Colorado Life & Health Insurance Exam Correct 100%

What is the purpose of the buyer's guide? - Answer To allow the consumer to compare the costs of different policies Traditional Whole Life - Answer -Ordinary (Straight) Life -Limited-Pay & Single-Premium Whole Life -Adjustable Whole Life Ordinary (Straight) Life - Answer -Until 100 or Death, whichever comes first -Permanent Protection -Rates & benefits based on law of large numbers (Mortality Rate) -Guaranteed, tax-deferred interest rate -Premium level, company's risk goes down as cash value goes up -Insurer keeps the cash value if death to offset risk -Lowest net cost in long run -Client has access to cash through cash surrender or policy loan -Rates are per unit of protection (1,000 is 1 unit)---TEST -Cash value is guaranteed -Cash value will equal face amount at policy maturity Limited-Pay & Single-Premium Whole Life - Answer -Premium paying period is shorter -Cash value still equals face amount at age 100 -20 pay life will be paid up in 20 years PL -Life Paid up at age 65, will be paid up at 65 LP -A single premium policy will have an immediate cash value (1-pay life)---TEST Adjustable Whole Life----TEST - Answer -Sold to clients with fluctuating incomes----TEST -Combination of term and whole life----TEST -Coverage may not be increased without physical exam---TEST Interest/Market Sensitive Whole Life Products - Answer -Universal Whole life -Variable Whole life -Variable/Universal Whole life -Equity-Indexed Life Universal Whole life - Answer -Guaranteed minimum interest rates -Extreme flexibility regarding premium PMTs----TEST -Most flexible product -Target premium based on projected earnings -Option A UL has level death benefits -Option B UL will pay beneficiary both face amount + cash value Variable Whole life - Answer -Cash value deposited into a separate account -Requires FINRA series 6 or 7 to sell -Used to be called NASD -Regulated by SEC -Regulated by FINRA (Financial Industry Regulatory Authority) -NYSE license not required -Minimum death benefit (face amount) is guaranteed---TEST -Has fixed premium---TEST Variable/Universal Whole life - Answer -Requires Finra(series 6 or 7) licenses to sell -Allows client to self-direct cash values into sub-account---TEST -Flexible premium Equity-Indexed Life - Answer -cash value, where minimum death benefit is guaranteed as well as the minimum earning on the cash value in the general account -Securities license is not required -Fixed Premium Term Life - Answer -Level Term -Decreasing Term -Increasing Term General Features of Term Insurance - Answer -Premium goes up every year -May be converted to whole life at current attained age regardless of health -May be renewable up to certain age without physical Level Term - Answer Both premium and face amount are level for period of time Decreasing Term - Answer -Face amount goes down but premium remains the same -Usually convertible to whole life regardless of health -Premium stays the same but cost increases as face amount decreases Increasing Term - Answer -Face amount goes up instead of down -Allows beneficiary to receive the face amount + premiums or cash values -Also known as Universal Life option B Special features of Term Insurance - Answer -Renewable/Convertible to whole up to certain date or age regardless of health -Conversion based on current age -May only convert to more expensive option -Cannot convert to term -Cannot convert to more coverage than you have Return of Premium under Term - Answer The premium for a return of premium policy is generally more than that for a term policy, but less than that of a traditional whole life policy General Features of Annuities - Answer -Always have beneficiary during the pay-in or accumulation period -May or may not have a beneficiary during the pay-out or annuity period -During pay-out period all Pmt's are for the life of the annuitant -Long-term investments subject to 10% early withdrawal penalties on withdrawals taken prior to 59.5 -Immediate annuities have no pay-in or accumulation period--single premium -Variable annuities use a separate account (Like Mutual fund) -Have 30-day grace period Annuity Pay-Out Options - Answer -Contractual; cannot be changed once selected -Amount received in excess of cost are taxable as ordinary income -For life -Cash surrender under age 59.5 subject to IRS 10% penalty -Non-qualified=Funded with after tax dollars Specific Annuity Pay-Out Options (Annuitization) - Answer -Life Income -Life Income with period certain -Life Income with refund -Joint life annuity -Joint survivor annuity Life Income - Answer -Type of Annuity pay out-option -Also known as straight life option -Has no beneficiary, considered risky -Highest monthly pay out---because of risk Life Income with Period Certain - Answer -Type of ---Annuity Pay out-option -5,10,15, or 20 years-----TEST -Guarantees PMT's -Longer the period certain, the lower the monthly PMT -Has beneficiary during the period certain only -Less risk than life income option, payout lower -Doesn't guarantee all monies, just those