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Life Insurance > 3.0 Types of Life Policies > Flashcards

3.0 Types of Life Policies Flashcards

1
Q

All life insurance policies fall into two categories. What are they?

A

-Temporary -permanent protection

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2
Q

Term Insurance, also known as pure life insurance, falls under what category.

A

-temporary, provides coverage for a specific period of time

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3
Q

Term insurance provides, pure death protection. What is this?

A
  • If the insured dies during this term, the policy pays the death benefit to the beneficiary;
  • If the policy is canceled or expires prior to the insured’s death, nothing is payable at the end of the term
  • There is no cash value or other living benefits.
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4
Q

What are the 3 basic types of life insurance policies?

A
  • Term Life
  • Whole Life
  • Flexible Premium
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5
Q

True or False, term insurance provides the greatest amount of coverage for the lowest premium

A

True

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6
Q

True or False, term insurance has cash value

A

False, Term Insurance has no cash value

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7
Q

What are the three basic types of term coverage available, based on the face amount (death benefit) during the policy term?

A
  • level
  • increasing
  • decreasing
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8
Q

True or False: Depending on the type of term insurance purchase, the premium will fluctuate.

A

False, Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy; only the amount of the death benefit may fluctuate, depending on the type of term insurance.

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9
Q

Which is the most common type of Temp Protection purchased?

A

Level Term Insurance

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10
Q

True or False: Level in level term insurance refers to the death benefit, which does NOT change

A

True

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11
Q

Level Premium Term Example:

A
  • $100K 10year level term policy
  • Provide $100K death benefits if insured dies any time during the 10 year period.
  • If the policy renews at end of a 10year period, the premium will be based on the insured’s age at the time of renewal (attained age)
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12
Q

Explain Annually Renewable Term Insurance (ART)

A

is the purest form of term insurance. The death benefit remains level (in that sense, it’s a level term policy), and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases

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13
Q

Explain Decreasing Term Insurance

A
  • level term (premium stays the same)
  • policies feature a level premium and a death benefit that decreases each year over the duration of the policy term
  • primarily used when the amount of needed protection is time-sensitive or decreases over time
  • commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely
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14
Q

Explain Increasing Term Insurance

A
  • features level premiums and a death benefit that increases each year over the duration of the policy term
  • The amount of the increase in the death benefit is usually expressed as a specific amount or a percentage of the original amount.
  • Often used to fund riders that provide “refund of premiums” (or gradual increase in total coverage)
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15
Q

What are the different terms for Term Life Insurance

A
  • Level Premium Term
  • Annually Renewable Term
  • Decreasing Term
  • Increasing Term
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16
Q

What are the general characteristics of Whole Life Insurance

A
  • permanent protection
  • guaranteed elements (face amount, premium, cash value) until death or age 100
  • level premium based on issue age
  • death benefit guarantee
  • cash value/nonforfeiture value: equals face amount when insured is 100 (insured isn’t always policy owner)
  • living benefits- policy owner can borrow cash value when policy is surrendered.
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17
Q

Whole life insurance provides ____ protection and accumulates cash value

A

lifetime (permanent)

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18
Q

What are the three basic forms of whole life insurance?

A
  • straight whole life
  • limited-pay whole life
  • single premium whole life
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19
Q

Explain Straight Life Insurance Policy

A
  • also known as ordinary life or continuous premium whole life)
  • Policy owner pays the premium (from time policy issued) until death or age 100
  • have lowest annual premium
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20
Q

Explain Limited Pay Life

A
  • unlike straight life, paid-up before age 100
  • common: are 20-Pay life where coverage paid 20 years, and life paid at 65 (LP-65)
  • has a shorter premium paying period than straight life, so annual premium=higher
  • Need protection after retirement and won’t pay beyond certain point.
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21
Q

Explain Single Premium Whole Life (SPWL)

A

-designed to provide a level death benefit to the insured’s age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash.

22
Q

What are the differences between Term Life Insurance and Whole Life

A
23
Q

Explain Flexible Premium Policies

A
  • Flexible premium policies allow the policy owner to pay more or less than the planned premium.
  • also offer unique features based on how the policy owner pays the premium or how the premium is invested
24
Q

What are the different types of Flexible Premium Policies

A
  1. Adjustable Life
  2. Universal Life (Option A and B)
  3. Indexed Universal Life (cash value is dependent upon the performance of the equity index)
25
Q

Explain Adjustable Life Insurance

A
  • developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage).
  • can make adjustments to the policy, as the insured needs change
  • option from converting Term to Whole Life (vice versa)
  • the cash value of an adjustable life policy only develops when the premiums paid are more than the cost of the policy.
26
Q

Explain Universal Life

A
  • also known as flexible premium adjustable life
  • pay either minimum or target premium (insurance companies may give the policyowner a choice)

-Interest sensitive policy: the insurer guarantees a
contract interest rate (usually 3 to 6%), there is also potential for the policyowner to get a current interest rate

  • two components: insurance component and cash amount
  • component always annually renewable term insurance
  • Offers 1/2 death benefits Option A and B
27
Q

True or False: If an insured skips a premium payment on a universal life policy, the missing premium may be deducted from the policy’s cash value. The policy will NOT lapse.

