Chartered Life Underwriter (CLU) Individual Life Insurance Syllabus

Individual Life Insurance syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Individual Life Insurance in Chartered Life Underwriter (CLU), not a summary of it.

1. 1

   Life Insurance Needs Analysis

   4 topics

   • Human Life Value Approach
     • Capitalizing future earnings
     • Limitations of the method
   • Needs-Based Analysis
     • Cash needs at death
     • Income replacement and special funds
     • Capital retention versus capital liquidation
   • Determining Amount and Type of Coverage
   • Programming for Survivors
2. 2

   Types of Life Insurance Policies

   5 topics

   • Term Life Insurance
     • Level, decreasing, and annual renewable term
     • Renewability and convertibility
   • Whole Life Insurance
     • Ordinary and limited-pay whole life
     • Guaranteed cash value and dividends
   • Universal Life Insurance
     • Flexible premiums and death benefit options
     • Cost of insurance and interest crediting
   • Variable and Variable Universal Life
     • Separate account investment options
     • Securities regulation implications
   • Indexed Universal Life
     • Caps, floors, and participation rates
3. 3

   Policy Provisions, Riders, and Options

   4 topics

   • Standard Contract Provisions
     • Incontestability and suicide clauses
     • Grace period and reinstatement
     • Misstatement of age or sex
   • Nonforfeiture and Dividend Options
     • Cash, reduced paid-up, and extended term
     • Paid-up additions and accumulation
   • Settlement Options
     • Life income and period certain options
     • Interest and fixed-amount options
   • Common Riders
     • Waiver of premium and accidental death
     • Guaranteed insurability and accelerated benefits
4. 4

   Underwriting, Pricing, and Policy Selection

   4 topics

   • Life Insurance Underwriting
     • Risk classification and rating
     • Medical and financial underwriting
   • Mortality, Interest, and Expense Factors
   • Policy Illustrations and Comparison Methods
     • Net payment and surrender cost indexes
     • Interpreting guaranteed versus projected values
   • Policy Replacement Considerations
     • Section 1035 exchanges
     • Replacement regulation and suitability
5. 5

   Income Taxation of Life Insurance

   4 topics

   • Death Benefit and Cash Value Taxation
     • Income tax exclusion of death proceeds
     • Inside buildup and tax deferral
   • Policy Loans and Withdrawals
     • Cost basis recovery rules
     • Lapse of policies with loans
   • Modified Endowment Contracts
     • Seven-pay test
     • Distribution taxation and penalties
   • Transfer-for-Value Rule
     • Exceptions to the rule

Individual Life Insurance flashcards for Chartered Life Underwriter (CLU)

20 of 52 cards from the Individual Life Insurance deck — real questions with worked answers.

1. What does the Human Life Value (HLV) approach measure, and how is it calculated?

   It measures the economic value of a person's future earnings to their dependents. It is the present value of the insured's future net earnings (gross income minus self-maintenance, taxes, and personal insurance costs) over their remaining working years, discounted to today's dollars.

2. Under the Needs-Based (needs analysis) approach, what are the two broad categories of needs life insurance must fund?

   Immediate (lump-sum/cash) needs - final expenses, debts, mortgage, emergency fund, education fund - and ongoing (income) needs - replacing the income required to support survivors during readjustment, dependency, and the surviving spouse's lifetime/retirement.

3. How does the Human Life Value approach differ conceptually from the Needs-Based approach?

   HLV is income/earnings-centered - it values the insured as an economic asset and capitalizes future earnings. Needs-based is expense/goal-centered - it sums the survivors' actual financial needs and subtracts existing resources. Needs analysis is generally considered more precise for individual planning.

4. In needs analysis, what is the capital needs (capital retention vs. capital liquidation) distinction?

   Capital liquidation assumes both principal and earnings of the insurance proceeds are spent down over the planning period (requires less coverage). Capital retention (conservation) assumes survivors live only on the income generated, leaving the principal intact (requires more coverage).

5. What is 'programming for survivors' (income programming) in life insurance planning?

   It is structuring life insurance proceeds and settlement options to provide a planned, period-by-period income stream that matches survivors' changing needs over phases such as the readjustment period, dependency period, and the surviving spouse's blackout and retirement periods.

