Iowa Insurance Exam - Life
2 purposes of annuities - ANS - 1. can accumulate cash
2. can distribute income of guaranteed amount for guaranteed period
\Actuary base life insurance premiums based on 3 things - ANS - mortality, interest, expenses
\adjustable life insurance - ANS - policyowner can change premiums, face amount, and type of
insurance
\Annuities - ANS - financial products used to distribute a sum of money over extended period of
time
-THESE ARE NOT LIFE INSURANCE
-purpose is to liquidate a principal sum over certain period, series of income payments
\annuity riders - death benefit rider - ANS - guarantees if annuitant dies before payments begin
or soon after distributions begin a beneficiary will receive at least the balance of premiums paid
(can be done in lump sum payment/over balance of period of which payments were scheduled
\annuity riders - guaranteed income rider - ANS - ensures annuitant will receive regular
payments every month, quarter, or year from the deferred annuity without annuitizing the
contract
-single lump sum premium
-can help provide retirement income without irreversibly committing funds through annuitization
\are deferred annuity values forfeitable? - ANS - No, even if the owner stops making premium
payments
-can be left intact within contract for future annuitization or can be withdrawn
\Association groups for group plan - ANS - Members of associations (school districts) minimum
of 10 people
association is policy owner
Two or more employers in the same business can form a group
\bailout provision - ANS - charge-free withdrawals if interest rate credited drops below specified
level
\Contributory group plan - ANS - -premiums split between sponsor and plan participants
-~75% participants eligible
-common with group health insurance
\convertible term - ANS - lets policyowners to exchange their term coverage for a permanent life
insurance policy without having to provide EOI
\Corporate-Owned Life Insurance (COLI) pg 161 - ANS -
\Credit life insurance - ANS - Covers life of a borrower in amounts of their outstanding loan
If borrower dies policy pays death benefit to creditor
-used with decreasing term insurance; loan balance decreases as coverage decreases
-offered as group and individual
-creditor is policyowner
\Cross purchase buy-self agree - ANS - shareholders buy interest on each other in case one
dies (take over their share of company)
Nx(N-1) (N=# of shareholders)
, \Cross purchase buy-sell agreement - ANS - Partners buy interest on others - if one dies,
partners buy their portion of company (buys the interest
N x (N-1)
\currently insured status - ANS -
\Decreasing term life insurance - ANS - provides temporary protection for a set period,
difference between this and level term is the amount of death benefit payable, it steadily
decreases until it reaches 0 at the end of the term
\deferred annuities - ANS - purchase with single sum of money or periodic investments - do not
begin until future dates
-contract under which annnuitization is delayed until future date, during deferrel period funds
accumulate interest on a tax-deferred basis
-must be bought with single premium payment
-if owner dies during accumulation stage, values are given to beneficiary as death benefit
\Deferred compensation plan and supplemental executive retirement plan similarities - ANS -
-key objective is to shift exec income to retirement (lower marginal income tax bracket)
-employer loses current income tax deduction
-benefits are forfeited if executive fails to meet conditions in deferred comp agreement -
remaining with employer until retirement, agreeing not to compete following retirement
-employer can deduct benefits paid under agreement to executive at the time they are paid
\defined benefit plans - 412(i) Plan - ANS - can be used to fund a vehicle, uses whole life
insurance and deferred annuities, interest is guaranteed
-premiums tax deductible
\defined contribution plans - ANS - money-purchasing
\Disability income benefit rider - ANS - Pays certain sum of monthly income to insured if they
become disabled
Calculated:
1. As percent of face amount
2. As # of dollars per month per $1000 of coverage
\distribution period vs. payout period pg 163 - ANS -
\Employers for group insurance - ANS - Employer my sponsor a group plan or serve as trustee
- minimum 10 people
-all employees. Eligible must be allowed to participate
\Endowment - ANS - insurance policy that matures when its guaranteed cash value equals its
face amount
-if insured is still alive at maturity, coverage is termed and policyowner is paid, lasts until age
120
1.if insured dies before end of endowment period, policy pays death benefit to beneficiary
2. if insured is alive when policy endows, policyowner received specified sum as living benefit
\entity - ANS - business buys deceased partner's interest on business
\Entity buy-sell agreement - ANS - Business covers cost of partners death, buys shareholders
interest
\executive bonus plan - ANS - employer agrees to pay some or all premiums on life insurance
policy purchased for co executive (policyowner) employer can deduct payments as
compensation paid to employee
