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All Life policies/ plans
Terms in this set (52)
least expensive that is valid only for a stated period of time and has no cash value
Decreasing term insurance
the annual premium remains constant but death benefit decreases each year. Good for covering a decreasing debt like bank loan or mortgage
premiums and death benefits stay the same for the life of the policy
Annual renewable term
gives the the option to renew the policy each year without showing proof of insurability. Premiums increase at each renewal but DB remains the same
Level premium term
same premium for many years (10 or 20 years), at the end of that period, you can keep the policy but the premium jumps up because they want you to drop it
Your policy premium will increase every year, but after 5 years if you pass a healthy physical, we will keep you and the premium will decrease. Avoided adverse selection
Term insurance may be "convertible"
change it to a different type of policy (to whole life) with no medical questions (no proof of insurability). You have to convert at attained age. You would pay the rates of the age you are when you convert.
Permanent whole life
guarantees level death benefit until 100 years old as well as a level premium out to age 100. They average out all the premiums from now until 100 and you pay that every year. The cash value can be used during your life (living benefits)
Whole/ straight life
premium based on age and remain level to age 100. It can endow (cash value catches up to the death benefit and they send you a check even if you aren't dead). When endowment is reached, no insurance remains
Limited pay whole life
same as whole/ straight only paying fewer higher premiums. When done paying premiums, there is enough cash value to pay the DB. Ex: 10 pay policy
Single premium Life
one premium paid, and the insurance continues to age 100
Joint life policies
cover two people and pay after the 1st death and nothing on the second death. Premium based on joint avg age
Survivorship life policies
covers two people and pays after 2nd death. Usually wealthy people have this to pay estate taxes
Juvenile life policies
cover kids under 15 with adult owner
Jumping juvenile life
increase the death benefit 5 times at age 21 with no premium increase.
Gerber life commercial. Dollar a day for baby.
used as a savings plan. Endows before age 100. endowment at age 18 or retirement age endowment at 65. At that date, the cash value equals the face value (DB), so no insurance remains in force. Taxed on the gain.
Adjustable whole life
FLEXIBLE. Allows the owner to adjust the amount of premiums, length of premium payments or amount of death benefit.
Reduce death benefit very easily. MAYBE increase death benefit. Must prove medical insurability. They re-underwrite it.
Universal life ("flexible premium adjustable life")
Pay the target premium, they will guarantee a level death benefit (guar minimum rate of return %).
If they don't pay the premium, the company takes money out of that bucket to pay the premium. If the bucket runs out then the policy dies.
Premiums are flexible, DB is adjustable. The client can increase or decrease the amount of insurance if they are insurable, the amount of premium or the length of premium.
Option A - A level $ amount DB
Option B - Level amount plus cash value (increases target premium)
allows to invest in stock market. Must have insurance license and federal securities license to solicit. Fixed premium and guaranteed DB. Premiums are invested in "separate account". No guarantee of cash value. Owner decides where to invest usually from a list.
No annual renewable term
Variable Universal life (VUL)
Same as Universal BUT No interest bucket and you have your separate account instead. There IS an annual renewable term
Waiver of Premium Rider
If insured is totally disabled after 6 months, they will waive premiums for as long as disability claim continues and they will reimburse paid premiums. Returned premiums are not taxable.
Accidental death benefit rider
(violent and external means)- sometimes called DOUBLE INDEMNITY because you get paid double the death benefit. You must die within 90 days of the accident. INCREASES DB
Guaranteed insurability rider
permits future purchases without proving insurability. INCREASES DB
Cost of living adjustment (COLA) rider
keeps you up with inflation. Premiums increase and DB increases with inflation. INCREASES DB
Return of premium rider
Cheap at beginning, more expensive each year. Pays DB plus all premium amounts. ROP rider may get a return of all premiums paid when coverage ends.
Disability income rider
pays percentage of DB if disabled per month.
Long term care (LTC) benefit rider
use DB of life insurance to pay LTC premiums until cash is gone or expected to die within 24 months
Payor benefit rider
owner and insured are different. Owner dies or becomes disabled, they will waive premiums on the juvenile policy up to age 25.
Net premium formula
Mortality charges - Interest earned
Gross premium formula
ME - I
(Mortality + Expenses) - Interest
Net premium + expenses
Are dividends tax free?
5 ways dividends are used
C =Cash- sent in a check and is tax-free
R = Use this year's to reduce next year's premiums
A = Accumulate at interest. Interest is taxable. This gives the owner the largest amount of cash if surrendered or could be used to pay the policy up early.
