Florida 2-15 Life, Health and Variable Annuity Agent flashcards

Withdrawals from a Traditional IRA used for qualified higher education expenses are exempt from the 10% early withdrawal penalty, but the amounts are still subject to ordinary income tax.

• Exempt from 10% early withdrawal penalty
• Still subject to ordinary income tax
• Applies to qualified higher education expenses
• No age requirement for this exception

Memory trick: Education exception, income tax still applies.

A life insurance dividend option where dividends are used to purchase small, single-premium whole life policies, which in turn increase the policy's cash value and death benefit.

• Uses dividends to buy more insurance.
• Increases both cash value and death benefit.
• Each addition is a fully paid-up whole life policy.

Memory trick: Paid-Up Additions: Dividends BUY more benefit and cash.

An annuity payout option that guarantees income payments for the annuitant's lifetime, but also for a specified minimum period (the 'period certain') even if the annuitant dies sooner.

• Payments guaranteed for at least the 'period certain'
• If annuitant dies during the period certain, beneficiary receives remaining payments
• If annuitant outlives the period certain, payments continue until death

Memory trick: Annuity choices: life's a journey, but some paths have guaranteed stops.

A life insurance rider that waives premium payments if the insured becomes totally and permanently disabled, keeping the policy in force.

• Waives premiums during disability
• Policy remains active
• Usually has a waiting period
• Definition of disability varies by policy

Memory trick: Riders add extra protection, like armor for your policy.

A provision in group life insurance that allows an individual to convert their group coverage to an individual permanent life insurance policy upon termination of employment, without evidence of insurability.

• Must be exercised within a limited timeframe (e.g., 31 days)
• No proof of insurability required
• The new policy is usually a whole life policy at standard rates for the attained age
• Ensures continuous coverage for the departing employee

Memory trick: Leaving the group? 'Convert' your coverage, no questions asked.

Life insurance purchased by a business on the life of a valuable employee (Key Person) to protect the business from financial loss due to that employee's death. The business owns the policy, pays premiums, and is the beneficiary.

• Business owns the policy
• Business pays the premiums
• Business is the beneficiary
• Death benefit compensates the business for losses (e.g., lost revenue, replacement costs)

Memory trick: Key Person: The business protects its vital assets.

A provision in a life insurance policy that protects the death benefit proceeds from the claims of the beneficiary's creditors and prevents the beneficiary from assigning or encumbering the proceeds.

• Protects proceeds from creditors
• Prevents beneficiary from assigning funds
• Ensures funds are used for beneficiary's support

Memory trick: Shield the spendthrift's stash.

A rider typically found in universal life policies that waives the monthly deduction for the cost of insurance if the insured becomes totally disabled, allowing the cash value to continue accumulating.

• Applies to universal life type policies.
• Waives only the 'cost of insurance' charge.
• Cash value accumulation continues during disability.

Memory trick: Waiver of COST keeps the VALUE going.

A provision in a life insurance policy or state law that dictates how proceeds are distributed if the insured and primary beneficiary die in the same accident and the order of death cannot be determined.

• Presumes primary beneficiary died first
• Ensures proceeds go to contingent beneficiary or estate
• Prevents proceeds from being paid to primary beneficiary's estate
• Typically applies if deaths occur within a short period (e.g., 30-90 days)

Memory trick: Clauses are policy rules, guiding how things happen.

A law that dictates how property, including life insurance proceeds, is distributed when two people, such as the insured and primary beneficiary, die at or near the same time and the order of death cannot be determined.

• Applies when order of death is indeterminable
• Treats primary beneficiary as pre-deceased the insured
• Allows proceeds to pass to contingent beneficiary or insured's estate
• Often incorporated into policy language

Memory trick: Simultaneous deaths, sequential payouts.

A rider that increases the death benefit of a life insurance policy periodically to counteract the effects of inflation, usually tied to a consumer price index.

