Once again, it's infinitely better to study 20 and 30 minutes every day than two or three hours one day. 20 and 30 minutes every day, rewrite the notes. Everything I write down, you write it down.
Write it out. It's going to stick much faster than just reading it. If you do that every day for a week, two weeks, three weeks, you're going to pass the test. A hundred question test in 30 minutes and be done with it. All right?
Annuities. The first lesson was life insurance. The purpose of life insurance is to create an estate. The purpose of an annuity is to liquidate an estate. So an annuity is to liquidate an estate.
Meaning, you got a lump sum of money, the insurance company will help you. stretch that money out and last the rest of your life. For example, Jack and Jill got some money. They're going to give that money to the insurance company. The insurance company is going to give Jack and Jill Their money back.
Over a lifetime. Now why would you do that? If Jack and Jill put their money in the bank and started withdrawing it and living off of it, eventually it's going to be what? All gone.
If Jack and Jill gave their money to an insurance company and the insurance company said upon your life expectancy and this is the amount of interest that you're going to earn, we can let this money last you the rest of your life, even beyond when you withdraw more than you put into the account. So they are guaranteeing you an income based on the money that you start with. So the purpose of an annuity is to liquidate an estate and it protects the annuitant, the person whose life expectancy they're using from out living. There are money. We got two dangers.
One, you could die too soon. That's why you need life insurance. The other one is we could run out of money.
I'm more scared of that. I don't want to run out of money. So we got to have enough money where we can't outlive it.
So we got to accumulate. a lot of it or accumulate a business that pays a residual income where we never run out of it. All right so now this is an annuity. Jack and Jill getting money to an insurance company, insurance company to pay Jack and Jill a lot of money for the rest of their life.
From right here all the way until Jack and Jill start taking the money out all of this period is called the accumulation period. Accumulation period, pay in period. That's when the money is being put in. Over here, when they start taking the money out, it's called the annuity or the annuitization period, when they start taking the money out.
Accumulation period grows tax deferred like an IRA. Anything that grows tax deferred, meaning the IRS doesn't make you pay tax on it, anything that grows tax deferred automatically is going to have a penalty for early withdrawal. So that goes together.
Early withdrawal is before 59 When you put your money in annuity, depending on what they do with the money, if they pay you a guaranteed interest rate, that's a G%, that's a guaranteed interest rate, it's considered a fixed annuity. If they pay you a variable rate or based upon the stock market. It's a variable annuity.
You've got to have a securities license to sell it. If the premium on the money inside an annuity pays both, it has a fixed or guaranteed minimum, but it is invested or linked to an index. Linked to an index is called a fixed index annuity.
That's not an E, that's an I. It has both a guaranteed interest rate and it can grow based upon an index. That's a fixed index annuity. When you take your money out of an annuity over here, you have three different types of annuities based upon you withdrawing the money.
You can have a straight life annuity that pays you the biggest monthly check. With no beneficiary. So big check, no betting.
Big check, no banning. Big check, no banning. Big check, no banning.
Straight life is big check, no banning. Jack don't get the largest monthly check, he die, Jill get nothing. Or you can have a life with period surgery.
Jack is going to get a check for the rest of his life. His beneficiaries are going to get a check for a certain period. He can get a life with a 20-year surrogate. So Jack got a monthly income for life.
He died in the 15th year. His wife can get a check for five more years because it's a 20-year surrogate. Jack lived 22 years and dies over.
Wife's children don't get nothing. Life with period surrogate. Then you have a life with a refund.
Life with refund just means Jack gonna get a check for life. He die, Jack gonna get the money that's left. With everything that's in his account minus withdrawals.
He can get, if he had a hundred grand already, withdraw ten and die, Jack gonna get ninety. He could get a cash refund, or he could get an installment refund. Meaning she could get the whole, the check that Jack was getting until all the money was gone. It could save 50% installment refunds, meaning she would get 50% of what he was making until all the money was gone.
But it's a refund annuity. Certain annuities just by themselves always last for a period, a short period of time. They don't last for life. That's everything you want to know about an annuity.
Everything you need to know to pass the test, for sure. Right? It might have some other stuff on there that, like, uh, maybe a little different.
But if you got this concept down, liquidating a stake, outliving that money, accumulation period tax deferred annuity period straight life life fair certain life of refund you can get your license get write that down every day draw the diagram every day you get to tell you it'll be easy and i don't and i rarely use the word easy but this will be easy all right now the provisions Three provisions that you're going to have to know backwards and forwards. The first provision is non-forfeiture options. So, non-forfeiture options.
Three non-forfeiture options. First, what is a non-forfeiture option? Let's break this word down. Forfeit, meaning to lose something. Non-forfeit means I don't want to lose something.
So if I have a whole life policy that has cash value, I don't want the policy anymore, but I don't want to forfeit or lose the cash value inside of it. They give me, so I am counseling. A whole lot of policy, but I don't want to forfeit the cash value inside of it. They give me three options.
The C in all these provisions is always cash. Cash, baby, cash. Cash is king.
Cash is, I get my money, I'm done with y'all. If you do a cash surrender, then the policy cannot be reinstated. Can't be reinstated.
You can have extended term. Extended term means they take the cash value. So you cancel the whole life policy, but you don't want to lose. You do not want to lose your cash value. So you can take your cash value and buy an extended term, meaning you will take the same face amount of coverage you had before, so the same amount of insurance, and it will last for a period of time, however long a term period your cash value will be based on your age.
So it gives you the same amount of coverage for a temporary period. So extended term gives you the most coverage and it is also the automatic option. So if a person had a whole life policy for 10 years, they change banks, forget to call the insurance company to set up the draft, policy lapses. What happened to all that money?
