Life Insurance Basics Module 2 Fixed Universal Life Insurance (Current Assumption) ©2011 Genworth Financial, Inc. All rights reserved. 126200 08/16/11

Life Insurance BasicsModule 2

Fixed Universal Life Insurance(Current Assumption)

©2011 Genworth Financial, Inc. All rights reserved. 126200 08/16/11 FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY. NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.

FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY. NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.

Death Benefits

Premium, Policy Fees/Chargesand Policy Value

Grace Period

Module 2 – Fixed Universal Life Insurance

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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.

Illustration Examples in this Module

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Death Benefit OptionsFlexibility

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Death Benefit Flexibility

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Level and Increasing Death Benefit Options

Ability to Change from One to Another*

Ability to Increase the Specified Amount of Death Benefit*

Ability 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.


Option 1 or A – Level Death Benefit

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UL Level Death BenefitOption 1

Level death benefit includes the policy value

Net Amount at RiskDecreases as Policy

Value Increases


Option 2 or B – Increasing Death Benefit

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UL Increasing Death Benefit Option 2

Increasing death benefit includes a level net amount at risk and an increasing policy value

Net Amount at RiskRemains Level


Option Changes Permitted

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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)


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

Option 3 – Return of Premium

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Death Benefit Corridor

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Death benefit must remain higher than policy value by a specific factor

UL Death Benefit Option 1Demonstration of

Corridor


Premium FlexibilityKey Attribute

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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

Flexible Premiums

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Flexible

Minimum

Maximum

Target

Universal Life Insurance Premiums

• Any amount, any time, provided it is enough to keep the policy in force

• Amount needed to put it in force• Amount needed to keep it in force

• Amount that doesn’t violate the definition of life insurance

• Amount the carrier will accept

• Amount of premium on which commissions are paid


Expenses and Policy Charges

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Fees and Charges

Monthly Administration Fee: $8.28 per Policy Month

Monthly Expense Charge for $5.00 per Policy Month for first two Policy Years,Initial Specified Amount: $0.00 thereafter

Rate is 0.220000/$1,000 of Initial Specified Amount

Premium Expense: 8% of all premium received

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

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Table of Monthly Risk Rates Per $1,000 of Net Amount At Risk for the Initial Specified Amount

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 apolicy maximum

Partial excerpt of COI charges in a policy. Not a complete representation.

Cost of Insurance (COI) Charge

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Application of COI Charges

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Monthly COI rate (0.68) x NAR (369.150 (thousands)) = $251.02

UL Level Death Benefit Option 1

Net Amount at Risk(NAR) $369,140

$130,860 (policy value)


Policy Value

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FOR AGENT/PRODUCER/BROKER/DEALER USE ONLY. NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC. 19

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

Premium Levels Help Drive Policy Value

The More Premium Paid, The Greater The Potential Policy Value


Interest Credited to Policy Value

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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)


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

Policy Value and Flexible Premium

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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

Cash Surrender Value

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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

Policy Loans

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• 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

Withdrawals

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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 zeroOR

– Outstanding loan balance is greater than the cash surrender value

Grace Period

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It is very important to understand the distinction


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

Grace Period

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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.

+ Policy lapse point unless sufficient premiums are paid to keep policy in force.


Minimum crediting interest rate• But does not guarantee the existence of cash value

COI maximum charges• But not the current COI charges

Other policy fees as outlined in the policy

Summary of Primary Policy Guarantees

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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.

Disclaimer

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Life Insurance Basics Module 2 Fixed Universal Life Insurance (Current Assumption) ©2011 Genworth Financial, Inc. All rights reserved. 126200 08/16/11