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Life Insurance

Terms in this set (142)

NC Insurance Commissioner
Mike Causey
When updating your mailing, resident and email address for your license, you must do it within _ days
10
If you hold a resident agent license from another state and move to NC you may qualify for an exception from the exam, the first step you must take is to...
Cancel your former home state license within 90 days of the application date for a NC resident license
Pays a death benefit benefit when an insured person dies
Life Insurance
When insurance companies set rates for the pure protection portion of any life insurance policy the mortality cost is based on...
the expected number of deaths per thousand at that individuals current age (attained age)
Where the numbers are recorded showing separate rates for males and females in regards to life expectancy
mortality table
The mortality table used by life insurance companies for life insurance
Commissioners Standard Ordinary Mortality Table
How often is the CSO Mortality Table updated?
Every 20 years
Individual life insurance where the premium is collected by the insurance company rather than collected monthly or more often by the insurance agent
Ordinary life insurance
A system of marketing requiring the agent to collect the premium on a weekly or bi-monthly basis to be remitted to the insurance company
Home Service
Insurance based on the insurability of the individual to be insured by the policy and the policy is issued to the owner of the policy
Individual Insurance
The 3 factors that the premiums of an individual life insurance policy are based on:
Mortality, Interest and expenses
Insurance that is typically written as one year term, also known as Annual Renewable Term
Group Life Insurance
ART
Annual Renewable Term
Insurance where the applicant of the policy is the employer and the employees get certificates. The underwriter of the policy looks at the group as a whole, not at an individual
Group Life Insurance
Two types of Life insurance companies
Stock companies or Mutual companies
A return of excess premium not needed by the insurance company that year
Dividend
Who do stock companies pay their dividends to?
Their stock holders
The policy the stock companies sell where the policyholder does not participate in the dividends of the company since they are paid to the stockholders
Non-Participating policy
Who do mutual companies pay their dividends to?
The policy holders
The policy the mutual companies sell where the dividends are paid to the policyhoders
Participating policy - Par policy
The type of insurance that has been around for centuries and includes term, whole life, and endowments.
Traditional
The type of insurance that is newer and includes universal life and adjustable life that were created in the 1970s when interest rates were so high
Non-Traditional
What are the 11 big reasons to purchase life insurance?
Replace Income
Create an Estate
Pay Estate Taxes
Pay off the Mortgage
Set up an Educational Fund
Provide for the Blackout Period
Comply with a Court Order
Make a Gift
Equalize Inheritances
Create or Supplement a Retirement Fund
Provide Juvenile Insurance
What a person owns at their death
estate
When a working spouse dies leaving a nonworking spouse who has no children in their care (children over age 16) but is not entitled to a Social Security survivor's benefit because they are not age 60 yet.
Blackout Period
Insurance purchased on the life of a child that protects a child's insurability and starts a lifetime financial plan for the child. Typically purchased by the parent or grandparent.
Juvenile Insurance
At what age can a child purchase their own life insurance policy.
15
What are the 3 big reasons why Businesses should purchase Life Insurance
Reward and Retain Valuable Employees
Provide Key Person Insurance
Fund a Business Continuation Plan
Insurance that reimburses a business for the loss of an important employee that contributed to the financial success of the business
Key Person Insurance
Funded by a business to provide funds to run the business in the event the sole proprietor or a partner dies that would assist until other arrangements are made and provides fund for a partner or other person to buy the business at the owners death
buy-sell agreement
The insurance agent
producer
2 methods of determining the amount of insurance needed to meet a prospects objectives
Human Life Value Approach
Needs Approach
Method of determining how much insurance a prospect should buy that is based on the fact that when the breadwinner of the family dies, the support that was provided by the breadwinner also dies
Human Life Value Approach
4 things the Human Life Value Approach takes into consideration
The breadwinner's net annual salary
The breadwinners annual expenses
The number of years the breadwinner has until normal retirement age
The effects of inflation on the breadwinners dollar over that time
The most accurate way of determining the amount of life insurance a person needs to buy
The Needs Approach
Method of determining how much insurance a prospect should buy that takes into account all of the family's current and future needs and calculates an amount of life insurance that will meet those needs
Needs Approach
What aspects the Needs Approach takes into account
Cash Needs
Multi-Period Income Needs
-Readjustment period income needs
-childrens income needs during dependency
-surviving spouse's income needs
-surviving spouses retirement needs
-special needs
Ones immediate needs at death such as administrative and burial expenses, tax liabilities, last medical expenses not covered by estate settlement costs and debt liquidation
Cash Needs
The monthly income that the surviving spouse and children will need after the breadwinners death
Multi-period Income Needs
Types of Multi-Period Income Needs (5)
Readjustment period income needs
Children's income needs during dependency period
Surviving spouse's income needs
Surviving spouse's retirement needs
Special Needs
A period of time, usually one or two years following the breadwinner's death that provides the family with the same amount of income the breadwinner woul dhave provided had he/she not died
Readjustment period income
2 basic types of life insurance
Term and Permanent
insurance that provides life insurance for a period of time and pays a death benefit if the insured dies during that time.
