What is a rider?
An extra benefit added to the best policy for no extra cost.
What is cash surrender value?
The amount of money that has accumulated in the policy.
The client can receive this amount only if he or she surrenders the policy.
Once surrendered, the policy no longer provides insurance protection.
What is premium?
The payments made to the insurance company to buy the policy and keep it in force.
What is face amount?
The amount of the death benefit listed on the policy contract.
It is the amount paid to the beneficiary when the insured dies
Characteristics and purpose of Term Insurance
- short-term (20yr or less)
- to cover mortgages, income replacement, kids education and other debts
- no cash value
- initially cheapest, gets more expensive over time
Characteristics of Permanent Insurance
The 2 firms are _____ and _____.
- for longterm permanent needs such as final expenses and to offset potential taxes
- premiums usually level and can build cash value
The 2 forms are Whole Life and Universal
Characteristics of Whole Life
Guaranteed cash Values and Death Benefits
- doesn’t expire
- amount of Insurance & premiums are fixed
- higher premiums
- premiums invested by insurance company in separate account. Difference between investment returns, fund expenses and how often death benefit is paid- returned to policy owners as dividend (usually re-invested to buy additional insurance)
Characteristics of Universal Life
- low cost entry into permanent
- flexible- client has choice of investments
- Client bears risk of investments (affects death benefit if policy)
What is the maximum % of a portfolio that should be in a GMWB
25%
- due to liquidity concerns
- if they needed to withdraw more than stipulated in contract future income isn’t guaranteed
Why buy a GMWB?
To generate income
- should wait until they are near or in near retirement.
- They should also wait until they are eligible for lifetime with drawl benefits before they turn on the income stream so that they benefit from guaranteed income for life
GMWB returns are reported on T3 or T5?
Returns are taxed as (capital gains/ dividends/ interest)
Each disposition/payout is taxed as Capital Gains
Withdrawal is tracked and reported on a T3 each year
GMWB contract very similar to an annuity.
How is death benefit guarantee affected by withdrawals?
- guarantee ranges from 75-100%
- death benefit reduces as Client withdraws money
- reduces either dollar for Dollie or proportionately over time.
GMWB Maturity Guarentees
- 75%
- goal to withdraw all by end of contract
- guarantee amount to be reduced dollar for dollar or proportionately with withdrawals
GMWB resets
Not available on many contracts
If available usually automatic every 3 yrs
Segregated Funds
Are considered ‘trusts’ for income tax purposes
- you buy a ‘contract’ of the fund not the underlying assets
- offers maturity guarantee generally 10yrs)
How are they taxed?
Pay out interest/dividends/forgiven income/ cap gains
- taxed in unit-holder hands
