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Insurance > Life Insurance > Flashcards

Life Insurance Flashcards

1
Q

LI needs when breadwinner dies

A
  • final expenses
  • education
  • survivor income
  • mortgage debt
  • outstanding debt
  • special desires
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2
Q

LI need when non-working spouse dies

A

-care of children
- care of parents
- mortgage debt
- special desires

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3
Q

LI need for joint death

A
  • estate tax
  • transfer to heirs
  • family goals
  • special desires
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4
Q

Special desires

A

aka. adjustment fund
- cushion to cover immediate lifestyle changes that a family must make after a death
- move, new job, returning to work

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5
Q

Amount of LI Needed - two ways

A
  • Needs analysis: survivors needs - resources available
  • Human life value: PV of income lost
  • After use capital utilization or retention to spend it
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6
Q

Term Insurance - Best client

A
  • short term need, edu or mortgage
  • low cost, low funds available
  • no cash value needed
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7
Q

Term Insurance - Types

A

ALRDF : All Lives Require Dinner Fully
- Annual renewable term (ART)
- Level term
- re-entry
- decreasing term
- first - to - die (joint life)

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8
Q

Term Insurance - Features

A
  • renewability: guarantees right to renew for limited years. age limit to prevent adverse selection
  • convertibility: exchange term for permanent within time frame without evidence of insurability
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9
Q

Annual renewable term (ART)
or yearly renewable term (YRT)

A
  • 1 year protection
  • renew each year for higher premium
  • no need to furnish insurability
  • DB remains level but premium increases each year (disadvantage)
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10
Q

Level term

A
  • initial premium guaranteed for a period of years
  • longer the guarantee the higher the premium
  • at end of term, premium escalates
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11
Q

Re-entry provision

A
  • Level term provision
  • allows insured to requalify at a new level premium through simplified underwriting
  • goal to continue policy at lower rate
  • if denied due to health can still keep policy but at the higher rate
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12
Q

Decreasing term

A
  • level premium
  • DB decreases
  • mortgage usage need long term mortgage
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13
Q

First to die (joint life)

A
  • written on two or more lives
  • payable upon death of first
  • term or CV insurance
  • mortgage protection, buy-sell, debt payof
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14
Q

Permanent Life Insurance

A

covers insured until death
- whole life
- universal life

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15
Q

Whole Life Insurance Characteristics

A
  • permanent
  • level premium
  • combines savings (CV) and protection
  • premiums paid for life (or limited pay)
  • premium higher than term at beginning
  • not flexible to meet changing needs
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16
Q

Types of Whole Life

A

Straight Whole Life
- Aka. ordinary or continuous life
- premiums based on assumption they will be paid until insureds death

Limited-pay Whole Life
- premiums are limited to number of years or age
- premium will be higher that straight whole life
- used for long life expectancy insured. get more for money if lived longer. If they die soon it’s expensive

17
Q

Universal Life Characteristics

A
  • premiums, CV, level of protection can be adjusted up or down to meet owners needs
  • interest credited to CV is at current interest rates (with minimum guarantee)
18
Q

Universal Life Premium Due Calculation

A
  • if premium paid plus the current CV is not enough to cover cost of the policy, additional premium is due
    premiums paid + CV - expenses = add. need
19
Q

Universal Life Withdrawals and Loans

A
  • policyholder can make partial withdrawals of CV
  • no requirement to repay loan
  • DB will be reduced by loan balance
  • if policy is not MEC, its not taxed
  • company credits a lower interest rate on CV associated with the loan
20
Q

Universal Life Death Benefit Options

A

Level (Option A or Type I) - WL uses
- DB is constant, ignoring CV
- when CV exceeds benchmark, DB will increase
- assume Option A on test if not mentioned

Increasing (Option B or Type II)
- as CV increases, DB increases by same amount

21
Q

Variable Universal Life

A
  • offers policyowner directed investment option of variable annuity
  • subject to SEC and FINRA & state licensed agent

separate account feature:
- CV and DB not guaranteed
- held in separate account
- general account is liability of company, if it fails funds will be frozen
- separate account is insurers account, wont be frozen

22
Q

Other types of Life Insurance

A
  • Endowments: wrong answer
  • Second-to-die: promise to pay at second persons death. good for estate taxes, lower cost than two separate policies. Can be WL, UL, VUL, or term
23
Q