• Increases death benefit automatically.
• Does not require proof of insurability.
• Typically tied to an inflation index (e.g., CPI).
• May have a maximum increase limit.

Memory trick: Riders add special gear to your policy's protective shield.

Life insurance that provides coverage for a specific period (term) and pays a death benefit only if the insured dies during that term. It typically has no cash value.

• Covers a specific period (e.g., 10, 20, 30 years)
• Lowest initial premiums compared to permanent policies
• Does not build cash value
• Death benefit paid only if death occurs during the term

Memory trick: Temporary needs, lowest cost, term is best.

A retirement plan for small businesses and self-employed individuals that allows employers to make tax-deductible contributions to an IRA for themselves and their employees. It offers simple administration and flexible contribution amounts.

• For small businesses and self-employed
• Employer makes contributions to employee IRAs
• Contributions are tax-deductible for the employer
• Simple to set up and administer

Memory trick: SEP: Simple, Easy, Profitable (for small businesses).

Withdrawals from non-qualified annuities are taxed on a Last-In, First-Out (LIFO) basis, meaning earnings are withdrawn first and are fully taxable as ordinary income.

• LIFO rule applies
• Earnings are withdrawn before principal
• Earnings are taxed as ordinary income
• Principal (cost basis) is not taxed

Memory trick: Annuity withdrawals: gains first, then principal.

When a life insurance policy's cash value is surrendered, any amount received that exceeds the total premiums paid (cost basis) is considered taxable income.

• Cash value withdrawals up to cost basis are generally tax-free.
• Any amount received above the cost basis is taxed as ordinary income.
• Loans against cash value are generally not taxable.
• Death benefits are generally tax-free to beneficiaries.

Memory trick: Taxing life insurance depends on when and how money leaves the policy.

If a policy loan, along with any accrued interest, is outstanding when the insured dies, the outstanding loan amount is subtracted from the death benefit paid to the beneficiary.

• Policy loans reduce the death benefit.
• Interest accrues on the loan.
• Loan repayment is optional during the insured's lifetime.
• Unpaid loans and interest are deducted from the death benefit.

Memory trick: A policy loan is like borrowing from your future self; if you don't pay it back, your heirs get less.

A type of buy-sell agreement where the business entity itself purchases life insurance policies on each owner, is named as the beneficiary, and uses the death benefit to buy out a deceased owner's interest.

• Business owns the policies
• Business is the beneficiary
• Business pays the premiums
• Business buys the deceased owner's share

Memory trick: Entity means the EnTiTy itself buys the life policy.

A provision in a life insurance policy that limits the insurer's payout to a refund of premiums paid if the insured commits suicide within a specified period (usually two years) from the policy's issue date.

• Typically a 2-year exclusion period.
• If suicide occurs within the period, only premiums are refunded.
• If suicide occurs after the period, the full death benefit is paid.
• Designed to prevent individuals from purchasing life insurance with suicidal intent.

Memory trick: Policy provisions are the rules written in the scroll that protect both insurer and insured.

A type of buy-sell agreement where each business owner purchases a life insurance policy on the other owners to fund the purchase of a deceased owner's share.

• Owners buy policies on each other
• Surviving owners use death benefit to buy shares
• Often used with a small number of partners
• Can result in many policies for larger groups

Memory trick: Buy-sell: Who buys, who sells, when a partner leaves.

A type of life insurance that provides a guaranteed level death benefit and a guaranteed level premium for a specified period of time.

• No cash value accumulation
• Coverage for a defined term (e.g., 10, 20, 30 years)
• Premiums remain constant throughout the term

Memory trick: Term-inator covers a fixed period, no frills, just facts.

The penalty for failing to take the full Required Minimum Distribution (RMD) from a Traditional IRA or other qualified plan is a 25% excise tax on the under-distributed amount, which can be reduced to 10% if corrected promptly.

