31 - Insurance Policy and Company Selection Flashcards
What is the surrender cost index (SCI)?
- An index that establishes the guaranteed cash surrender value of a life insurance policy, which is shown to potential insureds. The index gives the value of the policy if surrendered at the 10- or 20-year mark, with interest on any applicable dividends calculated at 5 percent.
- Surrender cost index is important if the cash value levels are the most significant feature that one is considering in availing for life insurance. This index helps the individual to compare costs if he would choose to surrender the policy in the future and to collect the cash value.
What is the net payment cost index (NPCI)?
Net payment cost index, is useful if one’s primary concern is the amount of death benefits provided in the policy. It is helpful in comparing future costs, such as in 10 to 20 years, if one will continue to pay premiums and do not take the policy’s cash value.
What is the main difference between the surrender cost index (SCI) and the net payment cost index (NPCI)?
The NCPI does not take into account the policy’s cash value.
When determining the appropriate types of life insurance polices to cover the life insurance need for a client with a low risk tolerance, why might just buying a a whole life policy for the total need not be the right suggestion?
Because among that amount of total need may be some items that are temporary, such as the amount needed to pay off a mortgage. That will go away on its own eventually, eliminating that need, so in the meantime, a term policy can help handle limited duration needs while a whole life can insure the remaining, permanent needs.
What are the four types of risk?
- Pure risk
- Speculative risk
- Subjective risk
- Objective risk
What type of risk is insurable?
Pure risk
What is true of the probability and severity of loss for the risks that insurance is used to cover?
Insurance covers LOW probability, HIGH severity risks.
