Insurance Flashcards
(84 cards)
Components of Universal Life policy?
Flexible form of permanent life insurance. Death Benefit + Savings component. Savings accumulates/grows tax-deferred. Part of premium goes to covering death benefit, rest goes to cash value. As person gets older or sicker, more premium goes toward cost rather than cash value.
Advantages of universal life policy?
life long coverage usually, flexibility allowing policyholders to adjust premium payments and death benefits to suit their needs. Can borrow against it (use it as collateral), can adjust premiums and timing of premiums within policy limit
Who is a UL policy suitable for?
someone wanting flexibility (to change death benefit and premium as their needs change), looking for savings component with tax-deferred growth, desire long term planning, someone who has variable income. Someone who wants option to borrow against it
What is Cost of Insurance in UL policy?
amount taken from cash value each month to cover the insurance costs. 2 ways to structure it, Yearly Renewable Term or Level Term
Yearly Renewable Term in UL policy
for Cost of insurance, amount taken from cash value to cover insurance costs increases every year with person’s age
What is Level Term in UL policy
the Cost of Insurance amount taken from cash value to cover insurance costs is averages over a specific period instead of increasing with age ( which would be yearly renewable)
How long are premiums paid on a UL policy
can often be paid over different periods – for the entire life of the policy, for a set number of years, or until a certain age. The flexibility allows policyholders to plan according to their financial situation.
What is cash value component on UL policy?
grows tax-deferred, growth based on interest rates or other index. Holder can usually borrow against the cash value or withdraw it, which would reduce the death benefit.
How many lives can UL insure in one policy?
Most are single life, but there are jt policies for 2+ lives for spouses or business partners. Death benefit can pay on first or second death.
what are the death benefit options for UL policy
Level, Level plus Account Value, level plus Accumulated Deposits, indexed.
Level death benefit on UL policy
Fixed death benefit that does not change over time, determined when policy purchased and doesn’t change regardless of cash value accumulation. Ideal for someone who wants a guaranteed amount to benes. The cash value is accessible to the policy holder during their lifetime as a loan, withdrawal (taxed as income). Cash value surrendered to insurance company on death
Level Death plus account value benefit on UL
death benefit is agreed on level benefit plus cash value. As cash value increases, so does death benefit
Level death benefit plus accumulated deposits benefit on UL
Bene gets the level death benefit plus all or part of premiums paid.
Indexed death benefit in a UL policy
death benefit tied to POSITIVE performance of index like stock market and benefit increases to a certain cap and participation rate. Risky as it is not a known amount, but potential to provide higher benefit amount
What types of investments can a UL policy hold
GICs, stocks, bonds, MFs, etc. What holder picks is based on their risk tolerance
Can you lose some cash value and or death benefit in a UL policy if invested in stocks that go down?
Yes can lose cash value which can impact the death benefit if he two are linked. If the death benefit is level, then it won’t change as the benefit is a fixed amount.
How does investment performance inside the UL policy impact premiums?
If investing in GICs , premiums are more predictable and will not vary as much. If investing in stocks etc, premiums may go up if investments don’t perform well as holder will have to pay more premiums to keep policy in force
What will a business overhead policy cover?
overhead business expenses you need to cover if self employed like rent, salaries to staff, interest on loans to cover work investments/property. Will not cover personal pay, will need a personal policy for that. AKA business interruption
insurance
If a UL policy pays a dividend, what happens to the ACB of the policy?
ACB is decreased by the amount of the dividend
What impact does paying an insurance premium have on the ACB of a UL policy?
Payment of the premium increases the ACB
Are dividends paid by the insurance company inside a UL policy taxable when received?
Yes, even if you leave them inside the policy.
Are dividends paid by the insurance company inside a UL policy grossed up for tax purposes?
No, they are not the same as dividends form a qualifying company so not grossed up
What are some options for someone who can’t afford their UL policy premiums anymore but want to continue some coverage?
- Reduce death benefit which reduces the premiums
- Use the cash value to cover premiums if enough (reduces death benefit)
- Change frequency of premium payment if policy allows
4.Some policies allow /premium holidays’ for a certain amount of time. The cash value is used to pay the premium
5.Partial surrender of policy if allowed to gain cash value and reduce benefit/premiums
6.Use cash value to convert policy to fully paid up policy. Death benefit will be lower and based on the cash value and old UL policy is cancelled.
Is EI sickness benefit reduced if claimant gets money from personal individual disability policy?
No