2 purposes of annuities - ANS - 1. can accumulate cash
2. can distribute income of guaranteed amount for guaranteed period
\Actuary base life insurance premiums based on 3 things - ANS - mortality, interest, expenses
\adjustable life insurance - ANS - policyowner can change premiums, face amount, and type of
insurance
\Annuities - ANS - financial products used to distribute a sum of money over extended period of
time
-THESE ARE NOT LIFE INSURANCE
-purpose is to liquidate a principal sum over certain period, series of income payments
\annuity riders - death benefit rider - ANS - guarantees if annuitant dies before payments begin
or soon after distributions begin a beneficiary will receive at least the balance of premiums paid
(can be done in lump sum payment/over balance of period of which payments were scheduled
\annuity riders - guaranteed income rider - ANS - ensures annuitant will receive regular
payments every month, quarter, or year from the deferred annuity without annuitizing the
contract
-single lump sum premium
-can help provide retirement income without irreversibly committing funds through annuitization
\are deferred annuity values forfeitable? - ANS - No, even if the owner stops making premium
payments
-can be left intact within contract for future annuitization or can be withdrawn
\Association groups for group plan - ANS - Members of associations (school districts) minimum
of 10 people
association is policy owner
Two or more employers in the same business can form a group
\bailout provision - ANS - charge-free withdrawals if interest rate credited drops below specified
level
\Contributory group plan - ANS - -premiums split between sponsor and plan participants
-~75% participants eligible
-common with group health insurance
\convertible term - ANS - lets policyowners to exchange their term coverage for a permanent life
insurance policy without having to provide EOI
\Corporate-Owned Life Insurance (COLI) pg 161 - ANS -
\Credit life insurance - ANS - Covers life of a borrower in amounts of their outstanding loan
If borrower dies policy pays death benefit to creditor
-used with decreasing term insurance; loan balance decreases as coverage decreases
-offered as group and individual
-creditor is policyowner
\Cross purchase buy-self agree - ANS - shareholders buy interest on each other in case one
dies (take over their share of company)
Nx(N-1) (N=# of shareholders)
, \Cross purchase buy-sell agreement - ANS - Partners buy interest on others - if one dies,
partners buy their portion of company (buys the interest
N x (N-1)
\currently insured status - ANS -
\Decreasing term life insurance - ANS - provides temporary protection for a set period,
difference between this and level term is the amount of death benefit payable, it steadily
decreases until it reaches 0 at the end of the term
\deferred annuities - ANS - purchase with single sum of money or periodic investments - do not
begin until future dates
-contract under which annnuitization is delayed until future date, during deferrel period funds
accumulate interest on a tax-deferred basis
-must be bought with single premium payment
-if owner dies during accumulation stage, values are given to beneficiary as death benefit
\Deferred compensation plan and supplemental executive retirement plan similarities - ANS -
-key objective is to shift exec income to retirement (lower marginal income tax bracket)
-employer loses current income tax deduction
-benefits are forfeited if executive fails to meet conditions in deferred comp agreement -
remaining with employer until retirement, agreeing not to compete following retirement
-employer can deduct benefits paid under agreement to executive at the time they are paid
\defined benefit plans - 412(i) Plan - ANS - can be used to fund a vehicle, uses whole life
insurance and deferred annuities, interest is guaranteed
-premiums tax deductible
\defined contribution plans - ANS - money-purchasing
\Disability income benefit rider - ANS - Pays certain sum of monthly income to insured if they
become disabled
Calculated:
1. As percent of face amount
2. As # of dollars per month per $1000 of coverage
\distribution period vs. payout period pg 163 - ANS -
\Employers for group insurance - ANS - Employer my sponsor a group plan or serve as trustee
- minimum 10 people
-all employees. Eligible must be allowed to participate
\Endowment - ANS - insurance policy that matures when its guaranteed cash value equals its
face amount
-if insured is still alive at maturity, coverage is termed and policyowner is paid, lasts until age
120
1.if insured dies before end of endowment period, policy pays death benefit to beneficiary
2. if insured is alive when policy endows, policyowner received specified sum as living benefit
\entity - ANS - business buys deceased partner's interest on business
\Entity buy-sell agreement - ANS - Business covers cost of partners death, buys shareholders
interest
\executive bonus plan - ANS - employer agrees to pay some or all premiums on life insurance
policy purchased for co executive (policyowner) employer can deduct payments as
compensation paid to employee
