Interest-Sensitive Whole Life Policies
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Questions and Answers

What does an interest-sensitive whole life policy offer in terms of cash value?

  • Guaranteed rate of interest
  • Variable rates based on performance
  • Both A and B (correct)
  • None of the above

    • What is the guaranteed maximum interest rate for Dell's interest-sensitive policy?

    4%

    What can a policyowner adjust in a universal life insurance policy?

    Death benefit and premium payments

    What happens if there is not enough cash value in a universal life insurance policy?

    <p>The policy will lapse</p> Signup and view all the answers

    What is a death benefit option in universal life insurance?

    <p>Option A and Option B</p> Signup and view all the answers

    What does the term 'front-end loads' refer to?

    <p>Charges deducted from premiums to cover sales and administrative expenses</p> Signup and view all the answers

    What does the assumed interest rate determine in variable life insurance?

    <p>The growth of the cash value and face amount</p> Signup and view all the answers

    What does transparent mean in the context of life insurance policies?

    <p>The policyowner can see how premiums are used</p> Signup and view all the answers

    What is indexed universal life insurance?

    <p>A hybrid form of universal life insurance linked to an equity index</p> Signup and view all the answers

    Option A death benefit is level until it needs to be adjusted due to the risk corridor.

    <p>True</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Death Benefit Options = A choice between level and increasing death benefit Back-end loads = Charges imposed when cash value is withdrawn Grace Period = The time allowed to pay premiums before policy cancellation</p> Signup and view all the answers

    All of the following are true of universal life policy and variable universal life policy premiums EXCEPT:

    <p>They are fixed.</p> Signup and view all the answers

    In order to sell variable life insurance, variable universal life insurance, or variable annuities, what must Q do?

    <p>May either be licensed to sell life insurance or registered with the FINRA to sell securities.</p> Signup and view all the answers

    All of the following are true of the interest-sensitive whole life insurance policy EXCEPT:

    <p>Cash values accumulate at current interest rates.</p> Signup and view all the answers

    If W buys a universal life policy, which of the following is true?

    <p>Her benefits are variable.</p> Signup and view all the answers

    The universal life policy option that provides a level death benefit is:

    <p>Option A.</p> Signup and view all the answers

    A joint life and last survivor (survivorship life) policy generally pays the death benefit when:

    <p>One insured has died.</p> Signup and view all the answers

    Z's life insurance policy lets him choose from available investments for the cash value. Z's policy is:

    <p>Variable life insurance.</p> Signup and view all the answers

    D has a life policy that has a death benefit that increases every year. This is a _____ policy.

    <p>universal life - Option B</p> Signup and view all the answers

    What is a survivorship life policy?

    <p>A policy that pays the death benefit after the death of the last surviving insured.</p> Signup and view all the answers

    What does a juvenile life policy cover?

    <p>Life insurance covering the life of a minor between the ages of zero through age 17.</p> Signup and view all the answers

    Which option would be the least expensive if a couple wants $300,000 coverage on each?

    <p>$300,000 survivorship</p> Signup and view all the answers

    Justin would be paid $300,000 upon the death of Spring if the Thymes purchased which of the following?

    <p>$300,000 joint life</p> Signup and view all the answers

    A joint life policy pays the face amount when all insureds have died.

    <p>False</p> Signup and view all the answers

    The cash value of a variable life insurance policy always has a guaranteed growth.

    <p>False</p> Signup and view all the answers

    Which of these types of insurance has flexible premiums and cash value based on an interest rate?

    <p>Universal life</p> Signup and view all the answers

    The current rate of interest credited to a universal life cash value account consists of which of the following?

    <p>Guaranteed interest plus excess interest earned by the insurer</p> Signup and view all the answers

    What happens to the death benefit under Option A of a universal life policy when the cash value increases?

    <p>It decreases</p> Signup and view all the answers

    Variable life insurance includes a minimum guaranteed cash value.

    <p>False</p> Signup and view all the answers

    Study Notes

    Interest-Sensitive Whole Life Policy

    • Offers a cash value that earns interest rates based on the insurer's performance.
    • Features a fixed death benefit and specified premium payment schedule.
    • Includes a guaranteed maximum premium and minimum cash value linked to a minimum interest rate.
    • Excess interest can be added to cash value or applied to reduce premiums when current rates surpass guaranteed rates.

    Universal Life Insurance

    • Flexible premium structure allowing changes in death benefit and premium payments.
    • Policyholders can adjust coverage and premiums with proof of insurability needed for increases.
    • Cash value can vary based on the timing and amount of premium payments.
    • Insurers deduct annual renewal term insurance costs from the cash value account.

    Premium Payment Flexibility

    • Policyowners are encouraged to pay a target premium but can alter payment amounts and timing.
    • Grace period provided for late premium payments, preventing lapses under certain cash value conditions.
    • Accrued cash value receives guaranteed interest, adjusted annually based on market rates.

    Cash Value Withdrawals and Loans

    • Policyowners may borrow against cash value or withdraw funds, impacting the death benefit.
    • Partial withdrawals do not incur interest but reduce both cash value and death benefit.
    • Some policies may restrict partial withdrawals or require minimum cash values.

    Load Policies

    • Front-end loads deduct expenses from premiums, slowing cash value growth.
    • Back-end loads allow full premium investment into cash value with potential service charges upon withdrawal or policy changes.

