Life Insurance Flashcards
What happens to cash value LI if you terminate the policy
owner receives it
Can you sell a LI policy to a third party?
Yes
Other than a loan how else can you access cash value of LI
take a withdrawal
Main difference between term and whole life
cash value
Protection ceases at the end of term policy unless what
it is renewed
Premium patterns on term LI policy
level or increasing on annual or set period basis, like 5 year renewable term
Face amount on term LI can be
level, decreasing, or increasing
Exponentially increasing premiums for older-age entry or renewal can cause what
many policies to lapse
Does term insurance have a savings component?
no
Typical term set up for mortgage
decreasing term
Term insurance should be able to convert to permanent w/o what
evidence of medical insurability
4 main uses of permanent insurance
-provide for family or business at death
-build cash to supplement retirement income
- pay taxes upon death
- available for loan in emergency or opportunity
Endowment LI allows what re: maturity date
purchaser can specify
Pure endowment
pays only if insured survives the endowment period - NOT SOLD IN US
Regular endowment policy does what if you survive the endowment period
pays out as an annuity
Regular endowment policy does what if you die during the endowment period
pays the face amount of the policy
Cash values that accumulate in whole life can be utilized as
-cash surrender values
-paid up insurance
-extended term insurance
Savings component on WL has what re:interest rate
guaranteed rate
Nonparticipating/Non-dividend paying WL
-stock life company
-co retains all gains
Participating WL
-charges extra margin in fixed premium - intention of returning portion as policy dividends
-mutual co
Nonparticipating is with what type of co
stock co
Dividends paid with what kind of co
mutual
Where are dividends paid from by WL co?
better than expected investments or decreased M&E or operational expenses
Ordinary life insurance premiums paid until when
until the insured’s death
Lowest premium rate for any WL is what type of WL
ordinary life insurance
Lower premiums result in what re: cash value
lower cash values than other types of WL
Limited pay LI
premiums limited to a certain number of years
What is extreme end of limited pay LI
single premium WL policy
45 yr old who wants to retire at 65 and policy paid up same time - use what?
Limited pay WL
Limited pay WL will cost more or less than other payment methods in event of premature death
more
Graded premium WL morphs from what to what
term to whole life - starts as yearly renewable term - premiums level off later in life when converts to WL
Modified life premium
-first 5 years slightly higher than convertible term
-after 5 years converts to what WL prems would have been at age of inception, but slightly less than level premium for ordinary life at the attained age of conversion
Current Assumption WL
premium charge varies with changes in insurers actual or anticipated M&E and interest earnings experience
CAWL is sometimes called what
interest sensitive WL
CAWL premiums initially are what in comparison to traditional WL
low level premium in comparison to traditional WL
low premium CAWl
-premium affected by co’s changes in M&E and interest assumptions
-low initial premium increases later
high premium CAWL
high premium compared to traditional WL - high premium then reduces
Most flexible type of WL?
universal
Universal allows you to change what
premium payments and death benefits
Variable WL shifts the investment uncertainty to whom
the policyholder
Variable life shifts the investment return to whom
the policyholder
Does variable life have guaranteed interest rate or minimum cash value?
no
Why is variable life a poor choice for a short term investment
bc it has sales load, mortality charges and surrender charges
Can cash value go to zero in variable life?
theoretically yes and could cause the policy to lapse
When selling variable life, the buyer must receive what
accompanying prospectus - seller must be finra licensed
When can you adjust the premium on universal life?
after the first year - for the first year its fixedD
2 death benefit options on universal life
level or increasing
What type of policy allows you to withdraw part of the cash value (not a policy loan)
universal life
Calculation of cash value on universal life
Balance from previous period
+ flexible premium paid
-Mortality charge
-Expense charge
+ interest earned at current rate
- any withdrawals
= ending account balance
Universal type A
flexible premium, adjustable death benefit, unbundled
Universal Type A death benefit can do what?
