Life Insurance Flashcards
What are incidents of life insurance ownership?
Change ownership of the policy
Assign the policy as security for a loan
Name beneficiaries
Receive dividends
Take out cash surrender value
Borrow against the policy
What are two important features of Term?
Renewability: Permits the policy owner to renew the policy for a certain number of additional periods without reference to the insured’s insurability status.
Convertibility: Permits the policy owner to exchange the term policy for a cash-value insurance contract without evidence of insurability.
What is a Universal Life Policy?
Low cost of term and the cash value features of whole life
What provisions must be included in LI policies?
Grace period of 31 days
Reinstatement: opportunity to renew a lapsed policy.
Incontestable clause
Entire-contract provision requires that the written policy include an attached copy of the hand-written application.
Misstatement-of-age provision
Annual apportionment of divisible surplus
Suicide clause
What are LI options?
Dividend options: cash, red of next premium paymt, accum of int, single prem pd up ins, 1 yr term ins
Non-forfeiture options: cash surrender value, extended term, reduced paid up
Policy holder loans
Settlement options: cash, fixed amount/period, int only, life income
Riders and options at extra cost: Guaranteed insurability, waiver of prem, double indemnity
How are living benefits taxed?
Dividends- not since return of prem
Savings- excess of adjusted is subject to federal income tax when received as cash
Accelerated death benefits are not if all regulations are met
How is LI used in business, as an employee benefit, or to cover the loss incurred by death of an employee?
Group Life Insurance for the benefit of employees.
Key Employee Life Insurance covers loss incurred by loss of key persons
Split-Dollar Life Insurance allow businesses to reward and retain valuable personnel. Both the employer and the employee share payment of premiums and the benefits.
How is LI used for funding of business agreements and to facilitate transfer of ownership in sole proprietorships, partnerships and corporations
Buy-Sell Agreement provides funds for continuation of a business.
Cross-Purchase Plan allows each partner or shareholder to purchase life insurance on every other partner or shareholder.
Entity plan is when the partnership or corporation purchases insurance on each partner or shareholder.
Following a prolonged market downturn, Jesse transferred funds within his annuity from a moderately aggressive subaccount to a guaranteed interest rate account.
Identify the type of annuity owned by Jesse.
A variable annuity contract provides a variety of separate subaccounts which allow assets to be invested in securities such as stocks, bonds, money market accounts, etc. The account owner can transfer assets between subaccounts.
Variable annuities usually contain a fixed account which provides a guaranteed interest rate account.
Chance is interested in converting his term life insurance into permanent life insurance. He wants to pay a level premium but may wish to contribute additional sums from time to time. He wants his cash value to be protected in the event the insurance company would fail in a financial crisis.
Which type of life insurance policy best suits Chance’s objectives?
Variable universal life. VUL offers the flexibility to pay random additional amounts into the policy. The variable cash value subaccounts in VUL in which the policyowner allocates premium are not held in the general account of the insurance company and are not subject to the insurance company’s creditors.
Which of the following types of life insurance is most likely to be a participating policy?
Whole life insurance is most likely to be a participating policy, meaning the policy pays dividends.
Each of the following are dividend payout options available on participating life insurance policies EXCEPT:
cash
accumulate interest
purchase single-premium immediate annuity
purchase one-year term insurance
Dividends on participating life insurance policies may be:
taken in cash.
used to pay a portion of the next premium.
left to accumulate interest.
used to purchase single-premium, paid-up additions.
used to purchase one-year term insurance (fifth dividend option).
For the same premium, which of the following types of life insurance provides the least amount of face amount death benefit at the onset of the policy?
Whole life insurance
Universal life Option A
Universal Life Option B
10-year term life insurance
Because a whole life insurance policy’s premium is guaranteed for life, this type of policy initially provides the least amount of face amount death benefit at the policy onset.
For the same premium and assumed return, does universal life option A or option B build the most cash value?
Under option A, the net amount of risk upon which the internal cost of insurance is based decreases annually, whereas the net amount of risk under option B remains static. The internal costs under option B are higher, thus producing a lower cash value.
Which type of life insurance is recommended for a client who wants the greater potential for cash value growth but does not want to experience a negative return on the cash value?
Equity-indexed universal life insurance gives the owner the ability to participate in market-based returns on the cash value without the possibility of a negative return on the cash value year-to-year. Variable universal life insurance can experience a negative investment return in a sub-account.