A

True

28
Q

In Universal Life, explain the Option A death benefit

A
  • level death benefit option
  • lowering pure insurance as cash value increases.
29
Q

In Universal Life, explain the Option B death benefit

A
  • annual increase in cash value so death benefit increases
  • Expenses are much greater since pure insurance remains level for life

Cash values lower in the older years

30
Q

Explain Indexed Universal Life Insurance

A
  • universal life policy with an equity index as its investment feature
  • the policy’s cash value is dependent upon the performance of the equity index
  • Sale of the equity indexed universal life product does not require a securities license (whereas the sale of variable universal life does require a securities and life license)
31
Q

Explain Variable Life Insurance

A
  • also known as variable whole life insurance
  • a level, fixed premium, investment-based product
  • assets must be held in a separate account, which invests in stocks, bonds, and other securities investment options
32
Q

Explain Variable Universal Life Insurance

A

type of insurance that combines many features of Whole Life Insurance (with the Flexible Premium Insurance of Universal Life Insurance) and the investment component of variable life (making it a securities version of the universal life insurance)

Variable universal life insurance (like universal life), has the following features/characteristics:

  • A flexible premium that can be increased decreased or skipped as long as there is enough value in the policy to fund the death benefit;
  • Increasing and decreasing the amount of insurance; and
  • Cash withdrawals or policy loans.
33
Q

True or False: Unlike universal life, most of the investment vehicles in variable universal life policies do not guarantee a return.

A

True

34
Q

Variable life insurance products are dually regulated by what/who?

A

The State and Federal Governments

35
Q

Agents selling variable life insurance products must:

A
  • Be registered with FINRA;
  • Be licensed by the state to sell life insurance; and
  • Have received a securities license.
36
Q

What is SEC and FINRA

A

Securities and Exchange Commission

Financial Industry Regulatory Authority (or NASD National Associated of Securities Dealers)

-the declared variable contracts (securities) are regulated by both of them

37
Q

Compare Adjustable Life, Universal Life and Variable Life.

(Key features, premium, face amount, cash value and policy loans)

A
38
Q

List Specialized Policies

A
  • Joint Life
  • Survivorship Life
  • Juvenile Life
39
Q

Explain Joint Life Insurance

A
  • Single policy designed to insure 2 or more lives
  • can be Term or Permanent Insurance
  • more commonly found as joint whole life, which functions similarly to an individual whole life policy with two major exceptions
  • The premium is based on a joint average age that is between the ages of the insureds AND the death benefit is paid upon the first death only
  • common in marriages
40
Q

Joint Life Insurance example

A

Marriage couple purchase house

uses joint life for mortgage protection if both spouse work and earn close to the same income

Spouse dies and insurance pays the mortgage for the surviving spouse.

41
Q

Other than married couples purchasing Joint Life, this policy is also used to insure ____.

A

the lives of business partners in the funding of a buy-sell agreement and other business life needs

42
Q

Premium rates on a join life policy are determined by averaging what?

A

the ages of both insureds

43
Q

Explain Survivorship Life (Second to Die)

A
  • similar to Joint Life, insures 2 or more lives for a premium based on a joint age
  • Difference: Survivorship pays on the last death

policy often used to offset the liability of the estate tax on the death of the last insured

44
Q

Explain Juvenile Life Insurance

A
  • any life insurance is written on the life of a minor. A common juvenile policy is known as the “jumping juvenile”
  • face amount increases at a predetermined age, often age 21

face amount jumps, but the premium remains level

45
Q

Explain Group Life Insurance

A
  • issued to the sponsoring organization, and covers the lives of more than one individual member of that group.

usually written for employee-employer groups, but other types of groups are also eligible for coverage

  • usually written as annually renewable term insurance
  • each insured participant under the group plan is issued a certificate of insurance
  • masterpolicy/contract is issued to the sponsor of the group, which is often an employer.
46
Q

Group Insurance vs Individual Insurance

A
  • Evidence of insurability is usually not required (unless an applicant is enrolling for coverage outside the normal enrollment period); and
  • Participants (insureds) under the plan do not receive a policy because they do not own or control the policy.
47
Q

Characteristics of Group Plans

A
  • Purpose: group created for a purpose other than to obtain group insurance.
  • Size: larger group, more accurate the projections of future loss experience (Law of Large Numbers
  • Turnover: underwriting perspective, a group should have a steady turnover: younger, lower-risk employees enter the group, and older, higher-risk employees leave.
  • Financial strength: group insurance is costly to administer, so the underwriter considers if the group has the financial resources to pay premiums and if it will be able to renew the coverage.

-Master Policy/contract issued to policy holder

48
Q

conversion privilege

A

employee terminates membership in the insured group, the employee has the right to convert to an individual policy without proving insurability at a standard rate, based on the individual’s attained age

49
Q

The employee usually has a period of ____ after terminating from the group in order to exercise the conversion option.

A

31 days. During this time the employee is still covered under the original group policy.

50
Q

Explain Credit Life Insurance:

A

special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor

  • usually written as decreasing term insurance
  • When written as a group policy, the creditor is the owner of the master policy, and each debtor receives a certificate of insurance
  • The creditor is the owner and the beneficiary of the policy
  • Credit life insurance cannot pay out more than the balance of the debt

Life Insurance (21 decks)

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