P = Paid up additions. Buy a paid up sliver of life insurance. Small policies are whole life policies with cash value. This offers the most DB if they die.
"Paid up insurance option"- not actually paid up. Just paying future premiums.
Y = Yearly term. Buy a one-year term insurance equal to the cash value.
Do annuities accumulate tax-free, tax-deferred, or taxed?
What is a qualified annuity?
IRS approved retirement plan (IRA, 401k). Contributions (money going in) go in pre-tax/ tax-deduction. Distributions (taking money out) make you pay tax on all of it when you take it out.
What is a non-qualified annuity?
Buy it with after-tax dollars. Not IRS approved. Ex: money won through lottery after taxes. Contributions are after tax, taxes have been paid. Distributions pay "tax on the gain" if there is any. NEVER CAPITAL GAIN TAX (not an insurance thing).
Traditional Fixed annuity
Funds go into the general account and that is where they are invested. They pay at least a minimum guaranteed rate of interest (return), or a higher
Ex: guaranteed current rate of 4% for 3 years. At end of 3 years, current rate will reset either up or down based on interest rates. But there will always be a minimum guarantee of 2%.
Equity indexed annuities (EIA) (Fixed indexed annuities)
Guaranteed no loss, chance for gain. Grows based on the performance of S&P 500 index (Standard & Poors). If market goes down, you will never go under what you put in. If market goes up, you might get more. Typically there is a cap rate (maximum you can gain).
Market value adjusted annuities
locked in for a long time (ex: 10 years) then it resets. The guarantee is only if you hold it until maturity. At surrender prior to maturity, the client may gain or lose depending on market conditions (ADJUSTMENT TO THEIR CASH VALUE). But if you hold it until maturity you have a guaranteed rate of interest.
Ex: year 5 you need to cash out, maybe for a new roof or something. You can gain or lose based on interest rates at that time. PICTURE MARTY AS AIRPLANE. Interest rates are up, you sell at a loss. Interest rates are down, you sell at a gain.
must be bought in a lump sum (single premium). Value must remain for 1 month before any payment. Payment can be deferred as long as it does not exceed 1 year.
money grows over time and is at the insurance company for more than a year. It can be bought with a lump sum (single premium) or periodic payments (flexible premium)
CDSC - Contingent Deferred Surrender Charge
the fee you are charged if you annuitize early. The fee % declines overtime. The fee goes directly to the insurance company.
CDSC Provisions (4)
The surrender charge is waived in the event of death or total disability or LTC.
"Bail out" provision = if the renewal reset interest rate is within 1% without surrender charge. (must exercise the bail out option within 30 days of the reset).
Guaranteed surrender value/ Current cash value= amount you put in (premiums) + interest - surrender charge
If someone dies before annuitizing, the beneficiary will always get at least the amount put it in. They get the larger of either what was put in or the current cash value. Whichever is higher!!
Random annuity distributions/ payout
cashing out a specific amount less than the cash value and is LIFO taxed. You pay tax on gain (Last In First Out). Penalty is waived.
Payout of a non-qualified annuity
Exclusion ratio applies. If you annuitize (they start paying you your monthly income). The insurance company does math to spread the gain over your lifetime. They will tell you which portion is taxable and which portion is tax-free.
Pure life/ straight life annuity
highest possible monthly payout. No beneficiary so if you die, your balance is forfeited to the insurance company. Must expect a "long life".
Life with period certain (fixed period) annuity
when annuitized, someone is guaranteed to get a monthly payment for 10 years. But only guarantee out to 120 monthly payments. If the annuitant dies early, the beneficiary gets the rest. One annuitant
Ex: If they die within the 10 year period, the beneficiary gets the rest
Life with a refund annuity
if the annuitant dies early they will refund the beneficiary until all money is used up. The refund can be a lump sum or continued installments. One annuitant.
payments stop at the first deaths
Joint and Survivor Annuity
payments stop at the second death. (Lowest pay amount). May be a reduced amount at first death (joint & 50% survivor or joint and full survivor).
ERISA- Employee Retirement Income Security Act
non-discrimination law. But MUST be full-time, age 21, working there for 1 year.
lump sum settlements used to pay monthly income to persons who were injured. Calculated by human life value.
separate account, no guarantee of cash. Premiums go into the separate account. You accumulate "units" so when you annuitize you now have annuity units and your monthly income will vary based on the value of your units. Stock market goes up, your monthly income may go up. Stock market goes down, your monthly income may go down. VARIABLE PAY OUT.
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