Term Life Insurance
When does Term Life Insurance end?
at the end of the specified period of time or at the death of the insured, whichever comes first
Insurance that provides protection for a person's entire life and provides cash value to accumulate on a tax-deferred basis
Permanent Life Insurance
2 types of Permanent Life Insurance
While Life, Universal Life
Which has cash value, Term or Permanent?
Permanent
4 advantages of Permanent insurance over Term insurance
Access to cash values
Loans
Guaranteed coverage
Tax advantage
The 3 parties on an insurance contract
Insured, Owner and Beneficiary
The person who has the life insurance on their life
Insured
The person who applies for the insurance, agrees to pay the premiums and has certain ownership rights
The policy owner
Policy owner rights
Elect or change the beneficiary
Elect settlement options
Use the cash values if available
Assign ownership to another person
Policy owner must have __ when the policy is issued
Insurable interest
The person who receives the face amount of the policy when the insured party dies
Beneficiary
2 ways the face amount of the policy is paid to the Beneficiary
Lump sum or one of the six settlement options
Another name for secondary beneficiary
Contingent beneficiary
Assumed to exist if the owner of the policy would suffer a financial loss because of the death of the insured
Insurable Interest
Term life insurance can not be issued beyond age:
70
The least expensive type of insurance available
Term
There are no cash values with term insurance so it has:
pure protection
Defined by what happens to the face amount of the policy over the term of the policy
Term Policies
4 Basic types of Term Insurance
Level Term
Decreasing Term
Increasing Term
Annual Renewable Term
Term policy where the face amount will remain the same level for a period of time.
Level Term -> Level face and level premium. Policy amount never changes
Term policy where the face amount will decrease until the expiration date of the term of the policy. Premium remains level.
Decreasing Term
Decreasing term policies are most often used for what?
Mortgage Insurance
Term insurance used by insurance companies to return a benefit to the beneficiary.
Increasing Term
ROP
Return of premium
ROCV
Return of cash value
Term insurance where the amount of the policy increases each year equal to the increase in the policy's cash value for a ROCV policy
Increasing Term
1 year term insurance that has a level face amount but the premium increases at the end of the year when the policy automatically renews
Annual Renewable Term
YRT
Yearly Renewable Term
Least expensive term insurance
Annual Renewable Term
Term life insurance that is best for group term
Annual Renewable Term
Is underwriting required each year at policy renewal for ART?
No
2 Term Insurance special features
Renewable, Convertible
Another name for term insurance special features
Term Riders
A provision added to a policy providing an additional benefit to the contract
rider
Term insurance feature that allows you to re-up your policy at the end of the term without EOI (but the premium will go up)
Renewable
A term policy rider that can be changed to a permanent policy without evidence of insurability (but the premium will go up based on the attained age)
Convertible
Traditional insurance designed to last the insured's entire life or until the insured reaches the highest age on the mortality table
Whole Life
The savings element of the policy or the living benefit
Cash value
Term that means the value cannot be lost if the policy lapses for non-payment of premium
Nonforfeiture value
According to NC law, a permanent policy must accumulate some cash value by:
the end of the third policy year
Is a whole life policy a guaranteed contract?
yes, it has a level face and level premium
What happens to a whole life insurance policy if the insured lives to the highest age on the mortality table
The policy matures or endows
Type of whole life insurance where the person will pay premiums for the life of the policy. The premium is level but continuous and the lowest annual premium.
Continuous Pay Whole Life/Straight Life
The least expensive type of whole life
Continuous Pay/Straight Life
When does the continuous pay whole life endow
age 100
Whole life insurance where the length of tie the premium must be paid to pay the policy up is set to a specific time period
Limited Pay Whole Life
Whole life insurance where the entire premium for the policy is paid at one time
Single Premium Whole Life
The 3 whole life premium variations
Continuous Pay (Straight Life)
Limited Pay
Single Premium
3 types of Adjustable Premium Whole Life
Modified WL
Graded Premium WL
Indeterminate Premium WL
Type of Whole Life policy that is a permanent contract that allows the premiums to be low for the first 3-5 years of the policy. At the end of the period, the premium will automatically concert to a higher premium for the duration fo the contract.
Modified Whole Life
Type of Whole Life policy where the premium is lower in the first 5 years and will slowly increase over the 5 years so that at the end of the 5 years there will be a level premium for the duration of the contract
Graded Premium Whole Life
Whole life that is sold by stock companies in an effort to compete with participating policies sold by mutual companies that offers a low initial premium after which the premium will be adjusted each year based on the insurance company's investment return, experience and mortality cost.