• Applies to Traditional IRAs and qualified plans
• Penalty is 25% of the under-distributed amount
• Can be reduced to 10% if corrected timely
• First RMD by April 1 of year following age 73 (formerly 72, 70.5)

Memory trick: Missed RMD? Quarter of it's gone!

A retirement plan that meets IRS requirements, allowing for pre-tax contributions, tax-deferred growth, and taxable distributions in retirement.

• Contributions are often tax-deductible or pre-tax.
• Earnings grow tax-deferred.
• Distributions in retirement are taxed as ordinary income.
• Subject to ERISA regulations (for employer-sponsored plans).

Memory trick: Qualified plans are like a tax-deferred vault, you pay later for what you put in now.

A formula used to determine the tax-free return of principal and the taxable portion of each income payment received from an annuitized non-qualified annuity.

• Applies to annuitized non-qualified annuities
• Separates payments into principal (tax-free) and gain (taxable)
• Calculated as (Investment in Contract / Expected Return)
• Ensures original premium is returned tax-free over time

Memory trick: Exclude the basis, tax the gain.

Withdrawals from a Traditional IRA before age 59½ used for qualified higher education expenses are subject to ordinary income tax but are exempt from the 10% early withdrawal penalty.

• Applies to Traditional IRAs
• Must be used for 'qualified higher education expenses'
• Withdrawals are taxable as ordinary income
• 10% early withdrawal penalty is WAIVED

Memory trick: Higher Ed: Pay the tax, but the penalty is fled.

A type of deferred annuity that offers a guaranteed minimum interest rate, principal protection against market downturns, and the potential for interest credited based on the performance of a market index.

• Principal protection
• Guaranteed minimum interest rate
• Market index participation (capped or participation rate)
• Balances security with growth potential

Memory trick: Fixed for safety, Variable for risk, Indexed for balance.

Withdrawals from a Traditional IRA before age 59½ for unreimbursed medical expenses exceeding 7.5% (or 10% in some years) of adjusted gross income are exempt from the 10% early withdrawal penalty, but the withdrawn amount remains subject to ordinary income tax.

• Before age 59½.
• Exempt from 10% early withdrawal penalty.
• Still subject to ordinary income tax.
• Medical expenses must exceed a percentage of AGI.

Memory trick: Early IRA: Taxed, and usually PENALTY, but MED bills get a PASS.

A type of whole life insurance where premiums are paid for a specified period or until a certain age, after which no further premiums are due, but coverage continues for life.

• Premiums paid for a limited time (e.g., 20-pay, paid up at 65).
• Coverage extends for the insured's entire life.
• Guaranteed cash value accumulation.
• Guaranteed level death benefit.

Memory trick: Whole life is a tree, growing cash, with branches for different payment styles.

A flexible premium, adjustable death benefit life insurance policy where the cash value is invested in a separate account, offering potential growth and risk tied to market performance.

• Flexible premiums
• Adjustable death benefit
• Cash value invested in separate accounts
• Requires securities license to sell

Memory trick: Flexible life: adjust premiums, adjust death benefit, maybe invest.

A life insurance policy provision that prevents the insurer from denying a claim due to misstatements or fraud in the application after the policy has been in force for a specific period, usually two years.

• Typically a 2-year period from policy issue date
• Protects policyholders from claims being denied years later for minor errors
• Does not apply to non-payment of premiums
• Does not apply if the policy was obtained with intent to murder

Memory trick: After two years, the policy is 'Incontestable' – no more fighting!

Under SECURE Act 2.0, the penalty for failing to take a Required Minimum Distribution (RMD) from a retirement account is 25% of the untaken amount, reducible to 10% if corrected promptly.

• Penalty is 25% of untaken RMD
• Reduced to 10% if corrected promptly
• Prompt correction includes filing a corrected tax return
• Applies to Traditional IRAs, 401(k)s, etc.

Memory trick: RMD penalty: Don't miss it, or pay a quarter, maybe only a tenth if quick!

