512 - Module 3

Question 1

Additional payout for accidental death. No longer double indemnity.

Answer 1

Accidental death benefit (ADB) rider

Question 2

Built on the whole life insurance chassis and provides policyowners the option of making various adjustments to the policy as their needs change.

Answer 2

Adjustable life

Question 3

Dividends are paid to policyowners in cash.

Answer 3

Cash option

Question 4

Increases the benefit by inflation rates each year.

Answer 4

Cost of living rider

Question 5

Part of the contract that includes name of the insured and owner, type of policy, amount of insurance, policy date, date of issue, riders, and the premium schedule.

Answer 5

Declarations page

Question 6

Term life in which the premium remains level but the amount of death benefit decreases. Usu. for home mortgages, so typically 15-year or 30-year policies.

Answer 6

Decreasing term insurance

Question 7

Based on the accumulation of funds for more than a year, rather than immediate payment of benefits.

Answer 7

Deferred annuity

Question 8

Payouts begin at a later date, more than a year later.

Answer 8

Deferred income annuity (DIA)

Question 9

Covers the life insurance premium if the policyowner becomes temporarily or permanently disabled.

Answer 9

Disability waiver of premium rider

Question 10

Policy in which the death benefit and cash surrender value are equal at a specific date.

Answer 10

Endowment policy

Question 11

Fixed permanent life policy that provides a minimum fixed interest rate, but use an index option to potentially earn better returns than the guaranteed rate.

Answer 11

Equity-indexed universal life (EIUL)

Question 12

Use of policy dividends to buy a one-year term policy that increases the death benefit without new underwriting.

Answer 12

Fifth dividend option

Question 13

Policy pays the face amount on the death of the first of two or more covered persons. May be used to fund buy-sell agreements in business partnerships.

Answer 13

First-to-die

Question 14

Simplest annuity, funded by single payment (SPDA) or many payments (FPDA), that offers a fixed interest rate minimum that will be credited on the account value.

Answer 14

Fixed annuities

Question 15

Premiums received within 30 days after the due date are treated as though received on time. If not received in that time, the policy will lapse.

Answer 15

Grace periods

Question 16

Whole life policy that starts with a low premium that raises each year for 5-7 years before leveling off.

Answer 16

Graded premium life

Question 17

Life insurance rider that permits policyowners to purchase more life insurance on a younger insured at specified times and in specified amounts without providing evidence of insurability up to a specified age limit, usu 40.

Answer 17

Guaranteed insurability option

Question 18

Most popular rider, guarantees the right to withdraw up to the specified percentage each year for life. Guaranteed compounding ends at first withdrawal or at 10 years. Important to know that date.

Answer 18

Guaranteed lifetime withdrawal benefit (GLWB)

Question 19

Rider that guarantees there will be a minimum account value at the end of a specified guaranteed date.

Answer 19

Guaranteed minimum accumulation benefit (GMAB)

Question 20

Rider that guarantees a minimum income to the annuitant, regardless of adverse investment performance. May require annuitization of the contract.

Answer 20

Guaranteed minimum income benefit (GMIB)

Question 21

Rider that guarantees that either a return of principal or payout of a protected amount through systematic withdrawals over a specified time period in years (not life expectancy).

Answer 21

Guaranteed minimum withdrawal benefit (GMWB)

Question 22

Annuity that provides income as long as either one of two people survive.

Answer 22

Joint and survivor

Question 23

Proceeds are paid out in equal payments over the lifetime of the recipient and provides the maximum income that would be guaranteed not to run out as long as the annuitant lives.

Answer 23

Life income option

Question 24

Any type of product sold by agents who do not earn commissions, such as fee-based financial planners.

Answer 24

Low-load life insurance

Question 25

Policyowner deposits the equivalent of more than total net annual premium payments at any time during the first seven years. Withdrawals taxed as ordinary income, 10% early withdrawal penalty, and death benefit is tax-free.

Answer 25

Modified endowment contract (MEC)

Question 26

Whole life policy that is preceded by a period of term life insurance with lower premiums for a number of years. Sometimes used for children, then converts to whole life at a particular age. (18-25)

Answer 26

Modified whole life

Question 27

Provide a benefit payable to the policyowner if they discontinue premiums before the death of the insured.

Answer 27

Nonforfeiture options

Question 28

Dividend is used to buy one-year term insurance.

Answer 28

One-year term option

Question 29

Dividend is used to purchase small amounts of additional insurance that require no further payments, without additional underwriting.

