Variable Life flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Insurable interest
- A financial or relationship-based interest in the continued life of the insured that must exist at policy issue; without it, the contract is generally void or unenforceable.
- Contestable period
- The period, commonly two years from issue, during which an insurer may rescind a policy for material misrepresentation on the application.
- Free-look provision
- A right allowing the policy owner to return a new policy within a stated period, commonly 10 to 30 days, for a full premium refund.
- Grace period
- A period, commonly 31 days, after a premium due date during which coverage remains in force; overdue premium may be deducted from cash value.
- Separate account
- An insurer's segregated investment account funding variable products; assets are not part of the general account and are registered under the Investment Company Act of 1940.
- Accumulation unit
- A unit measuring the owner's interest in a separate-account subaccount during the accumulation phase; its value fluctuates with investment performance net of charges.
- Annuity unit
- A unit used during the payout phase to determine periodic income; payment equals the number of annuity units times the current annuity unit value.
- Assumed interest rate
- The interest rate assumption used to set the initial annuity payment in a variable annuity; a higher AIR lowers the initial payment but permits more increases.
- Exclusion ratio
- The fraction of each annuitized payment excluded from income, computed as investment in the contract divided by the expected return.
- Modified endowment contract
- A life policy failing the 7-pay test; distributions are taxed gains-first and may incur a 10 percent penalty before age 59 and a half.
- Section 1035 exchange
- A tax-free transfer of a life policy, annuity, or qualified long-term care contract into a like-kind contract, with basis carrying over to the new contract.
- Variable life insurance
- Permanent insurance with fixed premiums and a guaranteed minimum death benefit, whose cash value varies with separate-account subaccount performance.
- Variable universal life
- Permanent insurance with flexible premiums and an adjustable death benefit, whose cash value is invested in separate-account subaccounts chosen by the owner.
- Prospectus delivery
- A Securities Act requirement that a current prospectus describing the variable contract, separate account, fees, and risks be delivered to the buyer.
- FINRA Rule 2330
- A rule imposing enhanced suitability, disclosure, and supervision requirements for deferred variable annuity purchases, exchanges, and replacements.
- FINRA Rule 2111
- The suitability rule requiring reasonable-basis, customer-specific, and quantitative suitability when recommending securities transactions or investment strategies.
- Twisting
- Misrepresenting or using misleading comparisons about an existing policy to induce a policyholder to lapse or replace it.
- Churning
- Excessive replacement or switching of policies or contracts primarily to generate commissions rather than to benefit the customer.
- Replacement notice
- A disclosure document given when a new policy or contract replaces an existing one, comparing benefits, costs, and surrender charges for the applicant and insurer.
- Misstatement of age
- A policy provision adjusting benefits to the amount the premium would have purchased at the correct age if the stated age was wrong.
- Suicide clause
- A provision limiting payment to a return of premiums if the insured dies by suicide within a stated period, commonly two years from issue.
- Policy loan
- A loan secured by cash value that accrues interest and reduces cash value and death benefit if unpaid; it may cause lapse.
- Reinstatement provision
- A right to restore a lapsed policy by paying overdue premiums with interest and providing evidence of insurability within a stated period.
- Death benefit taxation
- Life insurance proceeds paid to a named beneficiary are generally excluded from gross income, though estate tax may apply if the insured owns the policy.
- Annuity withdrawal taxation
- Pre-annuitization withdrawals are taxed gains-first until basis is recovered; a 10 percent penalty may apply before age 59 and a half.
- Dual licensing requirement
- Variable life and annuity sales require both a state life insurance producer license and a FINRA securities registration held through a member firm.
- Rebating prohibition
- Offering part of a premium or commission to induce a sale is prohibited in most states unless expressly permitted by state law.
- Fiduciary duty under Advisers Act
- Advisers registered under the Investment Advisers Act of 1940 owe fiduciary duties of care and loyalty, including disclosure of conflicts.
- Hypothetical illustration
- A presentation of nonguaranteed policy values based on assumed rates; it must be labeled hypothetical and not presented as a projection of actual results.
- Gramm-Leach-Bliley privacy
- A federal law requiring financial institutions to give privacy notices and safeguard nonpublic personal financial information of customers.
- Adverse selection
- The tendency of individuals with higher risk to seek insurance more than lower-risk individuals, controlled through underwriting and policy exclusions.
- Aleatory contract
- A contract in which the values exchanged are unequal and depend on chance, as when a large death benefit follows few premium payments.