LI Contract Provisions (no addtl. premium)

A

ARGMIS

Automatic premium loan (APL): if elected and premium doesn’t get paid during grace period, company will pay premium and charge it against CV ( and DB)

Grace period: additional time, 31 days, to pay premiums

Reinstatement clause: gives owner of lapsed policy the right to reacquire coverage under certain conditions ( insurability and premiums in arrears + interest)

Misstatement of age clause: benefits under policy will be adjusted to what premium would have been paid at correct age

Incontestable clause: insurer will not contest policy after usually 2 years. Exceptions
- no insurable interest at inception
- intent to murder
- healthier person impersonated applicant in exam

Suicide clause: if committed during first 2 years of policy, only return of premium received

24
Q

LI Riders (extra premium)

A

Disability waiver of premium
- whole life: company will waive all premiums due after total and permanent disability. CV is credited as if policyowner paid premium
- Universal and VUL life:
1. company waives charges for mortality and admin expenses but doesnt add to CV
2. company waives full premium

Guaranteed purchase option
- insured may purchase additional insurance, regardless of insurability, at 3-year intervals, up to max age

25
Q

Dividend Options (participating policies)

A

CRAPO
- Cash option: dividends paid in cash (non taxable)
- reduction of premiums: premium due - dividend= remainder due
- accumulated with interest: dividends remain with company in interest account, interest is taxable, dividend added to DB or CV
- purchase paid up additions: dividend used to purchase small amount of addtl. paid up whole life
- 5th dividend: dividend used to buy one year term equal to base CV

26
Q

Nonforfeiture Options

A
  • cash option: surrender for CV - debt + dividends. 6 mo delay
  • reduced paid up: face amount will be reduced. DB is what the CV would be able to buy with a single premium
  • paid up term: extended term: stays in force as long as CV allows
27
Q

Settlement Options

A
  • cash option: lump sum
  • interest option: insurer retains proceeds and pays out interest
  • installment for fixed period: paid out over time
  • installment of fixed amount: paid out each month for as long as the proceeds last
  • life income option: same as annuity settlement options (pure life, single life, period certain, J&S, refund)
28
Q

Policy Illustrations

A
  • preliminary illustration given to client first
  • when issued, final illustration
  • used for comparison
29
Q

National Association of Insurance Commissioners (NAIC)

A
  • voluntary association from each state
  • no legal power
  • enables exchange of info and regulatory activities
30
Q

Life Insurance Policy Illustration Model Law

A
  • specifies how insurance company may illustrate policies
  • NAIC model regulation (all but variable LI)
    1. certified annually
    2. copy sent to insurer with application
    3. copy signed by applicant and agent
    4. annual report on company
    5. cant represent anything other than LI
    6. prohibits “vanish” term
31
Q

Illustrations must include..

A
  1. name of insurer
  2. name and address of producer
  3. name, age, sex of insured
  4. underwriting and rating
  5. initial DB
32
Q

NAIC Watchlist

A

12 financial rations help NAIC keep tabs on insurance companies
- if 4 out of 12 ratios are outside usual ranges, its put on the watchlist

33
Q

Accelerated Benefit Rider

A
  • DB paid early if insured is terminally ill
  • excluded from income
34
Q

Terminally Ill Conditions

A
  • acute coronary artery disease
  • permanent neurological deficit
  • end state renal failure
  • AIDS
  • limits life span to 2 years or less
35
Q

Chronically Ill (accelerated benefit rider)

A
  • unable to perform at least 2 ADL
  • certain level of disability
  • requires supervision for protection due to severe cognitive impairment
  • DB distribution only used to pay for LTC services
36
Q

Viatication

A
  • sell terminally ill persons LI to business
  • proceeds tax free, DB not in estate, proceeds not spent now in estate
  • IRS cannot recapture
37
Q

Life Settlements

A
  • not terminally ill or chronically ill
  • generally over 65
    Taxes
  • premium paid = tax free basis
  • ordinary income from basis to CV
  • LTCG from higher of CV or net settlement proceeds
38
Q

Advantages and disadvantages of whole life

A

Advantages
- provides permanent protection
- has a level premium
- combines savings CV and protection

Disadvantages
- premiums paid for lifetime (or limited pay)
- premiums higher than term at beginning
- not flexible to meet changing needs

Insurance (10 decks)

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