8.2

Question 1

Whole life insurance is also known as ______.

Answer 1

Ordinary, permanent, or straight-life.

Question 2

Whole life insurance provides coverage for an individual’s whole life, ______. Over the life of a whole life policy, both the ______ remain level and the death benefit is guaranteed to the beneficiary.

Answer 2

rather than a specified term (provided he or she continues to make premium payments).

face amount and premium

Question 3

An important feature of whole life insurance that is not associated with term life insurance is that a whole life policy ______.

Answer 3

includes an investment component which accumulates ‘cash value’ and increases over time based on earned interest

Question 4

A whole life policy’s Cash Value is considered a ______, allowing the policyowner to take out a loan from the life insurer against the policy’s accumulated cash value, or use it as ______.

Answer 4

living benefit

collateral on a loan

Question 5

With a whole life policy, a portion of the premium pays for the insurance and the rest ______. The policyowner can borrow against the cash value, and technically is not required to repay the loan; however, any unpaid loans on the policy’s cash value equally reduce ______.

Answer 5

accumulates tax deferred in a cash value account

the death benefit of the policy

Question 6

Whole life insurance policies also include a ‘cash surrender’ value, called the ______, allowing the policyowner to recover part of the premium invested in the policy if he or she stops making premium payments and forfeits ownership of the policy.

Answer 6

Nonforfeiture Value

Question 7

Compared to term life insurance which provides coverage for a specified period of time, whole life insurance covers the ______. However, whole life insurance matures at age 100, meaning that once the insured has reached age 100, his or her policy is considered to be paid in full and the insurer’s obligation to provide coverage ends.

Answer 7

whole life of the insured

Question 8

Whole life premium rates are based on______, which is also the age in which the policy’s cash value has accumulated to the face amount of the policy. Upon reaching age 100, the insurer provides the policy’s full face amount (the policy’s accumulated cash value) to the policy’s owner or designated beneficiary.

Answer 8

the policy’s maturity at age 100

Question 9

As with term life insurance, whole life policies vary in how premiums are paid into the policy, whether it be a continuous premium, referred to as ______, limited payments or a single payment. In addition, whole life insurance policies can be based on current interest rate trends, or combined with term life insurance to provide consumers with a more ______ to traditional straight life policies.

Answer 9

‘straight life,’

affordable alternative

Question 10

Considered to be the most common type of whole life insurance sold, with a ______ policy, a policyowner stretches his or her premium installments over the life of the policy (to age 100 or death, whichever comes first). Premium installments are both ______ throughout the policyowner’s life.

Answer 10

Continuous Premium (Straight Life)

continuous and level

Question 11

Concerning Limited Payment, premium installments are paid for a limited period of time while guaranteeing coverage for the life of the policyowner. Since the premiums are paid over a shorter period of time, the premium payments ______ than under an ordinary whole life policy. Cash values also build quicker than straight life policies.

Answer 11

will be higher

Question 12

Limited-payment policies are based on a predetermined number of years such as a 20-payment (20-pay) or 30-payment (30-pay) policy, or are based on ______. While life insurance continues on the insured until death (or age 100), the policyowner is limited in payments towards the life policy.

Answer 12

age such as a ‘Life paid up at age 65’ policy.

Question 13

A ______ policy is a type of limited-payment whole life policy with a single lump-sum premium payment which is payable at the time the policy is issued. Though it is a large initial expense, overall it is less expensive than the accumulation of periodic installments over the life of the policy.

Answer 13

single premium

Question 14

A Current Assumption policy, also known as ______, this type of policy differs from an ordinary whole life policy where premiums remain level.

Answer 14

Interest-Sensitive Whole Life

Question 15

With a current assumption whole life policy, premium payments are flexible and can increase or decrease by the insurer (annually) based on ______ that result in higher or lower mortality rates or investment returns to the insurer. When an insurer experiences high rates of return, premium rates are generally reduced. When the insurer experiences lower than average rates of return, premium rates are generally increased. Premium adjustments are usually made on an ______ basis to compensate for this market fluctuation.

Answer 15

current interest rate trends

annual

Question 16

An Economatic Policy, also known as Enhanced Ordinary Life or Extra Ordinary Life, this insurance option, offered by some mutual companies, allows a policyowner to ______ through the combination of a whole life and term life policy.

Answer 16

maintain a higher insurance death benefit at a lower premium

Question 17

As an example of an Economatic Policy, let’s say that a policyowner wants to purchase a $250,000 whole life policy but cannot afford the required premium. He or she could simply purchase a ______ policy in addition to a lesser face value whole life policy.

Considering that term life insurance is less costly than whole life insurance, the policyowner could purchase a $150,000 whole life policy and also purchase a $100,000 term life policy with a combined death benefit of the desired $250,000. Since $100,000 of the death benefit is under a term life policy, which is cheaper than a $100,000 whole life policy, the overall cost of the combined whole life and term life premiums equate to less than a straight $250,000 whole life policy.

As the whole life policy matures, dividends paid to the policyowner from the whole life policy will be used to purchase paid-up additions to the whole life policy, and at the same time, the policyowner will decrease the face amount of the term life policy so that the policyowner never exceeds a combined $250,000 death benefit.

Eventually, the term life policy will ______ and the dividends from the whole life policy will allow the policyowner to purchase enough paid-up additional insurance so that the whole life policy equals the desired $250,000.

Answer 17

level or decreasing term life

decrease to zero

Question 18

Essentially, this type of affordable whole and term life insurance option allows a policyowner to purchase a larger overall death benefit at a more affordable rate than a straight life policy.

Answer 18

Economatic or Enhanced Ordinary Life or Extra Ordinary Life