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Life Insurance > Ch 3: Economic Basis Of life Insurance > Flashcards

Ch 3: Economic Basis Of life Insurance Flashcards

1
Q

Life insurance creates what?

A

An immediate estate.

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2
Q

What is the human life value approach?

A

The stream of income method.

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3
Q

Continuous premium whole life insurance = ?

A

Ordinary insurance

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4
Q

Group insurance is not ?

A

Ordinary insurance

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5
Q

What is a continuous premium whole life insurance?

A

Ordinary insurance

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6
Q

Group life insurance is or is not ordinary insurance?

A

Is not ordinary insurance

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7
Q

All life insurance can be broken down to three categories. What are they?

A

Ordinary insurance
Group insurance
Industrial insurance

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8
Q

What is ordinary insurance?

A

A policy written on an individual basis. Also considered permanent insurance (whole life insurance)

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9
Q

Describe the characteristics of ordinary insurance

A
  1. Face amount of at least $1,000
  2. Premiums paid to insurer on a periodic basis
  3. Policies are underwritten in an individual basis
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10
Q

What is group insurance?

A

Provides coverage for a number of people under one contract.

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11
Q

What is industrial life insurance?

A

Individual life policies sold in low face amounts (less than $1,000).

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12
Q

California code defines what as life insurance with an aggregate face amount sold to any one person and in force at one time to be an amount not exceeding $10,000.

A

Industrial life insurance

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13
Q

What is level term insurance?

A

It is when there is a level death benefit and a level premium.

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14
Q

What is decreasing term insurance?

A

When the death benefit decreases but the premium remains constant (level).

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15
Q

Credit life insurance or a mortgage is also referred to as?

A

Decreasing term

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16
Q

Mortgage redemption insurance is an example of what kind of term insurance?

A

Decreasing term insurance

17
Q

What is an increasing term insurance?

A

Term insurance where the death benefits increases at periodic intervals

18
Q

What is renewable term insurance?

A

Level death benefit, increasing premium, without proof of insurability

19
Q

What’s annual renewable term (ART)?

A

Guarantees right to renew policy each year regardless of health, but with increase in premium

20
Q

What’s convertible term insurance?

A

Allows to change from term

Insurance to permanent plan of life insurance (whole life) without proof of insurability

21
Q

What does endow mean?

A

When cash value = the face amount

22
Q

All permanent plans of life insurance will endow at what age?

A

100

23
Q

Whole life insurance contains what characteristics in regards to premium, interest, and death benefits?

A

They are all fixed

24
Q

In whole life insurance, what is cash value?

A

Premiums and interest earned.

Premiums are. If taxable, buy interest earned is taxable

25
Q

What is meant by living benefits?

A

The policy owner has use of the cash values while alive, such as borrowing or cash surrender.

26
Q

What is limited payment whole life insurance?

A

They allow for the premium to be paid over a shorter period of time.

27
Q

What is single

Premium whole life policy?

A

Policy where they are paid for with one premium payment (highest premium)

28
Q

What is indexed whole life policy?

A

When a policy has a face amount that increases automatically as CPI increases. Protects against inflation.

29
Q

Graded premium whole life policies

A

Premium payment - step approach.

Step rated premiums

Premiums lower initially (5-10 years) then premium increases each year until leveling off.

30
Q

Modified whole life policies

A

Low premium payment in early initial years. Followed by a higher premium for the life of the contract.

31
Q

A modified endowment contract has what affect on taxation?

A

Any money withdrawn prior to age 59 1/2 is subject to 10% tax penalty

32
Q

First to die policy

A

Pays death benefits to surviving insured

33
Q

Second to die policy or last survivor policy

A

Does not pay upon the first person to die (because no one is left). Purpose is for estate taxes

34
Q

Universal life

A

A flexible benefit cash value policy that earns a current rate of interest with flexible premiums

35
Q

Universal life earns a current fate of interest. What doncurrent fates consist of?

A
  1. Guaranteed interest
  2. Excess interest

Current rate is the sum of the guaranteed interest and the excess interest

36
Q

Describe the cash values of a variable life policy

A

The cash values are. Kg guaranteed as they are determined by the performance of the separate account

37
Q

What is (permenant) straight whole life?

A

Pays the face amount whenever death occurs during the entire span of life (level death benefit and level premiums)

Life Insurance (11 decks)

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