Chapter 15: Life Insurance Policy

Question 1

Life Insurance Policies help protect against

Answer 1

financial problems associated with premature death (before age 70)

Question 2

Beneficiary

Answer 2

person designated to receive death proceeds

Question 3

Face Amount

Answer 3

listing amount of death protection on face value

Question 4

Owner

Answer 4

insured who is working and can buy for spouse or family

Question 5

Group Life Insurance

Answer 5

Insurance for members who become part of group eligible for insurance but for reasons unrelated to life insurance and related to job/career

Question 6

Credit Life Insurance and who offers

Answer 6

purchased by lender for its group of debtors. Banks unions offer this

Question 7

Individual Life Insurance

Answer 7

life insurance purchased to fit individual need of individual protection, more than what is provided in group life

Question 8

Term Life Policy

Answer 8

insurer promises to pay specific dollar amount of death protection if insured dies within specified term

Question 9

Single Year term

Answer 9

1 year policy term (renewable)

Question 10

Multi year term

Answer 10

5,10,15,20 year renewable

Question 11

Decreasing Life term policy

Answer 11

insured pays same premium over time but beneficiary received decreases as the individual is older (death increases with age)

Question 12

Level Term Life Insurance

Answer 12

Insured pays premium and receives same beneficiary at any point death occurs in period

Question 13

Renewable Term

Answer 13

continue and renew coverage up to specific age but premiums increase

Question 14

Convertible Term

Answer 14

insurer may convert term or renewable to a whole life coverage

Question 15

Uses of Life Insurance

Answer 15

may of mortgage if parents die, college education fund if kid dies, aid kids till financially dependent

Question 16

Whole Life Insurance and when paid and other name

Answer 16

pays beneficiary when death occurs. contract goes until advanced ages like 100. Pays if death, contract is maturity, cash value life insurance

Question 17

Whole Life Insurance Main Difference

Answer 17

Insurer knows eventually they will pay a claim so must collect enough premiums to cover claim

Question 18

Level Premium Concept

Answer 18

Insurers charge Higher premium over life of policy higher than cost needed to cover mortality and low to cover mortality at lower ages. Point is to invest premiums earn interest and revenue for when claim is to be paid

Question 19

Whole Life Insurance uses _____ through level premium concept

Answer 19

Cash values and savings are generated on early payment and then when mortality costs increase and the level payment is not enough the savings from earlier years offset and cover it

Question 20

Whole Life Insurance Types (3)

Answer 20

Single Premium
Continuous Premium
Limited Payment Insurance (between single and continuous)

Question 21

Single Premium Insurance

Answer 21

insurer promises to pay claim when death occurs in exchange for large premium

Question 22

Continuous

Answer 22

insured pays same premium as long as they live or up to maturity age

Question 23

limited payment insurance

Answer 23

continuous until insured dies, specifies number of payments

Question 24

Universal Life Insurance

Answer 24

provide permanent life insurance protection but more flexible in paying premiums

Question 25

What is key difference in Universal Life insurance compared to other contracts

Answer 25

with flexible premiums, insured can pay more above minimum in the beginning to accumulate cash savings account. Can use the cash savings to pay off future premiums that cost more due to higher mortality and interest rates. Insured has more control

Question 26

What is premium payment credited into and what is the equation

Answer 26

Cash value = accumulated premium deposits - expense - mortality charges

Question 27

Two components of Universal Life Insurance

Answer 27

Premium and cash value savings

Question 28

Guaranteed interest rate

Answer 28

produces a guaranteed minimum cash value, credit excess interest rate

Question 29

Universal Life Plans (2)

Answer 29

Level or variable death benefit

Question 30

Level death benefit

Answer 30

death benefit remains constant, when insured dies the insurer pays face amount and retains accumulated cash

Question 31

Insurers net amount risk

Answer 31

reflects out of pocket payment by insurer, net death after retaining cash value

Question 32

Variable death benefit

Answer 32

death benefit is initial face amount plus accumulated cash value

Question 33

Uses of universal life (3)

Answer 33

Flexibility of premiums payments
Ability to earn greater returns when interest rises
Flexibility of death benefit

Question 34

Variable Universal Life Insurance

Answer 34

Cash value life insurance designed to provide policy owners alternatives for investing cash value in whole life policies

Question 35

When does cash value develop for variable universal life

Answer 35

exceeds mortality charges and expense

Question 36

BTID

Answer 36

Buy term life insurance and invest the difference