Answer 29

Paid-up additions option

Question 30

The specific percentage of the index gain that is credited to the policy

Answer 30

Participation rate

Question 31

Rights within a fixed annuity contract to withdraw a certain amount without penalty (usu 10%).

Answer 31

Penalty-free withdrawals

Question 32

The minimum number of years that payments will be made, even if the recipient dies.

Answer 32

Period certain

Question 33

Waiver of premium for "loss of use" of specific named parts of the body (eyes, hands, feet).

Answer 33

Presumptive disability

Question 34

Provided with Variable Life products, which will include all info found in a mutual fund version, including the charges for fund management and admin.

Answer 34

Prospectus

Question 35

Provide an income stream that begins at an advanced age and continues throughout the individual's life. Up to 25% of a 401k can be put here without the need for RMDs.

Answer 35

Qualified longevity annuity contracts (QLACs)

Question 36

Limits the interest an EIUL can earn by placing an upper limit on the credited rate.

Answer 36

Rate cap

Question 37

Used to avoid forfeiture, cash value is used to purchase reduced death benefit as a single premium policy, with no further premiums due.

Answer 37

Reduced paid-up insurance

Question 38

Any dividends earned will reduced the amount of the annual premium due.

Answer 38

Reduced premium option

Question 39

Policy that allows the insured to be underwritten every 5 years or so, and the rate goes up or down accordingly.

Answer 39

Reentry term

Question 40

Like EIAs, these use an index/call option crediting strategy to determine the cash value of an annuity, but use participation rates and caps to limit the annuity holder's overall participation in market upswings.

Answer 40

Registered index-linked annuity (RILA)

Question 41

After policy lapse, the owner may reinstate it by paying all back premiums, paying off or reinstating policy loans, and providing proof of insurability satisfactory to the company. No coverage during lapse, and some companies begin a new full-term contestable period.

Answer 41

Reinstatement clause

Question 42

Internal Revenue Code says qualified policies for life insurance, annuities and LT care can be exchanged for another without tax consequences. Exception is LTC/annuity to life insurance.

Answer 42

Section 1035 exchange

Question 43

Provides guaranteed income for the life of the annuitant, starts one month after purchase and continues for life.

Answer 43

Single premium immediate annuity (SPIA)

Question 44

Lump sum premium is paid, no further premiums needed. Special tax rates apply, as these are Modified Endowment Contracts (MECs)

Answer 44

Single premium whole life

Question 45

Allows a small amount of term coverage for a spouse or child on a policyowner's cash value policy.

Answer 45

Spouse or children's rider

Question 46

Annuity that will pay one amount as long as either person is alive.

Answer 46

Straight joint and survivor

Question 47

Basic annuity that pays for life once annuitized.

Answer 47

Straight life annuity

Question 48

The risk of running out of money before you die.

Answer 48

Superannuation

Question 49

When a mutual life insurance company has revenues in excess of expenses.

Answer 49

Suplus

Question 50

Policies that use a combination of term and cash value life insurance to cover more than one individual.

Answer 50

Surivorship life plans

Question 51

Joint life policies covering more than one individual.

Answer 51

Survivorship policies

Question 52

Life insurance that covers for a set number of years, cheap with no cash value.

Answer 52

Term life insurance

Question 53

Whole life policyowners can add a term policy for lower premiums because the underwriting is already done. Good for covering mortgage needs.

Answer 53

Term rider

Question 54

Gives policyowners the ability to adjust the premium, death benefit, and cash value to meet their goals.

Answer 54

Universal life (UL)

Question 55

Gives policyowners the ability to adjust the premium, death benefit, and cash value to meet their goals.

Answer 55

Universal life insurance

Question 56

Designed with the belief that the equities market will outperform inflation and fixed interest rate investments over time. Premium payments purchase units of a subaccount that reflects market performance.

Answer 56

Variable annuity

Question 57

Designed to combine the protection and savings functions of traditional life insurance with the growth potential of mutual fund type investments.

Answer 57

Variable life (VL)

Question 58

Flexibility of UL with investment selection of VL. However, it guarantees only the mortality rate and the right to keep the policy in force by paying whatever premiums are required to do so, should the cash value decline. Savvy investors only, due to expense and risk.

Answer 58

Variable universal life (VUL)

Question 59

Arrangement where a terminally ill person sells his life insurance policy at a discount from its face value for current cash.

Answer 59

Viatical settlement

Question 60

Provides a guaranteed death benefit for the life of the insured and requires premium payments to be made until death or policy maturity.

Answer 60

Whole life insurance