Insurance Roadmaps

Question 1

Life insurance policy types

Selection process for short term/low cost needs

Answer 1

No cash value

Use term insurance

A. Annual renewable term (ART)
premiums increase annually

B. Level term
premiums remain level for a term of 5 years

C. Re-entry
re-qualifying for low cost premium through abbreviated underwriting

D. Decreasing term
decreasing death benefit/level premium - good for mortgage protection

E. First-to-die/Joint life
buy/sell or mortgage protection

Question 2

Life insurance policy types

Long term need/higher cost

Selection process for low risk tolerance

Answer 2

Cash value

Insurer controls investments return
Assets are part of the general account (company account)

A. Whole life (rigid)

• straight whole life: lifetime payments
• limited pay whole life: payments for specified numbers of years

B. Universal life (flexible)
premiums and the level of protection can be adjusted up or down

C. Single life application

• death of primary income provider
• need to pay off debt/education expenses

Question 3

Life insurance policy types

Long term need/higher cost

Selection process for high risk tolerance

Answer 3

Cash value

Client controls investments return
Assets are part of a separate account

A. Variable life - premiums are fixed (various investments)

B. Variable universal life - premium and level of protection can be adjusted up or down

• Has various flexible investments:
• level (type 1) DB or CV
• increasing (type 2) get both

C. Survivorship life / Second-to-die

a. estate liquidity
b. lower cost

Question 4

Viatical and life settlements

Comparison while insured is alive and after the insured dies

Answer 4

Accelerated benefits rider

(Insured alive)
Due to dreaded disease withdraws a % of face value of the policy
Result - tax free money

(Insured dies)
Beneficiary receives remainder tax free

Viatical settlements

(Insured alive)
Due to dreaded disease sells the policy for a % of the face value of the policy
Result - tax free money

(Insured dies)
Viatical must pay ordinary income tax above its basis (purchase price plus premiums paid)
Transfer for value

Question 5

Buy- sell

Stock redemption
Entity purchase

Answer 5

• Corporation purchases stockholders interest for ex. $500,000 funded by life insurance
• Practical
• Premiums non-deductible
• At death of partner $500,000 tax free to company to buy stock. Other partners basis is unchanged and they own 100%
• Life insurance can be attached by creditors
• At sale of business gain less basis ( which was unchanged)

Question 6

Buy- sell

Cross purchase
Stockholders purchase

Answer 6

• One stockholder agrees to purchases a deceased stockholders interest for ex. $500,000 funded by life insurance
• Cumbersome with multiple owners
• Premiums non-deductible
• At death of partner $500,000 tax free to stockholder to buy stock. Partner gets step up in basis and they own 100%
• Life insurance cannot be attached by creditors
• At sale of business gain less basis ( which was stepped up)