Life Insurance Flashcards
(38 cards)
LI needs when breadwinner dies
- final expenses
- education
- survivor income
- mortgage debt
- outstanding debt
- special desires
LI need when non-working spouse dies
-care of children
- care of parents
- mortgage debt
- special desires
LI need for joint death
- estate tax
- transfer to heirs
- family goals
- special desires
Special desires
aka. adjustment fund
- cushion to cover immediate lifestyle changes that a family must make after a death
- move, new job, returning to work
Amount of LI Needed - two ways
- Needs analysis: survivors needs - resources available
- Human life value: PV of income lost
- After use capital utilization or retention to spend it
Term Insurance - Best client
- short term need, edu or mortgage
- low cost, low funds available
- no cash value needed
Term Insurance - Types
ALRDF : All Lives Require Dinner Fully
- Annual renewable term (ART)
- Level term
- re-entry
- decreasing term
- first - to - die (joint life)
Term Insurance - Features
- renewability: guarantees right to renew for limited years. age limit to prevent adverse selection
- convertibility: exchange term for permanent within time frame without evidence of insurability
Annual renewable term (ART)
or yearly renewable term (YRT)
- 1 year protection
- renew each year for higher premium
- no need to furnish insurability
- DB remains level but premium increases each year (disadvantage)
Level term
- initial premium guaranteed for a period of years
- longer the guarantee the higher the premium
- at end of term, premium escalates
Re-entry provision
- Level term provision
- allows insured to requalify at a new level premium through simplified underwriting
- goal to continue policy at lower rate
- if denied due to health can still keep policy but at the higher rate
Decreasing term
- level premium
- DB decreases
- mortgage usage need long term mortgage
First to die (joint life)
- written on two or more lives
- payable upon death of first
- term or CV insurance
- mortgage protection, buy-sell, debt payof
Permanent Life Insurance
covers insured until death
- whole life
- universal life
Whole Life Insurance Characteristics
- permanent
- level premium
- combines savings (CV) and protection
- premiums paid for life (or limited pay)
- premium higher than term at beginning
- not flexible to meet changing needs
Types of Whole Life
Straight Whole Life
- Aka. ordinary or continuous life
- premiums based on assumption they will be paid until insureds death
Limited-pay Whole Life
- premiums are limited to number of years or age
- premium will be higher that straight whole life
- used for long life expectancy insured. get more for money if lived longer. If they die soon it’s expensive
Universal Life Characteristics
- premiums, CV, level of protection can be adjusted up or down to meet owners needs
- interest credited to CV is at current interest rates (with minimum guarantee)
Universal Life Premium Due Calculation
- if premium paid plus the current CV is not enough to cover cost of the policy, additional premium is due
premiums paid + CV - expenses = add. need
Universal Life Withdrawals and Loans
- policyholder can make partial withdrawals of CV
- no requirement to repay loan
- DB will be reduced by loan balance
- if policy is not MEC, its not taxed
- company credits a lower interest rate on CV associated with the loan
Universal Life Death Benefit Options
Level (Option A or Type I) - WL uses
- DB is constant, ignoring CV
- when CV exceeds benchmark, DB will increase
- assume Option A on test if not mentioned
Increasing (Option B or Type II)
- as CV increases, DB increases by same amount
Variable Universal Life
- offers policyowner directed investment option of variable annuity
- subject to SEC and FINRA & state licensed agent
separate account feature:
- CV and DB not guaranteed
- held in separate account
- general account is liability of company, if it fails funds will be frozen
- separate account is insurers account, wont be frozen
Other types of Life Insurance
- Endowments: wrong answer
- Second-to-die: promise to pay at second persons death. good for estate taxes, lower cost than two separate policies. Can be WL, UL, VUL, or term
LI Contract Provisions (no addtl. premium)
ARGMIS
Automatic premium loan (APL): if elected and premium doesn’t get paid during grace period, company will pay premium and charge it against CV ( and DB)
Grace period: additional time, 31 days, to pay premiums
Reinstatement clause: gives owner of lapsed policy the right to reacquire coverage under certain conditions ( insurability and premiums in arrears + interest)
Misstatement of age clause: benefits under policy will be adjusted to what premium would have been paid at correct age
Incontestable clause: insurer will not contest policy after usually 2 years. Exceptions
- no insurable interest at inception
- intent to murder
- healthier person impersonated applicant in exam
Suicide clause: if committed during first 2 years of policy, only return of premium received
LI Riders (extra premium)
Disability waiver of premium
- whole life: company will waive all premiums due after total and permanent disability. CV is credited as if policyowner paid premium
- Universal and VUL life:
1. company waives charges for mortality and admin expenses but doesnt add to CV
2. company waives full premium
Guaranteed purchase option
- insured may purchase additional insurance, regardless of insurability, at 3-year intervals, up to max age