An annuity payout option that guarantees income payments for the annuitant's lifetime, but if the annuitant dies before a specified 'period certain' (e.g., 10, 15, 20 years) ends, the remaining payments are guaranteed to a beneficiary.

• Guaranteed for life or period certain, whichever is longer
• Protects against early death during the period certain
• Beneficiary receives remaining payments if annuitant dies early
• Offers a balance of lifetime income and beneficiary protection

Memory trick: Life guarantees, period protects.

A type of permanent life insurance that provides a guaranteed death benefit, level premiums, and builds cash value over the policy's life.

• Guaranteed death benefit
• Guaranteed cash value growth
• Fixed premiums for life
• Policy duration is for the insured's entire life

Memory trick: Permanent life is like a tree, always growing cash value, always there.

Withdrawals from a Traditional IRA before age 59½ for qualified higher education expenses are subject to ordinary income tax but are exempt from the 10% early withdrawal penalty.

• Withdrawals are taxable as ordinary income
• 10% early withdrawal penalty is waived
• Funds must be used for qualified higher education expenses
• Applies to the account owner, spouse, child, or grandchild

Memory trick: Early IRA cash: usually penalties, but some 'life moments' get a pass.

Required Minimum Distributions (RMDs) are amounts that Traditional IRA owners must withdraw annually starting when they reach a certain age. Under SECURE Act 2.0, for those turning 73 after 2022, the first RMD must be taken by April 1st of the year following the year they turn 73.

• Applies to Traditional IRAs (and other qualified plans)
• Prevents indefinite tax deferral
• Age 73 for those turning 73 after 2022 (SECURE Act 2.0)
• First RMD can be delayed until April 1st of the following year

Memory trick: Seventy-Three, then April first, for your RMD thirst.

A dividend option where dividends are left with the insurer to earn interest, which is taxable only when withdrawn.

• Dividends are held by the insurer
• Dividends earn interest
• Interest is taxable when withdrawn
• Dividends themselves are generally not taxable

Memory trick: Dividends are gifts; how do you want to use your gift?

A life insurance policy provision or state law that specifies how policy proceeds will be distributed if the insured and primary beneficiary die in the same event and the order of death cannot be determined.

• Presumes primary beneficiary died before the insured
• Ensures proceeds go to contingent beneficiary or insured's estate
• Prevents proceeds from going to the primary beneficiary's estate

Memory trick: When disaster strikes, the 'common' rule decides who gets the cash.

A beneficiary designation that dictates that if a named beneficiary predeceases the insured, that beneficiary's share of the death benefit will pass to their descendants (children, grandchildren, etc.), rather than being divided among the surviving primary beneficiaries.

• Means 'by the branch' or 'by roots'.
• Distributes death benefit equally among primary beneficiaries.
• Deceased primary beneficiary's share goes to their lineal descendants.
• Ensures the original intent of passing wealth down specific family lines.

Memory trick: Beneficiary rules ensure your legacy flows exactly as you intend, either by head or by branch.

An annuity payout option that provides the highest possible income payments for the annuitant's lifetime, but payments cease entirely upon their death, with no benefits for beneficiaries.

• Highest monthly payout.
• Payments stop at annuitant's death.
• No beneficiary benefits after annuitant's death.

Memory trick: Highest income means shortest guarantee.

For group term life insurance, employer-paid premiums are generally tax-deductible to the employer. Up to $50,000 of coverage is tax-free to the employee; premiums for coverage above $50,000 are imputed as taxable income to the employee. Death benefits are typically received tax-free by beneficiaries.

• Employer premiums are tax-deductible.
• First $50,000 of coverage is tax-free to the employee.
• Coverage above $50,000 results in imputed income to the employee.
• Death benefits are generally income tax-free to beneficiaries.

Memory trick: Business life insurance has different tax rules depending on who owns, pays, and benefits.

A retirement plan that allows highly compensated employees to defer a significant portion of their income and bonuses until retirement, without being subject to ERISA's non-discrimination rules or strict contribution limits.

