Chapter 11 Vocab (Text)

Question 1

Premature Death

Answer 1

defined as the death of a family head with outstanding unfulfilled financial obligations

Question 2

Traditional Families

Answer 2

families in which only one parent is in the labor force, and the other parent stays at home to take care of dependent children

Question 3

Blended Family

Answer 3

a family is one in which a divorced spouse with children remarries, and the new spouse also has children

Question 4

Human Life Value

Answer 4

defined as the present value of the family’s share of the deceased breadwinner’s future earnings

Question 5

Readjustment Period

Answer 5

one or two year period following the breadwinner’s death

Question 6

Dependency Period

Answer 6

follows the readjustment period; the period until the youngest child reaches age 18

Question 7

Blackout Period

Answer 7

the period from the time that Social Security survivor benefits terminate to the time the benefits are resumed

Question 8

Term Insurance

Answer 8

provides temporary insurance protection

Question 9

Reentry Term

Answer 9

term insurance policy in which renewal premiums are based on select (lower) mortality rates if the insured can periodically demonstrate acceptable evidence of insurability

Question 10

Whole Life Insurance

Answer 10

cash value policy that provides lifetime protection

Question 11

Ordinary Life Insurance

Answer 11

a level-premium policy that provides cash values and lifetime protection to age 121

Question 12

Legal Reserve

Answer 12

The excess premiums paid during the early years are accumulated at compound interest and are then used to supplement the inadequate premiums paid during the later years of the policy

Question 13

Net Amount of Risk

Answer 13

the difference between the legal reserve and face amount of insurance

Question 14

Cash-Surrender Values

Answer 14

the amount paid to a policyholder who surrenders the policy

Question 15

Limited Payment Policy

Answer 15

another type of traditional whole life insurance where the insurance is permanent and the insured has lifetime protection. The premiums are level, but they are only paid for a certain period

Question 16

Single-Premium Whole Life Insurance

Answer 16

provides lifetime protection with a single premium

Question 17

Endowment Insurance

Answer 17

pays the face amount of the insurance if the insured dies within a specified period; if the insured survives to the end of the endowment period, the face amount is paid to the policyholder at that time

Question 18

Variable Life Insurance

Answer 18

defined as a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer

Question 19

Universal Life INsurance

Answer 19

flexible premium policy that provides protection under a contract that unbundles the protection and saving components

Question 20

Indexed Universal Life Insurance

Answer 20

variation of universal life insurance with certain key characteristics; there is no minimum interest rate guarantee, additional interest may be credited to the policy based on investment gains of a specific stock market interest, there is a formula for determining the amount of enhanced interest credited to the policy, and there is often considerable consumer misunderstanding and unrealistic performance expectations under this type of policy

Question 21

Variable Whole Life Insurance

Answer 21

important variation of whole life insurance; similar to a universal life policy with two major exceptions: the p/h determines how the premiums are invested and the policy does not guarantee a minimum interest rate or minimum cash value

Question 22

Current Assumption Whole Life Insurance

Answer 22

a nonparticipating whole life policy in which the cash values are based on the insurer’s current mortality, investment, and expense experience

Question 23

Modified Life Policy

Answer 23

whole life policy in which premiums are lower for the first three to five years and higher thereafter

Question 24

Preferred Risk

Answer 24

individuals whose mortality experience is expected to be lower than average

Question 25

Second to Die Life INsurance

Answer 25

form of life insurance that insures two or more lives and pays the death benefit upon the death of the second or last insured

Question 26

Savings Bank Life Insurance (SBLI)

Answer 26

type of insurance that was sold originally by savings banks in Massachusetts, New York, and Connecticut

Question 27

Industrial Life Insurance

Answer 27

class of life insurance that was issued in small amounts; premiums were payable weekly or monthly; and an agent of the company collected the premiums at the insured’s home

Question 28

Home Service Life Insurance

Answer 28

Today’s industrial life insurance

Question 29

Group Life INsurance

Answer 29

type of insurance that provides life insurance on a group of people in a single master contract