Life Insurance Basics
Module 2
Fixed Universal Life Insurance
(Current Assumption)
126200 08/16/11
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY. NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
©2011 Genworth Financial, Inc.
All rights reserved.
Module 2 – Fixed Universal Life Insurance
4Death Benefits
4Premium, Policy Fees/Charges
and Policy Value
4Grace Period
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
2
Illustration Examples in this Module
Illustration excerpts used in this module
do not represent any specific policy.
They are included for training purposes only
and should not be shared with the public.
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
3
Death Benefit Options
Flexibility
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Death Benefit Flexibility
4Level and Increasing Death Benefit Options
4Ability to Change from One to Another*
4Ability to Increase the Specified Amount of Death Benefit*
4Ability to Decrease the Specified Amount of Death Benefit
*Increases in the specified amount typically require additional underwriting.
Changing to an increasing death benefit may also require additional underwriting.
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Option 1 or A – Level Death Benefit
UL Level Death Benefit
Option 1
Net Amount at Risk
Decreases as Policy
Value Increases
Level death benefit includes the policy value
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Option 2 or B – Increasing Death Benefit
UL Increasing Death Benefit
Option 2
Net Amount at Risk
Remains Level
Increasing death benefit includes a level net amount
at risk and an increasing policy value
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Option Changes Permitted
UL Change from Option 1
to Option 2
Net Amount at Risk
Decreases Until
Option Changes,
then Remains Level
Death Benefit option change
(Change from 1 to 2 typically requires additional underwriting)
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Option 3 – Return of Premium
A few UL policies have an Option 3 –
increasing death benefit option
The death benefit is equal to the specified
amount plus the sum of the accumulated
premiums paid
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Death Benefit Corridor
UL Death Benefit Option 1
Demonstration of Corridor
Death benefit must remain higher than policy value by a specific factor
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Premium Flexibility
Key Attribute
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Flexible Premiums
UL premiums are not like term life insurance and whole life
• Term and whole life – premiums are fixed and must be paid to keep
the policy in force
• UL premiums are flexible
Minimum premiums – initial amount needed to put the policy in force
Maximum premiums – the most we are permitted to accept under the law
Premiums may be increased (up to a point), decreased and skipped
• BUT, if the policyowner doesn’t pay enough premium, the policy may lapse
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Universal Life Insurance Premiums
Flexible
4
• Any amount, any time, provided it is
enough to keep the policy in force
Minimum
4
• Amount needed to put it in force
• Amount needed to keep it in force
Maximum 4
Target
4
• Amount that doesn’t violate the definition
of life insurance
• Amount the carrier will accept
• Amount of premium on which commissions
are paid
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Expenses and Policy Charges
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Fees and Charges
Fees and charges, other than cost of insurance charges, are typically
fixed and guaranteed
• Clearly identified in the policy
Support the issuance and maintenance of the policy
• Fixed dollar amount
• Percentage of premiums paid
• Fee for limited number of years
Example:
Fees and Charges
Monthly Administration Fee:
$8.28 per Policy Month
Monthly Expense Charge for
Initial Specified Amount:
$5.00 per Policy Month for first two Policy Years,
$0.00 thereafter
Rate is 0.220000/$1,000 of Initial Specified
Amount
Premium Expense:
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
8% of all premium received
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Cost of Insurance (COI) Charge
May include charges for mortality, persistency, taxes and investment
earnings. Charges vary based on gender, age and premium risk class
of insured
Current COI – what the insurer is currently charging
Maximum COI – insurer can increase COI in the future, up to a
policy maximum
Table of Monthly Risk Rates Per $1,000 of Net Amount At Risk for the Initial Specified Amount
Partial excerpt of COI charges in a policy. Not a complete representation.
