Interest-sensitive, Market-sensitive and Adjustable Life Products

Question 1

What is adjustable life insurance?

Answer 1

Adjustable life insurance offers flexibility, combining elements of term and permanent coverage. Policyholders can adjust premiums, the death benefit, and the protection period, with possible insurability proof required for certain changes.

Question 2

What is universal life insurance?

Answer 2

Universal life insurance is a flexible premium adjustable life policy where the policyholder can alter premium payments, ensuring coverage as long as sufficient cash value exists to cover costs.

Question 3

What are the death benefit options in universal life insurance?

Answer 3

Universal life offers two death benefit options: Option A (level death benefit) and Option B (increasing death benefit), with Option A’s death benefit staying level and Option B’s increasing annually with cash value growth.

Question 4

What is variable life insurance?

Answer 4

Variable life insurance combines fixed premium life insurance with an investment component, where the cash value and death benefit can fluctuate based on the investment performance, with the policyowner bearing the investment risk.

Question 5

What distinguishes variable universal life insurance?

Answer 5

Variable universal life insurance merges the features of universal and variable life, offering flexible premiums and an investment choice, but without guaranteed returns, and is regulated as a security.

Question 6

How does interest-sensitive whole life insurance work?

Answer 6

Interest-sensitive whole life, or current assumption life, adjusts the premium based on the insurer’s current risk, interest, and expense assumptions, offering potential for greater cash value accumulation or reduced premium payment periods.

Question 7

What is indexed whole life insurance?

Answer 7

Indexed whole life insurance links the cash value to a stock market index like the S&P 500, providing a guaranteed minimum interest rate, with the death benefit potentially increasing to match inflation.

Question 8

Can universal life insurance premiums vary?

Answer 8

Yes, in universal life insurance, premiums can vary, allowing policyholders to increase, decrease, or even skip payments, provided the policy’s cash value is enough to cover the monthly costs.

Question 9

What regulatory requirements must agents meet to sell variable life insurance products?

Answer 9

Agents must be registered with FINRA, licensed to sell life insurance by the state, and have received a securities license to sell variable life insurance products.

Question 10

How do policy loans or withdrawals affect universal life insurance?

Answer 10

Policy loans or partial withdrawals from universal life insurance can reduce the death benefit and may be subject to taxes and charges, affecting the policy’s cash value and long-term performance.

Question 11

What flexibility does adjustable life insurance provide in terms of coverage type?

Answer 11

Adjustable life insurance allows the policyowner to switch between term and permanent coverage, adapting to changing insurance needs over time.

Question 12

How does the cash value in universal life insurance get affected by premium payments?

Answer 12

In universal life insurance, the cash value can increase if premium payments exceed the cost of insurance, allowing for potential growth or use to cover premiums.

Question 13

What happens to a universal life policy if the cash value is depleted?

Answer 13

If the cash value in a universal life policy is depleted, the policy may lapse unless additional premiums are paid to maintain coverage.

Question 14

How does the investment risk in variable life insurance compare to traditional life insurance?

Answer 14

In variable life insurance, the policyowner assumes the investment risk, meaning the cash value can increase or decrease based on market performance, unlike traditional life insurance with a guaranteed cash value.

Question 15

What unique feature does variable universal life insurance offer regarding investments?

Answer 15

Variable universal life insurance offers a range of investment options, allowing policyholders to choose where to invest the cash value portion of their policy.

Question 16

How do interest rates affect interest-sensitive whole life policies?

Answer 16

Interest-sensitive whole life policies’ cash values are affected by current market interest rates, which can lead to higher or lower cash values and potentially impact premiums.

Question 17

How does indexed whole life insurance protect against market downturns?

Answer 17

Indexed whole life insurance provides a guaranteed minimum interest rate, offering protection against complete loss in market downturns, while still benefiting from market upturns.

Question 18

What is the main advantage of the flexible premium in universal life insurance?

Answer 18

The main advantage is financial adaptability, allowing policyholders to adjust their premium payments based on their current financial situation while maintaining coverage.

Question 19

How are death benefits in variable and variable universal life policies influenced by market performance?

Answer 19

For variable life policies, the death benefit may vary based on the underlying investment performance. In variable universal life, the death benefit can be either level or increasing, influenced by market performance and chosen death benefit option.