    Death Benefit Options in Universal Life

    • Two options:
      • Option A provides a level death benefit;
      • Option B offers an increasing benefit based on cash value growth.
    • Policyholders can switch between options with flexibility in managing benefits.

    Mortality Charges and Transparency

    • Universal life policies display individual components such as premiums, benefits, interest, and charges separately to promote understanding.
    • Mortality charges cover death claim costs and are part of premium calculations.

    Indexed Universal Life Insurance

    • Hybrid policy linking cash value growth to an equity index with capital preservation features.
    • Offers capped returns linked to market performance, enhancing growth without excessive risk.

    Variable Whole Life Insurance

    • Premiums can be structured variously, but cash values depend on investment performance.
    • Funds are placed in a separate account distinct from general account assets, bearing higher investment risk.

    Assumed Interest Rate

    • Guaranteed face amount relies on an assumed interest rate, influencing both cash value and death benefits.
    • Variability in investments can yield returns that exceed or fall short of this rate.

    Variable Universal Life Insurance

    • Combines universal life with investment performance, offering policyholders investment options.
    • Requires regulations for securities trading due to investment nature and risks.

    Joint Life Policy

    • Covers multiple lives, with payouts upon the first death (first-to-die policy).
    • Premiums are less than buying individual policies for each insured.

    Survivorship Life Policy

    • Provides death benefits after the last insured's death, useful for estate planning.
    • Less costly than combined individual policies due to delayed payout.

    Juvenile Life Policy

    • Insures minors, ensuring future insurability regardless of changes in health.
    • Can cover funeral expenses or serve as a savings vehicle for future education costs.### Juvenile Insurance Policies
    • The owner of a juvenile insurance policy is typically a parent or grandparent until the insured child reaches maturity (age 18 or 21).
    • Some juvenile policies are known as jumping juvenile insurance, which increases coverage to five times the original amount without needing evidence of insurability or premium increase when the child reaches a specified age.
    • Upon reaching the specified age, the child assumes liability for premiums, and any premium-payor waiver terminates.

    Life Insurance Options for Couples

    • A $300,000 joint life policy, also called first-to-die, pays upon the death of either insured, making it more expensive than a survivorship life policy.
    • A survivorship life policy (or second-to-die) pays the death benefit only after both insureds have died, leading to lower premiums since it is expected to pay out later.

    Characteristics of Universal Life Policies

    • Interest-sensitive whole life policies offer guaranteed maximum premiums and minimum cash values based on interest rates.
    • Universal life insurance features flexible premiums and adjustable death benefits, allowing policyholders to change the death benefit and premium payments.
    • Two death benefit options exist in universal policies:
      • Option A provides a level death benefit.
      • Option B provides an increasing death benefit, which includes cash value.

    Variable Life Insurance Policies

    • Variable life insurance has fixed premiums, but benefits (face amount and cash value) can vary based on investment returns.
    • Cash value accumulates in a separate account, primarily invested in equities.
    • Producers selling variable policies must hold licenses for both life insurance and securities (through FINRA).

    Premium Payments and Policy Features

    • Universal life policies maintain coverage as long as the cash value can cover premium costs, with flexible premium options.
    • Variable life policies have fixed premiums but a death benefit that fluctuates based on investment performance; the death benefit cannot fall below the face amount.
    • Option A in universal life policies has a level benefit, while Option B increases the total death benefit by including cash value.

    Regulatory Requirements for Selling Life Products

    • To sell variable life insurance or variable annuities, one must be licensed for life insurance and registered with FINRA to sell securities.

    Key Differences in Policies

    • Joint life policies provide payment upon the death of one insured, while survivorship life policies pay only after both insureds have passed.
    • Interest-sensitive whole life policies ensure minimum cash values and guaranteed rates but may alter premium billing based on current interest earnings.

    Summary of Death Benefit Payments

    • Under Option B of universal life policies, the death benefit equals the face amount plus accumulated cash value.
    • The actual death benefit in universal life remains level under Option A, which does not change with cash value accumulation unless a substantial portion affects the total benefit.

    Important Definitions

    • "First-to-die" policy refers to a joint life insurance policy with payout upon the death of the first insured.
    • "Second-to-die" or survivorship policy pays out only after both insureds have died, allowing for lower premiums due to the delayed payment.### Joint Life and Last Survivor Policy
    • Pays death benefit only after all insured individuals have died.
    • Must be term insurance, meaning coverage is for a limited period.
    • Premiums are higher compared to standard joint life policies.
    • Key distinction from joint life policies, which pay upon the death of the first insured.

    Variable Life Insurance

    • Allows policyholders to choose investments for the cash value component.
    • Potential for benefits to vary based on the performance of chosen investments.
    • Represents a flexible insurance option as it combines life insurance and investment elements.

    Universal Life Insurance - Option B

    • Features a death benefit that increases annually.
    • Death benefit comprises the level policy face amount plus accumulated cash value.
    • Offers a blend of protection and cash accumulation that grows over time.

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    Description

    Explore the concept of interest-sensitive whole life policies through flashcards. This quiz covers various definitions and characteristics of insurance products that offer varying rates of interest based on earnings. Perfect for anyone looking to deepen their understanding of financial products and insurance.

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