Today’s Lecture - #15 Interest Sensitive and Variable LifeUniversal LifeUniversal Life FeaturesSlide 4Universal Life Flow of FundsUniversal Life Flow of Funds - ExampleSlide 7Current Assumption Whole LifeVariable LifeVariable Universal LifeLife Insurance - ExampleSummaryWhat Type of Cash Value Life?Buying Life Insurance – Example 1Buying Life Insurance – Example 2Buying Life Insurance – Example 3Today’s Lecture - #15Interest Sensitive and Variable LifeWhy buy life insurance?Offset the financial loss of deathTax sheltered investment programNew types of life insurance for investmentUniversal lifeCurrent assumption whole lifeVariable lifeVariable universal lifeUniversal LifeCombination of:Tax advantage of whole lifeLow cost of protection of term Flexible premiumsStraightforward expensesCurrent mortality chargesCurrent interest ratesUniversal Life FeaturesDeath benefit optionsType A - Level death benefitType B - Increasing death benefitPremium paymentsMaximum based on IRS rulesMinimum to keep coverage in forceMortality chargesCurrent MaximumUniversal Life FeaturesExpense chargesFront-end SurrenderInvestment returnsCurrentIndexedNew money ratePortfolio rateGuaranteed levelUniversal Life Flow of FundsPremium+ Cash value from prior period- Expenses- Mortality charges- Withdrawals or loans= Amount subject to investment+ Investment return= Cash value at end of periodUniversal Life Flow of Funds - ExampleA 30 year old policyholder has had a Type B (Increasing Death Benefit) Universal Life policy for $100,000 in force for 5 years. The mortality charge is $1.30 per $1000 of coverage. Expenses are 10% of premiums. The policy earns a 7% rate of return this year. The cash value at the beginning of the period is $3000. The policyholder pays a $500 premium this year.Universal Life Flow of Funds - Example 500 Premiums+ 3000 Prior cash value- 50 Expenses (.10x500)- 130 Mortality charge (100x1.30)- 0 Withdrawals or loans= 3320 Amount subject to investment+ 232 Investment return (3320x.07)= 3552 Ending cash valueCurrent Assumption Whole LifeCross between whole life and universalRegular premium paymentsPremiums can change based on:Mortality experienceInvestment experienceExpensesVanishing premium provisionsVariable LifeLevel premiumsCash value invested in separate accountStocksBondsReal EstateIf investment performance exceeds assumed return, cash value and death benefit increaseIf investment performance is below assumed return, cash value decreasesNo guaranteed returnMinimum death benefitVariable Universal LifeAll the features of universal life except the guaranteed minimum returnVariety of investment choicesStocksBondsReal EstateGoldInternational fundsLife Insurance - ExampleWhich of the following life insurance policies have flexible premiums?I Universal lifeII Current assumption whole lifeIII Variable lifeIV Variable universal lifeA) I and III B) I and IVC) I, III and IV D) I, II, III and IVE) None of the aboveSummaryShould you buy life insurance?If someone would suffer a financial loss at your death - YesWhat type of life insurance should you buy?If all you need is death protection - TermIf you want a tax sheltered investment plan - Cash value lifeWhat Type of Cash Value Life?If you want guarantees - Whole LifeIf you will accept some risk - Current assumption whole lifeIf you are willing to take investment risk -Variable or variable universalIf you want premium flexibility -Universal or variable universalBuying Life Insurance – Example 1Which type of life insurance would be best for a young couple with a newborn baby who are on a limited budget but need a lot of protection during her childhood?A) Yearly renewable termB) 20 year level termC) 20 pay whole lifeD) Straight lifeE) Decreasing termBuying Life Insurance – Example 2Which type of life insurance would be best for a 35 year old single person without any dependents who wants to save for retirement?A) Universal lifeB) Variable lifeC) Whole life paid up at 65D) 30 year endowmentE) None of the aboveBuying Life Insurance – Example 3Which type of life insurance would be best for a 50 year old couple without any children who want a life insurance policy that offers tax sheltered savings?A) Front-end-loaded termB) 20 year level termC) Current assumption whole lifeD) Variable lifeE) None of the
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