Ch 3: Economic Basis Of life Insurance

Question 1

Life insurance creates what?

Answer 1

An immediate estate.

Question 2

What is the human life value approach?

Answer 2

The stream of income method.

Question 3

Continuous premium whole life insurance = ?

Answer 3

Ordinary insurance

Question 4

Group insurance is not ?

Answer 4

Ordinary insurance

Question 5

What is a continuous premium whole life insurance?

Answer 5

Ordinary insurance

Question 6

Group life insurance is or is not ordinary insurance?

Answer 6

Is not ordinary insurance

Question 7

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

Answer 7

Ordinary insurance
Group insurance
Industrial insurance

Question 8

What is ordinary insurance?

Answer 8

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

Question 9

Describe the characteristics of ordinary insurance

Answer 9

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

Question 10

What is group insurance?

Answer 10

Provides coverage for a number of people under one contract.

Question 11

What is industrial life insurance?

Answer 11

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

Question 12

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.

Answer 12

Industrial life insurance

Question 13

What is level term insurance?

Answer 13

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

Question 14

What is decreasing term insurance?

Answer 14

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

Question 15

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

Answer 15

Decreasing term

Question 16

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

Answer 16

Decreasing term insurance

Question 17

What is an increasing term insurance?

Answer 17

Term insurance where the death benefits increases at periodic intervals

Question 18

What is renewable term insurance?

Answer 18

Level death benefit, increasing premium, without proof of insurability

Question 19

What’s annual renewable term (ART)?

Answer 19

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

Question 20

What’s convertible term insurance?

Answer 20

Allows to change from term

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

Question 21

What does endow mean?

Answer 21

When cash value = the face amount

Question 22

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

Answer 22

100

Question 23

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

Answer 23

They are all fixed

Question 24

In whole life insurance, what is cash value?

Answer 24

Premiums and interest earned.

Premiums are. If taxable, buy interest earned is taxable

Question 25

What is meant by living benefits?

Answer 25

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

Question 26

What is limited payment whole life insurance?

Answer 26

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

Question 27

What is single | Premium whole life policy?

Answer 27

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

Question 28

What is indexed whole life policy?

Answer 28

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

Question 29

Graded premium whole life policies

Answer 29

Premium payment - step approach. Step rated premiums Premiums lower initially (5-10 years) then premium increases each year until leveling off.

Question 30

Modified whole life policies

Answer 30

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

Question 31

A modified endowment contract has what affect on taxation?

Answer 31

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

Question 32

First to die policy

Answer 32

Pays death benefits to surviving insured

Question 33

Second to die policy or last survivor policy

Answer 33

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

Question 34

Universal life

Answer 34

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

Question 35

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

Answer 35

1. Guaranteed interest 2. Excess interest Current rate is the sum of the guaranteed interest and the excess interest

Question 36

Describe the cash values of a variable life policy

Answer 36

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

Question 37

What is (permenant) straight whole life?

Answer 37

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