4 - Types of Life Insurance Policies

Question 1

Term Insurance

2 Main Facts.

Answer 1

1. Build no cash value
2. Cheap and affordable
   3.

Question 2

3 Types of Term Insurance

List and describe each.

Answer 2

1. Level Term
   
   • The death benefit and premiums are level for the entire term
2. Decreasing Term
   
   • Death benefit decrease but premiums remain level
   • Cheapest life insurance you can buy
   • Normally used to cover a debt (as time goes on debt decreases and so does coverage)
3. Increasing Term
   
   • Death benefit increases
   • Premium increases
   • Usually used as a rider to a cash policy
   • Used to keep pace with inflation

Question 3

Explain the renewability feature with term life insurance.

Answer 3

• Guarantees the policy will renew at the end of its term with no additional application or medical coverage
• Same coverage is maintained
• There is a step up in premium based on age

Question 4

Convertibility Feature

Describe

Answer 4

• Allows a policy owner to convert a term insurance policy to a permanent type of policy without a new application or medical exam
• The premium for the converted policy is determined by
  
  1. Attained Age - 99% of policies determine the premium based on this
  2. Original Age

Question 5

Characteristics of Whole Life Insurance

Answer 5

1. Level Premium - overpaying for risk at a younger age and underpaying at an older age
2. Fixed Premium - Policy owner selects the mode of payment (monthly/yearly) and if not paid policy will lapse
3. Fixed, Level Death Benefit - face value remains the same
4. Cash Value - reflect reserves necessary to assure payment of the guaranteed death benefit
5. Guaranteed Interest Crediting - Cash value increases by stated interest amount in the illustration
6. Policy Surrender - give up death benefit for cash surrender
7. Policy Loans - cash surrender value has loan provisions. If loans are not paid back at death taken out of death benefit
8. Death Benefit Components - Cash Value & Amount to equal face value.

Question 6

Types of Whole Life Policies

Answer 6

1. Continuous Premium
2. Limited Payout
3. Single Premium
4. Modified Premium
5. Graded Premium
6. Indeterminate Premium
7. Interest Sensitive

Question 7

Continuous premium Whole Life

Answer 7

• Premiums same each year
• If owner discontinues making premium payments they will receive the cash value

Question 8

Limited Payment Whole Life

Answer 8

• Payments are made for a limited amount of time and then policy stays in force for the rest of life
  
  • EX: premiums paid for 10-12 years
  • Premiums paid until insured is age 65
• Premiums higher
• Cash values accumulate faster

Question 9

Single-Premium Whole Life

Answer 9

• Single premium
• Immediate cash value

Question 10

Modified Premium Whole Life

Answer 10

• Lower costs during the first three to five years making it cheaper then term policy
• Then increase to a certain amount for the remainder of the life of the policy making them more expensive then continuous premium

Question 11

Graded Premium Life Insurance

Answer 11

• Have an even lower initial premium then modified whole life policies
• Then increase every 5-10 years
• Eventually leveling off for remainder fo policy

Question 12

Adjustable Life Insurance

Answer 12

• Policy owner can adjust face value/death benefit, premium, and length of coverage without having to change the policy
• Term and whole life can be bundled together

Question 13

Universal Life

Describe what it is and the two different options.

Answer 13

• Flexible Premiums
• Flexible Coverage
• Premiums added to the cash value minus term cost of insurance and administrative fee
• Monthly interest credited to the cash value at a guaranteed rate or current rate (whichever is greater)
• Option A/1
  
  • Cash values grow faster
  • Level death benefit equal to policy face value (therefore more cash is placed in the cash account
• Option B/2
  
  • Increasing death benefit equal to the face value of the policy plus the cash account
  • more of the premium is applied to the higher cost of the increasing death benefit over the life of the policy

Question 14

Equity Indexed Universal Life Insurance

Answer 14

• Tied to the stock market index
• Still has a guaranteed interest rate

Question 15

Variable Life

Answer 15

• Seperate account is invested
• Guaranteed minimum death benefit - if investments do better then it can go up
• With variable products
  
  1. Life insurance licensed
  2. Securities licensed
  3. Present prospectus
  4. Suitability

Question 16

Variable Universal Life

Answer 16

• Flexible Premium
• No minimum guaranteed DB
• Could be a situation where you are required to put in cash to keep in force
• Option 1
  
  • Death benefit remains level regardless of increases or decreases in the cash value
• Option 2
  
  • DB varies with the fluctuating cash values
    *

Question 17

Comparison of Life Insurance Policies

Answer 17

Question 18

Joint Life Policies

Answer 18

• First to Die
  
  • Less than the cost of two individual policies
• Second to Die (survivorship)
  
  • Husband and wife
  • Estate Planning
  • ILIT - get assets out of the estate

Question 19

Juvenile/Jumping Juvenile Policies

Answer 19

• On the life of a juvenile
• lock in low premiums for the life of the juvenile
• Jumping juvenile - death benefit increases automatically when the juvenile reached 18 or 21

Question 20

When are life insurance riders added to policies?

Answer 20

When the policy is written

Question 21

Waiver of Premium

What is it and how does it work.

Answer 21

• Life Insurance Rider
• Insured and owner are same
• waives premium in case of disability
• Insured pays the premium during the waiting period though but the company will reimburse after
• The company pays the premium after the waiting period
• Insured pays premiums when the disability ends

Question 22

Payor Benefit Ryder

What is it?

Answer 22

• Policy Ryder for Juvenile policies
• If payor becomes disabled the premium payments will stop until the child reaches 18 or 21