The company automatically did the extended term option and your policy just ran out and they kept all your money. That's what happened to your money. That's what happened to grandma's money. That's what happened to your uncle's money. Anybody that bought this, if they had bought term, if they had bought this, they would have bought this.
That's what happened to your money. That's what happened to your uncle's money. Anybody that bought this, if they had bought term, if they had bought this, they would have had bought term and invested the difference, the money in their mutual funds would still be growing, even if they had changed banks not putting any more money in.
And they could have kept the money in their investment and bought and paid the premium for the term insurance. But if they do this, they're going to end up with nothing. All right? The next one is reduced paid up.
Reduced paid up is you're taking your cash value and you're buying a permanent policy for less coverage. So reduced means you're going to have less coverage, less face amount, but it's going to be permanent. So, cash, get your money, cannot be reinstated. Extended term gives you the most coverage because it gives you the same amount you have for a temporary period.
Reduced paid up gives you coverage for the longest period because it's permanent. Got it? The next one is the dividend options. Dividend options.
Insurance companies just makes up stuff because for those of us who got a securities license, a dividend is when a publicly traded company takes the profits and splits it between the shareholders. Insurance companies just make up their own definition of a dividend and say they're going to overcharge you and they're going to return your unused premium. So the short term they owe you some money back.
Crapo. C in all the provisions, all of these are the provisions. It's C in all of them is always cash.
Submit check. Next is reduction of premium. Next is accumulate at interest.
Next is paid up addition. And next is one year term. Paid up addition and one year term. Reduction premium on a test, they just want to make sure you know it reduces next year's premium. Your premium is due in January, you owe the company $1,000.
Well, let's say now your premium is due in February. It's $1,000. Insurance company owe you a dividend, they owe you $300.
You can't say, well, just take your $300 and take it off the $1,000 and I'll send you $700 They're going to say, send us $1,000 in February, and next February you can pay us $700. So it always next year's premium. Accumulate at interest.
Insurance company owes you money. You say accumulate at interest, it means don't send it to me now, just send it to me later. I'll call you when I need it.
So what you need to know is on the test that dividends are not taxable. But the interest is taxable. So the insurance company owes you $400.
You say, I want to accumulate an interest dividend. A year later, now your dividends have accumulated, plus interest, they're $450. At the end of that year, you're going to pay taxes on the $50. So the interest is taxable.
Whether you take it or not, you still got to pay taxes on it. Paid-up addition is you use your dividend to purchase or add additional permanent insurance to your policy. You increase your coverage with permanent insurance. So if you had $100,000 now you got $105,000 for life, it's permanent. One year term is when you take your dividend and you add temporary.
insurance. A policy is only going to ask one year and it's always the amount is equal to the cash value. Got it.
Last provision, move over some, is a settlement option. Settlement option. insurance company, Jack died, they gotta pay jail her claim, pay her the death benefit.
The claim or the death benefit, all that is the same as saying the settlement, they owe her the money. Settle rate option is when the insurance company is paying the death benefit. They're going to settle with you. So they got five options, the beneficiary has five options on how they can take the money.
The C is cash. Send me a check. Cash baby cash don't get no better than that.
The next is life income. You remember back over here at annuities when we said you got straight life, big check, no banding life, a period of certain life with a refund. That is the exact same thing as life income over here. You can annuitize the death benefit, meaning you don't have to get it all at one time.
You can get a straight life, you can get a life with a period of certainty, or you can get a life with a refund. A life income is not a lump sum, it's a lump sum check. Next is interest only.
When I read the test when I'm helping people study, they make this sound so tricky, it's amazing. And it's the most simple concept of all this information we cover. Interest only is just saying that I don't need the money now, just send me the interest off the money.
Jack died, Jill get a hundred grand, Jill don't need a hundred grand, she don't want it right now, just send me the interest off of it. But on the test, you just got to look for keywords, some version of, they want an immediate income. And they want to protect the principal. Look for protect the principal. Because you're not going to spend $100, you just want the interest off of it.
Interest only, you want some money now, but not the principal. And then the last two is fixed amount. and fixed period.
Fixed amount, the beneficiary chooses the amount. The beneficiary chooses the amount. And the insurance company is going to give you the period. So Jack died.
Jill said, I need $5,000 a month to live off of. You'll see me check the five grand off until it's all gone. I had to figure it out after that.
The next is fixed period. Fixed period is you, the beneficiary, chooses the period. And the insurance company gonna tell them their amount.
So Jack Dow, Jill said, these kids are young, they need to check for 15 more years at least. So split the money up evenly over 15 years till it's all gone. So that's how they differ. And it's one thing they both pay until all the money is exhausted.
Which reminded me, back over here on these annuities, is another two different types of annuity you have, which is called an immediate annuity and a deferred annuity. An immediate annuity, if you start making any withdrawals less than 12 months. Withdrawals versus... It draws over 12 months. Jack got $100,000 and he put the money in January.
He starts taking out in February. That's immediate annuity. Jack got an annuity. He starts putting money in January.
He doesn't take it out until the next February or mark anything over 12 months. could be considered a deferred annuity. On the test, they have a question worded where they mention something about Jack starting an annuity and starting an income.
They don't use the word immediate, but that answer is an immediate annuity because they just basically want to make sure you know if you took that money immediately, that's an immediate annuity. All right, teammates, chapter types of insurance we've discussed. Annuities and the provisions we've discussed. You have to read the regulation.
You have to have the discipline to read it right. There's a price to pay to be successful. You got to read that regulation every day, and you're going to remember it. You're going to pass this test with no problem.
Twenty or thirty minutes every day is infinitely better than two or three hours one day. Good luck, teammates. We're going to take over from here.
I hope it helps.