6. In survivor programming, what is the Social Security 'blackout period'?

   The gap during which the surviving spouse receives no Social Security survivor benefits - it begins when the youngest child reaches the age that ends the parent's child-in-care benefit and ends when the surviving spouse becomes eligible for retirement (or widow/widower) benefits.

7. Define term life insurance and its core characteristic.

   Pure protection coverage that pays a death benefit only if the insured dies within a specified term. It builds no cash value, provides the most coverage per premium dollar initially, and expires/becomes very costly at the end of the term unless renewed or converted.

8. Compare level term, decreasing term, and annually renewable term (ART).

   Level term: death benefit and premium stay constant for the term. Decreasing term: death benefit declines (often matching a mortgage) while premium stays level. ART: face amount stays level but premium increases each year with the insured's attained-age mortality.

9. What is the difference between a 'renewable' and a 'convertible' term policy provision?

   Renewable lets the policyowner renew for another term without evidence of insurability (at higher attained-age premiums). Convertible lets the policyowner exchange the term policy for a permanent/cash-value policy without proving insurability.

10. Define traditional whole life (ordinary/straight life) insurance.

    Permanent insurance with a level premium payable for life, a guaranteed level death benefit, a guaranteed cash value that grows on a fixed schedule, and a guaranteed interest/mortality basis; the cash value is designed to equal the face amount at the policy's maturity (typically age 100 or 121).

11. Contrast ordinary (straight) life, limited-pay life, and single-premium whole life.

    Ordinary life: premiums paid until death/maturity. Limited-pay life (e.g., 20-pay, paid-up at 65): higher premiums paid only for a set period, then policy is paid up. Single-premium: one large lump-sum premium fully funds a paid-up policy.

12. What is universal life (UL) insurance and its defining flexible features?

    Permanent insurance with flexible premiums and an adjustable death benefit. Premiums (less expense loads) go into a cash value account that earns a credited interest rate; mortality and expense charges are deducted monthly. The policy stays in force as long as the cash value covers the monthly charges.

13. What are the two universal life death benefit options (Option A vs. Option B)?

    Option A (Level): death benefit stays level (face amount), so the net amount at risk decreases as cash value grows. Option B (Increasing): death benefit equals the face amount PLUS the cash value, so the net amount at risk stays level and total benefit rises.

14. What is variable life insurance, and who bears the investment risk?

    Permanent insurance with fixed premiums where cash values and death benefits vary with the performance of policyowner-selected separate-account subaccounts (stocks, bonds, etc.). The policyowner bears the investment risk; there is typically a guaranteed minimum death benefit but not a guaranteed cash value.

15. How does variable universal life (VUL) combine features of UL and variable life?

    VUL has UL's flexible premiums and adjustable death benefit PLUS variable life's separate-account investment subaccounts. The policyowner directs investments and bears market risk; there is no guaranteed minimum cash value (and usually no fixed guaranteed interest).

16. Why must variable life and VUL be sold with a prospectus by a registered representative?

    Because their separate-account investments make them securities regulated by the SEC/FINRA in addition to state insurance regulation; the agent must hold both an insurance license and a securities (FINRA) registration, and the buyer must receive a prospectus.

17. What is indexed universal life (IUL) and how is interest credited?

    A universal life policy whose cash value interest is linked to a market index (e.g., S&P 500) rather than a declared rate. Credited interest is subject to a participation rate and a cap, with a floor (often 0%) protecting against index losses. Funds stay in the insurer's general account, so it is not a security.

18. In IUL, define participation rate, cap rate, and floor.

    Participation rate: the percentage of the index's gain that is credited. Cap rate: the maximum interest rate that can be credited in a period regardless of index gain. Floor: the minimum credited rate (commonly 0%), protecting cash value from index declines.

19. List the three primary factors used to price (calculate premiums for) life insurance.

    Mortality (expected death claims, from mortality tables), interest (assumed earnings on reserves/premiums, which reduces required premium), and expenses (loading for the insurer's operating costs, commissions, and overhead).

20. In life insurance pricing, what is the difference between gross premium and net premium?

    Net premium is based only on mortality and interest assumptions (the amount needed to fund expected claims). Gross premium is the net premium plus an expense loading (and margins) - it is the actual premium the policyowner pays.

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