that would have been paid out during the certain period Life Income with Refund - Answer -Type of Annuity pay-out option -If annuitant dies before recovering all monies, refund goes to beneficiary -Beneficiary may choose cash refund or installment refund -Will pay as long as annuitant lives Joint Life Annuity - Answer -Type of Annuity Pay-out option -Pays only until first annuitant dies Joint and Survivor Annuity - Answer -Pays until the last party dies -Payment often adjusted upon the death of the first party because of age difference Types of Annuities - Answer -Single Premium Deferred Annuity (SPDA) -Level Premium Annuity -Flexible Premium Annuity -Immediate Annuity -Fixed Annuity -Regular -Variable Annuity -Indexed Annuity Immediate Annuity - Answer -No accumulation period -Pays in single premium -Annuitizes right away Variable Annuity - Answer -Goes into separate accounts -Valued in annuity units---TEST -Buyer bears risk -Need FINRA/securities license and annuity course -Subject to state and federal regulation -Insurance under state law Indexed Annuity - Answer -Pays 2% on cash value -Securities license not required -Cash accumulation usually linked to an index (S&P) -If index outperforms guaranteed interest rate, difference credited to cash value -Premiums do not change Combination Plans & Life Insurance Policy Variations - Answer -Joint Life Policy -Survivorship Life Policy Joint Life Policy (First to Die) - Answer -Type of Combination Plans & Life Insurance Policy Variations -Covers 2+ on same policy -No further coverage for remaining party Survivorship Life Policy (Last to Die) - Answer -Usually used to pay estate taxes -Used in estate planning--TEST Life Insurance Policy Riders - Answer -Waiver of Premium & Waiver of Premium with Disability Income(WP) -Guaranteed Insurability Rider(GIR) -Payor Benefit Rider -Accidental Death Benefit Rider -Term Insurance Rider -Long-Term Care Rider -Other Insured Rider -Return of Premium Rider Waiver of Premium & Waiver of Premium with Disability Income (WP) - Answer -Type of Insurance Rider=Add on to coverage -Disability income insurance added to a life policy -6-month waiting period; if satisfy waiting period insurer will reimburse insured for paid premiums within that period -Premiums waived, and policy still enforced as long as insured is disable -If added with disability income, policy pays insured's net income during disability Guaranteed Insurability Rider(GIR) - Answer -Type of Insurance Rider -Enables insured to increase coverage later regardless of health -Option dates usually occur at 2 or 3 year intervals, if skipped the date is lost -At each increase, rates are based upon current age Payor Benefit Rider - Answer -Type of Insurance Rider -Added to policy on child -Waives premium if payor dies or becomes disabled -Expires when child reaches age 18-----TEST Accidental Death Benefit Rider - Answer -Type of Insurance Rider -Death must occur within 90 days of accident or it is assumed to be form of natural causes -Doesn't cover death due to sickness only accidents Term Insurance Rider - Answer -Type of Insurance Rider -Often added to whole life policy to increase coverage -Some whole, some term -Term portion will not cover unless insured dies within the term period Other Insured Rider---TEST - Answer -Type of Insurance Rider -Added to whole life policy under certain circumstances -Adds coverage for new spouse on whole life -Subject to insurability (Physical Exam) -Could be used to add coverage on newborn, on current policy, term insurance rider on child Long-Term Care Rider - Answer -Type of Insurance Rider -Costs extra and may be added to a cash value policy -Allows policy owner to take money out of policy's cash value to pay for qualifying nursing home or home health care Return of Premium Rider - Answer -Type of Insurance Rider -Same as term -Could be added to term depending upon company -Also called return of premium term insurance (ROPT) -If insured should live to end of term, premium is returned tax-free Life Insurance Policy Provisions & Options - Answer -Entire Contract Clause -Insuring Clause or Agreement -Free Look -Consideration Clause -Owner's Rights -Beneficiary Designations -Premium Payment Provisions -Reinstatement Provision -Policy Loan Provisions -Nonforfeiture Provisions or Options -Dividend and Dividend Options -Incontestability Clause -Assignments -Suicide Exclusion -Misstatement of Age & Gender Clause -Settlement (Pay-out) Options -Accelerated Death Benefits Entire Contract Clause - Answer -Defines what is admissible in court -Only policy, endorsements & attached papers if any -Prevents company from changing the policy after policy delivery Insuring Clause or Agreement - Answer -Promise to pay -States that coverage is provided in accordance with the terms of the policy -Located on first page -States coverage, effective date, and parties -Promise can be legally enforced Free Look - Answer -Enables insured to examine policy after delivery -May return policy and get full refund if not satisfied---TEST -15 days to do so