Products, Marketing, and Distribution Flashcards
what makes insurance a desirable asset in terms of taxes?
In Canada and US its afforded special income tax treatment
What are the five general customer needs, when getting life insurance?
- to protect and/or replace economic value
- to pay off inevitable last expenses
- to provide meaningful executive benefits
- to transfer assets efficiently
- to accumulate a tax-favored investment account
how do businesses often retain extraordinary employees who contribute to the profitable existence of a business and keep them satisfied?
owners offer life insurance designed to provide protection on a pre and post-retirement basis, and or to build tax-favor supplementary retirement income.
what is a cash-value account in terms of investment?
it represents a policyholders equity interest. The cash-value grow tax-deferred or without current income taxes.
can loans be made against policy cash values?
yes, at low net rates - except for contracts classified as MEC
Can tax-free withdrawls up to 2x the amount of the premiums paid into the policy be made systematically to provide a stream of income?
No, 1x the premiums.
what factors are considered when an insurance company develops a new product?
pricing, u/w, administration and marketing.
what sustains the company? (income wise)
premiums, they cover each risk assumed, for the length of the contract.
what are the four major components to determine the premiums?
- mortality
- expenses
- investments
- profit
who determine the probability of death, and how?
actuaries, by analyzing data in standardized industry and government expectation of life tables.
explain the difference of risk analysis between an actuary and an u/w
actuary analysis of large numbers to determine mortality risk, and u/w assess mortality risk by factoring on individual basis.
what is included in the expenses report for an insurance company
building overhead, equipment, maintanance, employees, benefits, agens, commisions, marketing, and advertisement.
how is profit measured by actuaries?
measured as a return on investment (ROI) or return on equity (ROE), which the company requires to grow to meet all promises made to the policyholders, and to meet the needs of other stakeholders.
what are the 5 questions that are posed by u.w when a new product is being developed?
- does the application ask the right questions?
- if a new product requires additional information, have those questions been added?
- is the product designed and priced to allow substanndard risks the opportunity to purchase the product at a higher premium.
- does the product require a new u/w class and what u/w information is necessary to assign the premium classification
- what are the u/w age and death benefits amount limits?
who in terms of administration, will be involved when a new policy is created?
- information technology department
- policy holder
- claims department
- legal and compliance areas
- filing and propsectuses
Is it in Canada or US that they require filing of products or forms federally or provincially/state?
U.S.
what are the two main traditional products sold as insurance?
whole life
term insurance
what is term insurance?
provides coverage for a defined period of time. The time period is terminated by the age of the client, or by the length of term of the product.
Do term plans have cash savings or cash value?
no
is term insurance premiums expensive?
no they are typically cheaper than whole life.
what is a level term product?
this maintains a constant death benefit during the in force period.
how do the premiums work with a level term product
can remain the same or increase if the product has multiple payment periods that change. Usually upon increase the rates renew at the insured’s age.
What is a decreasing term?
where the face amount decreases on a specific schedule over the duration of the policy but the premiums remain the same.
when would someone seek a decreasing term product?
to protect or repay a large amount of debt that decreases over time. (sometimes the decrease rate of the debt and the insurance package are not linear and their can be gaps)
what is an increasing term product?
face amount increases over the coverage period (set % to reflect inflation) premiums increase also.
when would an increasing term product be purchased?
for those who expect both their income and insurance needs to increase over time, but uncomfortable with paying permanent premiums.
what makes term insurance valuable?
renewability (allows people to renew before period end, for more addition terms without evidence of insurability) and convertibitliy (allows to convert term insurance to permanent within a certain time period by a certain age without evidence)
what is a term to 100?
term insurance product, but in reality it is permanent, level premium, non-par whole life insurance. death-benefit remains level, no cash value. (term thats really a perm) > its not super popular since the premiums had increased significantly
how are whole life policy [permanent] premiums calculated?
they premiums are payable for the lifetime, but many policies stop collecting premiums at the maturing age. they are calculated so that excess contributions above
what is a reserve in terms of permanent policy premiums?
excess money not required to cover mortality, this can sometimes go to the beneficiary and be used as cash value
how can a living person utilize their permanent policy for other than insurance?
The cash value can be borrowed at a low net interrest rate or used in a load as source of collaterol, or the policy can be surrenders for its cash value.
what is an advantage to purchasing a permanent policy with a shorter or limited premium payment duration?
the policy holder has access to a large amount of cash value more quickly.
how are single premium whole life policies paid?
one time premium
when would a single premium whole life policy be useful for a client?
- when one policy is replaced for another and the cash value from the prior fully pays for the new policy.
- planning for seniors is done to provide additional tax advantages as well as additional death benefits.
- grandparents wish to gift a policy on the life of a grandchild.
how is a limited pay whole life premiums payed out?
premiums can be required only for a certain stated number of years *10, 20 or to the anniversary when the person is 65.
when would someone choose a limited pay whole life policy
when it is desirable for the policy to be paid up by some designated time or event such as retirement.
how is modified whole life product premiums payed out?
premiums grade up over time, or in juvenile cases upon attaining 18 or 21. when the premiums level out they will have increased higher.
Does the face amount in modified whole life products remain the same?
no it changes, one type has increase death benefit, and is often sold to juveniles. > AKA “jumping juvenile plans”. the face amount can increase once the child turns a certain age.
what’s another type of modified death benefit plan besides jumping juvenile.
