Life Insurance Policy Options

Question 1

Withdrawals & Loans on Insurance Policies

What policies are they allowed with and describe the different options.

Answer 1

• Loan
  
  • reduces death benefit
  • fixed or variable interest charged
  • if interest is not paid an automatic loan will be taken out to cover
  • There can be an automatic premium loan set up is you forget to prevent a lapse. Interest is charged.
• Universal Lie Withdrawals
  
  • Only allowed on Universal Life and Variable Universal Life
  • Fees assessed

Question 2

Dividend Options

What are the different dividend options? Describe them and their taxability.

Answer 2

CARPPO

• Cash - income tax-free return of premium
• Accumulate at interest - dividend earns interest in a savings account. Dividend not taxable but interest on the dividend is
• Reduced Premium - exactly how it sounds
• Paid Up Additions - each annual dividend purchases an additional amount of life insurance
• Paid Up Insurance - Dividends plus interest are applied to premiums and are enough to pay the entire annual premium
• One Year Term - dividends used to buy one-year term insurance equal to the policy’s cash value

Question 3

Nonforfeiture Options

What is it and what are the different options? Describe each of those.

Answer 3

• If policy lapses due to missed premium there are a few options
  
  1. Cash Surender - policy canceled and policy owner receives the cash value
  2. Reduced paid-up insurance - policy converted to a paid-up whole life policy
     
     1. single premium
     2. based on attained age
     3. reduced face value
     4. Immediate cash value
  3. Extended Term
     
     1. Singel premium term
     2. same face value
     3. default option by insurer