• Primarily for highly compensated employees.
• Not subject to ERISA (Employee Retirement Income Security Act).
• No strict contribution limits (unlike qualified plans).
• Distributions are taxable as ordinary income.

Memory trick: QUALIFIED means RULES for ALL, NON-QUAL means FLEX for FEW.

In Key Person life insurance, the death benefit received by the business beneficiary is generally income tax-free, but the premiums paid by the business are not tax-deductible.

• Business pays premiums and is beneficiary.
• Death benefit is received tax-free by the business.
• Premiums are NOT tax-deductible for the business.

Memory trick: Key Person: Premiums OUT (no deduction), Benefit IN (no tax).

A type of permanent life insurance that offers flexible premiums and an adjustable death benefit, with the cash value invested in a separate account, giving the policyowner control over investment choices and bearing the investment risk.

• Flexible premiums and death benefit.
• Cash value tied to separate account performance (investment risk).
• Potential for higher returns, but no guarantees.
• Requires a securities license to sell.

Memory trick: VUL: Variable investments, Universal flexibility.

Mandatory annual withdrawals from traditional IRAs and other qualified retirement plans once an individual reaches a certain age (currently 73), calculated based on life expectancy.

• Mandatory withdrawals from traditional IRAs.
• Start at age 73 (previously 72, 70.5).
• Calculated using IRS life expectancy tables.
• Subject to a 25% penalty if not taken.

Memory trick: RMDs: Required Money Delivered by Schedule.

A flexible premium, adjustable life insurance policy that offers a death benefit and a cash value component. Policyholders can vary the amount and timing of premium payments.

• Flexible premiums (can increase, decrease, or skip).
• Adjustable death benefit (can increase or decrease).
• Cash value accumulates, usually earning a declared interest rate.
• Transparency in costs (mortality, expenses, interest).

Memory trick: Flexible policies move and adjust, like a universal remote for life.

Upon surrender of a deferred annuity, the amount received that exceeds the total premiums paid (cost basis) is considered taxable income, taxed as ordinary income.

• Taxation applies to the gain (interest earned).
• Cost basis (premiums paid) is returned tax-free.
• Taxed as ordinary income, not capital gains.

Memory trick: Surrender means gain is TAXED, basis is FREE.

When a permanent life insurance policy is surrendered, the amount by which the cash value received exceeds the total premiums paid (cost basis) is considered taxable income.

• Taxable amount = Cash Value - Premiums Paid
• Only the gain is taxed
• Applies to permanent policies

Memory trick: Cash in, gain out, tax follows.

A type of permanent life insurance that provides a guaranteed death benefit, guaranteed level premiums for the life of the insured, and guaranteed cash value accumulation.

• Guaranteed level death benefit.
• Guaranteed level premiums.
• Guaranteed cash value growth (fixed interest rate).
• No investment risk for the policyholder.

Memory trick: Stable life insurance is like an anchor, fixed and reliable, not swaying with the market.

For non-qualified annuities, withdrawals and surrenders are taxed on a Last-In, First-Out (LIFO) basis, meaning earnings are taxed first as ordinary income. If the annuitant is under 59½, a 10% penalty may also apply.

• LIFO applies: earnings taxed before principal
• Earnings are taxed as ordinary income
• Original premium is considered basis (not taxed until earnings are exhausted)
• 10% penalty for withdrawals before age 59½, unless an exception applies

Memory trick: Last In, First Out: Earnings are the first to exit and incur tax.

An annuity purchased with a single lump-sum payment that begins providing income payments to the annuitant immediately (typically within one year of purchase).

• Requires a single, lump-sum premium
• Income payments begin immediately or very soon (within 12 months)
• Provides a guaranteed income stream
• Used for immediate retirement income or converting a lump sum into reliable payments

Memory trick: Immediate means income starts NOW.

A type of term life insurance where the death benefit gradually decreases over the policy's term, typically used to cover financial obligations that also decrease over time, such as a mortgage.