A decreasing one, where there’s a larger amount of coverage during the working years, and then the face amount decreases at retirement. Premiums usually remain contestant.
what cliental is best suited for modified premium or modified coverage whole life policy?
- juvenile
- budget is limited,
- new owners in new business carrying large debt, but any profits are earmarked for investment in the business growth.
what is a benefit to combination products?
large amount of protection and some cash value accumulation economically. Portions of the term face amount can be converted periodically to permanent coverage.
why were interest sensitive whole life and universal life products developed?
to offset inflexibility, increase the interest crediting to cash values, and restore confidence and faith into insurance companies
what are interest sensitive products?
they’re considered permanent products, and if the proper premium level is paid, they will last for the whole of life- and they at-risk and saving components have been uncoupled to allow for maximum flexibility.
what are the 3 death benefit options for universal life products?
- level face amount
- level face amount plus the amount of cash value at the time of death
- level face amount plus premiums paid.
with what policy can a person, pay a minimal premium, suspend premiums for a time, or even add excess premium into the policy, periodically or in a lump sum.
Universal life policies
with a universal policy, a monthly charge is deducted from the policy premium and or cash value for what?
for COI, expected mortality, and for company’s operating expenses and taxes.
how do cash values increase with universal plans?
by net premium deposits and investments interest earned.
how much do you have to pay with universal plans?
as long as the amount of cash value remains higher than the COI and expense charges, and less than the maximum (not using it as an investment) you can pay whatever.
what is a disadvantage of universal products?
business cycles affect investment earnings, and if a universal policy is not funded at a high enough premium level initially and continuously it can lapse in the future.
which product has both a minimum and maximum premium rate, and how is it issued?
indeterminate premium whole life. issued with minimum premiums, and they increase to counter increased in the companies expenses. At no time is the premium allows to exceed the maximum premium rate stipulated in the policy.
what are the features of a interest sensitive whole life plan?
level premium, death benefit, cash value, but any premium not required to meed expected mortality or cost, becomes the policies cash value, and is credited with a current interest rate
what does the additional cash value to do the interrest sensitive whole life plans?
increases the face amount of policy as additional death benefit, and this will grow as long as premiums are paid.(if the amount exceeds any protection needed, payment scan cese)
what policy is suggestive to people who want a perm plan earning a current interest, with guarantees of traditional whole life.
interrest sensitive whole life plans
how are variable life policies different from others?
investements are made into numerous stock, bond, or money market mutual funds. the policy holder choses the type of equity subaccounts for their net premiums.
is the company or policy holder, or both, responsible for the risk of a variable life policy investment?
the person
does the face amount change with a variable life policy?
yes the cash values/death benefit increase and decrease depending on investment fund performances, but the face amount never goes below the initial amount purchases.
can a person suspend payments on a variable life policy
yes, as long as theres enough cash value present to pay company expenses
what regulates the policy holders investments in the states?
SEC - securities and exchange commissions. - they also govern the FINRA
can any company sell variable life policies?
no only agents that have special securities licenses
how does an equity indexed universal life [EIUL] product work?
the policy cash value is tied to the performance of a specified financial index. sush as standard and Poor’s 500 index
who is responsible for the risk of investments for a EIUL? And how?
insurer and policy owner. The crediting rate is not equal to the rate of index growth, but the participation rate.
how id a EIUL different from a variable policy when the financial market is decreasing?
variable= owner suffers full loss, but potential benefit is greater EIUL= protected against worse case, potential benefit is okay
what is an advantage to a joint policy?
its cheaper for both the company and the policy holders
what can be included on a joint policy?
spouse, children, business partners.
what is a first to die policy?
pays the death benefits once at the time the first person dies. It offers same benefit of reduce premiums since there is only one policy - good to pay off a mortgage. Both lives are underwritten
what is a last-to die policy? AKA survivorship policy
used for estate planing, the single death benefit pay is to the second death.
why would a married couple with sizable estate buy a survivorship policy?
the major tax penalties for property transfers occur upon second death (to next generation)- it helps protect the assets. This can also be an option when one life is substantard/unhealthy.
are first to die or last to die premiums cheaper?
last to die- since the premiums are calculated for the expected mortality with two lives not one.
what does COLI stand for
Corporate-owned life insurance
what does BOLI stand for
Bank-owned life insuracne
what policy products are favoured for a COLI plan?
those generating high cash value.
are COLI and BOLI products sold in canada?
no
what is a COLI case, who does it involve?
involves multiple lives, and substatial premiums on executives who are the proposed insured.
why would someone purchase a coli?
to fund non-qualified deferred compensation plans, (designed 401K lookalike plans, SERPS etc). its used to build extra retirement income for highly compensated executives.
What a BOLI plans?
strict single-premium perm policies to fund some type of employee benefit plan.
what are rules for BOLI?
must follow guidelines for bank solvency, established and audited by the comptroller of the exchequer in the united states treasury.
How are death benefits paid out in COLI and BOLI plans?
it provides family income replacement protection in the event of a death before retirement.
how does one u/w a COLI or BOLI?
u.w in form of GI or SI.
what is GI- (guaranteed issue)
all proposed insured are accepted as risk, as long as they are actively at work, during time of application. these are priced for extra mortality.