increase - subject to insurability
What does unbundled mean in universal type A
policy cash values and pure insurance costs are shown separately
Cash accumulation on universal type A is determined by
current interest rates
Main difference in Universal type B vs A
death benefits vary directly with cash value
Which is more expensive universal type A or type B
Type B
Another name for Universal Type A
level death benefit or option 1
Variable universal life
all the flexibility of universal life with the self directed investment choices of variable
What happens to death benefit on variable universal life option A
death benefit does not change regardless of investment performance
Variable universal life death benefit can increase how
under increasing death benefit design or 2nd option
Is the death benefit guaranteed under variable universal life?
no
What can the policyowner do on universal variable life if the policy underperforms?
pay more premiums or reduce the death benefit amount
How can you hedge against inflation under universal variable life?
choosing the increasing death benefit option
How long is the free look period on life insurance?
10 days
Grace period on Life Insurance?
31 days from the premium due date
Can you take more than 1 loan at a time from life insurance?
yes as long as the total amount of the loan plus interest isn’t greater than the cash value
Law states you must be allowed to take a policy loan if the policy has what
cash value
Policy loans have 2 types of interest rates
fixed rate, usually 8%
OR
variable rate tied to a specific index
What happens if the insured dies during the grace period?
The unpaid premium will be subtracted from the death benefit
Do you have to pay the interest on a cash value loan?
No
What options do you have to pay the interest on a cash value loan?
you can pay the interest in cash
OR
an unpaid interest charge can be added to the value of the loan
Incontestable clause insurance
policy is incontestable by the insurer after its been in effect for a certain period of time
Max time a policy could be contestable?
2 years
3 exceptions to incontestable clause
-no insurable interest at inception
-policy was purchased with intent to MURDER
-fraudulent impersonation of the insured by another person
reinstatement clause
reacquire coverage if the policy lapses
What happens if its found someone misrepresented their age after death?
reduce what the premiums would have purchased
What does the beneficiary receive if someone commits suicide within 2 years of the policy?
they will receive what’s been paid into the policy - not the death benefit
Accidental death or double indemnity?
accidental death benefit provision that will pay 2X the face value if the death occurs within 90 days of the accident
Guaranteed purchase/insurability option
protects against possibility of becoming uninsurable - can buy more insurance at specific times or ages - evidence of insurability not required
What happens if you reach your guaranteed insurability window and don’t buy more insurance?
that provision will lapse
When you purchase more insurance under guaranteed purchase option is there a new suicide window or incontestable clause?
there is no new suicide window or incontestable clause
Waiver of premium policy
don’t have to pay premium while you’re disabled - doesn’t apply after stated age, usually 65, or for self-inflicted
Primary beneficiary can be either
individual or estate
Irrevocable beneficiary
policy becomes joint property with rights to owner and beneficiary - owner can only borrow from policy with beneficiary consent
Dividend option: reduction of premium
subtract the dividend amount from premium currently due
dividend option: accumulation of interest
dividends maintained in an interest bearing savings account - can withdrawal anytime - if not then applied to death benefit or nonforfeiture value if policy is surrendered
Does a MEC meet the 7 pay test?
No
Characteristics of a MEC
-entered into after 6/21/88
-DOES meets requirements of a life insurance contract
-DOESNT meet 7 pay test
-DOESNT meet guideline premium and corridor test
Cash value must equal what by the end of the mortality table?
face amount of coverage
Do universal policies have a minimum guaranteed cash value?
No
You should buy life insurance when loss has a WHAT probability and a WHAT severity
low, high
Dividends would come off of what value?
Premiums paid
If you have a life insurance policy with a cash surrender value and a policy loan, what would you receive if you surrendered the policy?
The cash surrender value minus the policy loan
When would the proceeds of a life insurance policy be included in the estate of the insured?
-The proceeds are payable to the estate of the insured
-The insured held incidents of ownership in the policy at the time of death
Survivorship LI policy has higher or lower premiums?
Lower
One way to use a survivorship LI policy?
pay the estate taxes upon the 2nd persons death