Indeterminate Premium Whole Life
Savings vehicles
Endowments
Two types of endowments
Pure Endowments
Endowment Life
Endowment that is a savings vehicle only
Pure Endowment
Insurance that is a savings vehicle AND life insurance
Endowment life insurance
Way to save for college or retirement
Endowment
A savings only vehicle with a level face and level premium where when the owner of the policy lives to the end of the period, the vehicle matures and the face amount is paid to the owner
Pure Endowment
A savings vehicle with life insurance that will mature early. It provides a double benefit in that if the owner/insured lives to the maturity date, the face value will be paid to the owner
Endowment Life Insurance
A policy which covers more than one person but only pays one death benefit. Can be term or permanent.
Joint Life
Joint Life policy premium is based on:
The average age of the individuals being insured
Joint policy that pays at the first death at which time the policy ends.
First to Die
Common use of First to Die
Mortgage
Joint policy that pays the death benefit when the last person dies
Last to Die, Last Survivor, Second to Die
A permanent insurance that does not pay the full face amount immediately. Premiums paid are returned to the beneficiary if death occurs during the first year. If the insured lives year years the policy would pay one half the face amounts and after 3 years the policy would pay the full face amount.
Limited Benefit insurance
Permanent insurance that covers a child under the age of 14.
Juvenile Policy
Permanent insurance that covers a child under the age of 14 where at a particular age of the insured child the face amount of the policy will increase to a higher amount. The face value increases but the premium does not
Jumping Juvenile Policy
Waiver of premium is found in what clause
Payor clause
Benefit where premiums for a juvenile policy will be waived if the premium payor dies or becomes totally disabled before the child reaches a certain age (21)
Waiver of premium
With Juvenile insurance the insured becomes the owner of the policy and is responsible for the premium at what age?
21
A standalone policy or rider that is called a double indemnity because it doubles the face amount of the life insurance policy
AD&D
AD&D principal sum
Accidental death
AD&D Capital sum
Dismemberment
Policy that only pays when an accident occurs
AD&D
AD&D insurance must be paid out within how many days of the accident?
90
Policies that are created by adding term riders to permanent insurance policies
Combination policies
Another name for combination policies
Multiple protection
When a rider is attached to a permanent life insurance policy to increase the death benefit two or three times
Double or Triple Indemnity
A common Double Indemnity Policy
Adding the AD&D rider to to term or permanent insurance. If the insured should die as a result of the accident, the face amount would be doubled if the insured dies within 90 days of the accident. The main benefit would pay its death benefit regardless of the cause of death but would be doubled if it was the result of an accident.
5 Combination Policies(Multiple Protection)
Double/Triple Indemnity
Family Income Policy
Family Maintenance Policy
Family Policy
Return of Cash Value or Premium
A permanent insurance policy with a decreasing term rider that provides income replacement for the breadwinner only, designed to cover a breadwinner who wanted income replacement in the event they died which they still had young children at home
Family Income Policy
A policy that combines a permanent life insurance policy, usually whole life, with a level term rider so that if death occurs during the period that began when the policy was issued, the policy would pay installments for the full term of the level term rider.
Family Maintenance Policy (if person lives past the specific period, the term expires without paying a benefit)
A policy where all family members are covered by one policy. Typically the breadwinner is covered by a permanent policy such as whole life and term riders are added to the policy to cover the dependents. Dependent coverage is convertible term that may be converted to permanent when they reach a limiting age.
Family Policy
Type of policy created by adding an increasing term rider to a permanent policy that is used by insurance companies to give a benefit back to a beneficiary
Return of Cash Value or Premium
2 types of nontraditional insurance
Universal and Adjustable Life
Flexible policies that allow the owner of the policy the flexibility to change the face amount of the policy or the premium amount.
Universal and Adjustable Life (EOI needed to adjust face amount)
Policies that allow premiums to be skipped if there is enough cash value to pay the cost of insurance each month
Universal and Adjustable Life
Policies that have a min and max premium where you get to choose what you pay.
Universal and Adjustable Life
Any interest over the guaranteed
Excess
Current Interest rate
Guaranteed + Excess
2 death benefit options allowed with UL/AL poicies
Option A and Option B
Level death benefit option where the death benefit will remain level and will not increase unless the policyholder increases it with EOI. Where the cash value will continue to increase and the beneficiary receives the face amount of the policy when the insured dies.
UL/AL Option A death benefit
Increasing death benefit option where the death benefit increases because the cash value is added to the face amount of the policy at the insured's death where the beneficiary will receive the face amount plus the cash value.
UL/AL Option B death benefit
When UL has guaranteed interest, guaranteed for the life of the policy, usually about 4%
Guaranteed Values
Created by the Tax Reform Act of 1984 that requires a minimum separation between the face amount of the policy and the cash value.
Risk Corridor - Corridor of Insurance
A UL policy when it is transparent because the policy is broken down into it's savings, expense, and protection components
Unbundled
AL policy that does not identify mortality, investment and expense factors used to calculate premium rates and the cash value separately
Bundled
Type of whole life where a current interest rate is added to the policy that causes the premium and cash values to change based on the insurance company's investment experience of the general account.
Interest sensitive whole Life - Current Assumption WL
Sets with similar terms