Life insurance products are often a part of an overall financial plan. They come in various forms, including term life, whole life and universal life policies. There also are variations on these—variable life insurance and variable universal life insurance—which
are considered securities and must be registered with the Securities and Exchange Commission (SEC). FINRA has jurisdiction over the investment professionals and firms that sell variable life and variable universal life products. Insurance products often are developed to meet specific objectives. For example, long-term care insurance is designed to help manage health care expenses as you age. As with other financial products, insurance products can be complex and come with fees, so it
pays to do your homework before you buy. Here are some of the most common types of life insurance: Another type of insurance is long-term care insurance, which tends to cover what Medicare and most conventional health insurance policies don't:
long-term custodial care expenses. It's a risk-management product to help cushion the financial blow of prolonged and expensive elder care or custodial care. What Is Variable Life Insurance?Variable life insurance is a permanent life insurance product with separate accounts comprised of various instruments and investment funds, such as stocks, bonds, equity funds, money market funds, and bond funds. Life InsuranceKey Takeaways
How Variable Life Insurance WorksIn some ways, variable life insurance can be described as a form of securities. Why? Because of investment risks, variable policies are considered securities contracts. They are regulated under the federal securities laws. Following the federal regulations, sales professionals must provide a prospectus of available investment products to potential buyers. Variable life insurance policies have specific tax benefits, such as the tax-deferred accumulation of earnings. Provided the policy remains in force, policyholders may access the cash value via a tax-free loan. However, unpaid loans, including principal and interest, reduce the death benefit. Additionally, interest or earnings included in partial and full surrenders of the policy are taxable at the time of distribution. Variable Life Insurance AdvantagesAn attractive feature of the variable life insurance product is its flexibility regarding premium remittance and cash value accumulation. Premiums are not fixed, as with traditional whole life insurance or term insurance policies. Within limits, policyholders may adjust their premium payments based on their needs and investment goals. Loan interest may become taxable upon surrender of the policy. For example, if the policyholder remits a premium less than what is needed to sustain the policy, the accumulated cash value compensates for the difference. Although variable life insurance offers this flexibility, it is essential to understand that long-term remittance of reduced premiums can compromise the cash value and the overall status of the policy. Alternatively, policyholders may remit greater premium payments to increase their cash value and investment holdings. Unlike whole life insurance, the death benefit is linked to the performance of the separate account funds. A positive aggregate performance could offer increased financial protection to the beneficiary upon the death of the insured. In addition to the policy's flexibility, the potential for significant investment earnings is another attractive feature. Many policies offer a wide array of investment options ranging from a conservative approach to an aggressive strategy, to suit the needs of most investors. As an added bonus, a few of the best life insurance companies, such as Prudential and New York Life, offer variable life insurance plans. Variable Life Insurance DisadvantagesCompared to other life insurance policies, variable life insurance is typically more expensive. Premiums paid help cover administrative fees and the management of the plan's investments. The policyholder may need to increase payments to keep the policy active or to maintain a specific death benefit according to the performance of investment products and the premiums remitted. As a proactive measure, some policyholders submit premiums exceeding the cost of the insurance policy to ensure the guarantees of their policies. Additionally, the policyholder solely assumes all investment risks. The insurer offers no guarantees of performance nor protects against investment losses. The policyholder must exercise due diligence by remaining educated about investments and attentive to the separate account performance. Like most life insurance policies, individuals are required to undergo full medical underwriting to obtain a variable life insurance policy. Those people with compromised health or those who have other unfavorable underwriting factors may not qualify for coverage or may realize higher premiums. How is variable life insurance closer to a security than insurance policy?It has separate accounts comprised of different instruments and investment funds, such as stocks, bonds, equity funds, money market funds, and bond funds. Because of investment risks, variable policies are considered securities contracts. They are regulated under the federal securities laws. Following the federal regulations, sales professionals must provide a prospectus of available investment products to potential buyers. What's a main advantage of the variable life insurance policy?The policy owner chooses how to invest their cash value. Many policies offer a wide array of investment options ranging from a conservative approach to an aggressive strategy, to suit the needs of most investors. This might mean returns that surpass those of other insurance policies. When forming an insurance contract when does acceptance usually occur?In forming an insurance contract, acceptance usually occurs when the insurance company accepts the insurance applicant's offer or application for insurance. In creating an insurance contract, the applicant secures an application form which he or she fills up and sends to the insurance company for evaluation.
What information must be communicated in an insurance contract?Correct! An insurance policy has 6 requirements: it identifies the parties to the contract; the life or property of the insured; insurable interest; the risks insured against; the period during which the insurance is to continue; and the amount of premium.
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?If the insurer receives incomplete applications, they need to be returned to the applicants for completion.
Which of the following best describes the aleatory nature of an insurance contract?Which of the following best describes the aleatory nature of an insurance contract? In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy.
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Tom purchased a variable life insurance contract and instructed the insurance company
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