• Death benefit decreases over time.
• Premium usually remains level.
• Ideal for covering decreasing debts (e.g., mortgages).
• Most affordable type of term insurance for this purpose.

Memory trick: Mortgage DOWN, Term DOWN.

An annuity purchased with a single premium that begins paying income immediately (or within one year) and is structured to provide payments for the annuitant's entire life, regardless of how long they live.

• Converts lump sum to guaranteed income
• Payments start immediately (or within 1 year)
• Protects against longevity risk
• Can be fixed (no market risk) or variable (market risk)

Memory trick: Guaranteed income for life, no market fright.

An annuity payout option that provides income payments for the lifetime of two or more annuitants, continuing until the last annuitant dies.

• Covers two or more lives
• Payments continue as long as at least one annuitant is alive
• Often reduced payments to the survivor

Memory trick: Last Survivor: 'Til the last one stands, the payments land.

Fundamental personal care tasks that individuals perform on a daily basis, used as a primary eligibility trigger for long-term care insurance benefits.

• Six standard ADLs: bathing, dressing, eating, toileting, continence, transferring.
• Inability to perform a certain number (e.g., 2 out of 6) triggers LTC benefits.
• Assesses an individual's functional ability to care for themselves.

Memory trick: LTC needs a trigger to unlock care!

A health insurance provision that guarantees the policyholder the right to renew the policy, but allows the insurer to increase premiums for an entire class of insureds.

• Insurer cannot cancel the policy.
• Insurer can increase premiums by class.
• Coverage typically continues to age 65 or beyond.

Memory trick: Renewing with a guarantee means you're safe, but your wallet might not be.

A federal law allowing employees and their families to temporarily continue health benefits after job loss or other qualifying events, at their own expense.

• Applies to employers with 20 or more employees.
• Coverage typically lasts 18 or 36 months.
• Individuals pay the full premium plus up to 2% administrative fee.
• Triggered by qualifying events like termination, reduced hours, divorce, death.

Memory trick: Leaving a job? COBRA helps you bridge the gap!

A provision in a disability income policy that states certain conditions, such as loss of sight, hearing, speech, or the use of two limbs, are automatically considered total disability, waiving the elimination period.

• Automatically qualifies as total disability.
• Waives the elimination period.
• Specific, severe conditions listed in policy.
• Examples: loss of sight, hearing, speech, two limbs.

Memory trick: Presumed Disability means instant payout, no waiting, for the ultimate losses.

Medicare Part B covers outpatient medical services, including doctor visits, medical supplies, and outpatient dialysis treatments for individuals with End-Stage Renal Disease (ESRD).

• ESRD qualifies individuals for Medicare.
• Part B covers outpatient dialysis.
• Part B covers physician services and medical supplies related to ESRD.

Memory trick: ESRD Dialysis: Part B for the Blood-work and Beyond.

A provision in a life insurance policy that states if the insured commits suicide within a specified period (typically 2 years) from the policy's issue date, the insurer will only return the premiums paid.

• Limits insurer's liability for early suicide
• Period starts from policy issue date
• After period, suicide is covered like any other death

Memory trick: Two years for the suicide clause, after that, no more legal pause.

A legal right of an insurer to pursue a third party that caused an insurance loss to the insured. This is done to recover the amount of the claim paid by the insurer to the insured.

• Prevents double recovery by the insured.
• Insurer takes over rights of the insured.
• Common in health, auto, and property insurance.

Memory trick: Subrogation: Step Up and Get Back!

For contributory group life insurance plans, where employees pay part of the premium, a minimum percentage (typically 75%) of eligible employees must participate to prevent adverse selection.

• Employees pay part of premium
• Minimum 75% participation required (FL)
• Prevents adverse selection
• Ensures group's actuarial soundness

Memory trick: Contributory means 'C' for '75%' participation, but Non-Contributory needs 'N' for 'Nearly All' (100%)!