
the insurer may not always pay the death benefit
true
a policyholder may sell their policy back to the insurance company
false
key employee
compensate business due to death (disability) of key employee
-who is a key employee–someone critical to operation of business
cannot be business owner
provides funds that are needed to offset loss or hire replacement
thrid party contract-insurable interest?
premiums are not deductible;benefit is tax free
business continuation “buy-sell”
using life insurance, provides for business continuation in the event of a partners death
-makes money avaialable to purcahse interests of deceased partners beneficiaries
-pre-arranged purchase price; contractual agreement to sell
of owners= # of policies needed
cross purchase plan- # of partners -1x # of partners = # of policies
two-party contract (between employer and insurer)
employer receives master contract
employee receives certificate of coverage
premium payment group insurance concepts
non contributory-employer pas all premium must cover 100% of employees
contributory-employee pas all or part of premium and must cover 75% employees
employer is owner and retains all ownership rights except
–right to change beneficiary
group insurance coverage is more liberal underwriting than individual
group as a whole is evaluated, generally no individual underwriting.
good risks outweigh bad risks (adverse selection)
impariments are covered
enrollment period
group insurance-law of large
easier to predict losses with greater accuracy with larger group
individuals cannot form a group with the sole purpose of obtaining group insurance; must be a common bond
group insurance-conversion option
within 31 days without proof of insurability
death benefits are provided during 31 day period paid by group plan
term to whole life-attained age
no medical exam or health questions
annuity–living too long
an anuuity is account/investment vehicle established by and insurance company which allows for the tax-deferred growth of the contributions during the accumulation period
–a person invest funds on either a lump sun or periodic basis and can either immediate or deferred
-may contracts guarantee that the owner will not run out of money in retiremnet even if the funds are exhausted (when a lifetime payout is chosen)
immediate annuity
purchased in one lump sun with the payout generally starting immediately
deferred annuitiy
purchased with period payments and payout typically starts after retirement
annuities
a contract that provides income for a fixed period or an annuitants lifetime
systematic liquidation of an estate or pool of money
-product sold by life insurance
-protection against outliving ones income
-savings program-future income
fixed annuity
pre determine monthly income for life
general assets account
interest rate guarantee
limits policy owner risk
insurer assumes the risk
variable annuity
monthly benefit varies per performance
separate accounts consisting of stocks and bonds
higher potnetial return- no guarantee
policyowner assumes the risk
requires FINRA SERIES 6 OR 7 registration to sell
annuities is paid
lump sum or periodic (level or flexible)
when do annuities benefits begin?
immediate
-first payments begin in 30 days of deposit only as a lump sum
deferred
-defer paterments to later date (retirement)
annuity life with period certain
income for life, with survivor benefit if annuitant dies before end of term or designated period 5, 10, 15, 20
straight life or pure life anuity
income for life with no refund to survivor
no survivorship greatest risk to anuitants beneficiary
largest monthly income
greatest potential overall benefit
annuity- unit refund life annuity
annuitant receives an amount at least equal to his original investment
at death any remaining amount is paid to beneficiary
joint life annuity
payment to two or more annuitants which ceases on death of either party
joint and survivor
payment to two or more annuitants
payment continues to surveyor often at a reduced amount 75%
(take a life insurance policy instead )
equity indexed annuity
allows for stock market appreciation with downside protection
less risk for the insured
guaranteed 3% regardless of market performance
indexing method
-llinked to an equity index
participation rate
-percentage of the index “gain” that is kept by contract holder with remainder kept by insurer (90/10)
can there be more than one recipient of an annuity payment
yes according to the number of lives on annuity
is a variable annuity owner guaranteed against a loss
no. variable annuities are subject to market risks
are lump sum deposits required to be made to purchase an annuity?
no. premium payments may be periodic contributions
tax treatments of life products-life insurance is considered a personal expense
death benefit is received income tax free
cash value
-grows tax-differed
-upon surrender, not taxable unles the cash value exceeds the premiums paid (cost basis) then only the excess is taxable
-cost basis consists of premiums paid for base policy only and not premiums paid for riders
dividends
considered a return of overpaid premium and are not taxable
interest earned is taxable
loan interest
not a taxable event
settlement options
when death benefits are left with an insurer, interest is paid on the proceeds
the interest is taxable
MEC (MODIFIED ENDOWNMENT CONTRACT)
not good to have a mic
-premiums paid are not in proportion to death benefit provided
-an mec is an irs classification of an insurance contract
-seven pay test- if the premiums paid in during thr frist seven years exceed the net level premium that should have been paid is a mec
-once a life insurance policy becomes a mec it stays- all withdrawls are taxable
-if taken out prior to 59 1/2 additional 10% penalty applies
-advantages Death benefit remains income tax free and the cash value growth is tax deferred until withdrawn
((things to note. have the person over contribute right before it qualifys as a mec and have them pay 4% tax vs 31% tax in the stock market)