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Application of COI Charges
UL Level Death Benefit
Option 1
Net Amount at Risk
(NAR)
$369,140
$130,860
(policy value)
Monthly COI rate (0.68) x NAR (369.150 (thousands)) = $251.02
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Policy Value
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Premium Levels Help Drive Policy Value
Policy values in the early years are a result of premium payments greater
than the amount needed to cover the monthly policy fees and COIs
The More Premium Paid, The Greater The Potential Policy Value
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Interest Credited to Policy Value
If there is policy value, the company will credit it with interest
• Interest will vary over time
Guaranteed never to drop below a minimum rate
• E.g., 3% (depending on the policy form)
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Policy Value and Flexible Premium
Low premium payments drive low policy value
• Premium (plus interest credited to existing policy value) is too low to
cover monthly fees and charges
Higher premium payments drive higher policy value
• May be possible to skip or stop premiums in later years
• Policy value is large enough to cover monthly deductions
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Cash Surrender Value
The amount the policyowner will receive if the policy is surrendered
Equals the gross policy value, less any surrender charges
• Less outstanding policy loans and accrued interest
Charges apply in the early policy years and decline over time to zero
(e.g., 15-20 years)
Reason for surrender charges:
• Discourage early termination of the policy
• Help the company recoup some of the costs associated with selling
and issuing the policy
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Policy Loans
Policyowner may borrow from cash surrender value of the policy
• Cash surrender value becomes collateral for the loan
Interest is charged on outstanding loan balance
• Loan interest is automatically added to the loan balance if not paid in cash
• If the total loan balance is greater than the cash surrender value,
the policy may lapse
– The outstanding loan balance may be repaid at any time
At death, the loan balance is deducted from the death benefit before
the beneficiary is paid
If the policy lapses with an outstanding loan, the balance is income taxable
to the extent of gain in the policy
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Withdrawals
• Policyowner may withdraw money
from cash surrender value –
subject to limitations within the policy
• No interest charged on a withdrawal
• Reduces policy value to pay
policy fees and charges
• Generally reduces the death benefit
• Is not repaid
• May incur a withdrawal charge
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Grace Period
Whole Life and Term Life Insurance Policies
• Grace period is linked to the date the premium is due
Current Assumption Universal Life Insurance Policies
• Grace period is linked to the point when the:
– Cash surrender value minus any loan balance is insufficient to cover
the monthly deductions or, in some policies, is less than zero
OR
– Outstanding loan balance is greater than the cash surrender value
It is very important to understand the distinction
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Grace Period
Provides 61 (some policies allow 62)
day grace period
Illustration excerpt shows point when
cash value is not sufficient to cover
monthly deductions
• Note that premiums are still being paid
• Low or minimum premiums may
be insufficient to cover fees
and charges in later years
+ Policy lapse point unless sufficient
premiums are paid to keep policy in force.
Illustration excerpts are not complete illustrations, nor do they
represent any specific policy available for sale. For training purposes.
Not to be shown to the public.
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Summary of Primary Policy Guarantees
1
Minimum crediting interest rate
• But does not guarantee the existence of cash value
2
COI maximum charges
• But not the current COI charges
3
Other policy fees as outlined in the policy
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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Disclaimer
The Genworth Financial companies wrote this content to help you understand the ideas
discussed. Any examples are hypothetical and are used only to help you understand the
ideas. They may not reflect your client’s/clients’ particular circumstances. Your clients should
carefully read their contract, policy and prospectus(es), when applicable. What we say about
legal or tax matters is our understanding of current law, but we are not offering legal or tax
advice. Tax laws and IRS administrative positions may change. We did not write this material
for use in avoiding any IRS penalty, and neither you nor your clients may use it for that
purpose. Your clients should ask their independent tax and legal advisors for advice based on
their particular circumstances.
If this material states or implies that it was prepared or distributed to promote, market or
recommend an investment plan or arrangement within the meaning of IRS guidance, or such
use may be reasonably expected, then, as required by the IRS, the following also applies:
The tax information in this material was written to support the promotion or marketing
of the transaction(s) or matter(s) addressed in this material.
FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY.
NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
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