Chapter 5 - Life Insurance Policy Options Flashcards
Dividend Options
Dividends are a return of premium
Dividends are not taxable
Dividends cannot be guaranteed
Methods of Receiving Dividends
Cash
Reduction of premium
Accumulate interest
- interest is new money earned and must be taxed the year it is earned
- this money grows separate from the policies cash value, and can be used separately
Paid up life
Paid up additions
- using each year’s dividend to purchase additional paid up permanent policies
- future purchases are based upon attained age rates
- overall death benefit will increase over time
- proof of insurability is not required
One year term
- using each years dividend to purchase one year term insurance
- attained age rates will be used for new purchases
- proof of insurability is not required
Nonforfeiture Options
To not forfeit or give up
The owner does give up the original policy and premium, but not the value accumulated
The value maintained, is what the nonforfeiture option is based upon
Three Nonforfeiture Options
Cash
Reduced paid up
-use the cash value to purchase term insurance for as long as the money will pay for
- death benefit will be based upon the original policy
Extended term
- use the cash value to purchase term insurance for as long as the money will pay for
- death benefit will be based upon the original policy
Owner gets first choice, if no choice is made, the company chooses extended term
Settlement Options
Cash
Interest
Annuity Options
Living Benefit Options
Stranger owned/Viatical settlements
- the policy could be sold to an outside investor
- investor purchases the policy and therefore becomes the owner, and collects the death benefit upon the insured’s death
- this becomes an investment and taxed above the cost basis
