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Life Insurance > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

the insured’s age at the time the policy is issued or renewed

A

Attained age

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2
Q

a policy’s savings element or living benefit

A

Cash value

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3
Q

the amount of benefit stated in the life insurance policy

A

Face amount

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4
Q

withheld or postponed until a specified time or event in the future

A

Deferred

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5
Q

the cash value of a whole life policy has reached the contractual face amount

A

Endow

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6
Q

the premium that does not change throughout the life of a policy

A

Level premium

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7
Q

converting a person’s net worth into a cash flow

A

Liquidation of an estate

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8
Q

benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

A

Nonforfeiture values

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9
Q

in life policies, the time when the face value is paid out

A

Policy maturity

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10
Q

financial instruments that may trade for value (for example, stocks, bonds, options)

A

Securities

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11
Q

What type of insurance provides the greatest amount of coverage for the lowest premium?

A

Term Insurance

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12
Q

What are the 3 types of Term Insurance

A

Level, Increasing, Decreasing

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13
Q

What is the most common type of temporary protection purchased

A

Level Term Insurance

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14
Q

What does the word “level” refer to in Level Term Insurance?

A

The wordlevelrefers to the death benefit that does not change throughout the life of the policy.

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15
Q

What type of Level Term Insurance is it when the premium increases annuallyaccording to the attained ageas the probability of death increases?

A

Annually Renewable Term(ART) “purest form of term insurance”

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16
Q

What type of Level Term Insurance policy features a level premium and a death benefit that decreases each year over the duration of the policy term?

A

Decreasing Term

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17
Q

Anincreasingterminsurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid is called what?

A

Return of Premium (ROP)

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18
Q

What does therenewableprovision allow the policyowner?

A

The right to renew the coverage at the expiration datewithout evidence of insurability. The premium for the new term policy will be based on the insured’s current age

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19
Q

What does theconvertibleprovision provide?

A

The right to convert the policy to a permanent insurance policywithout evidence of insurability. The premium will be based on the insured’s attained age at the time of conversion.

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20
Q

What is Permanent Life Insurance?

A

A general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid.

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21
Q

What is the most common type of Permanent Life Insurance?

A

Whole Life Insurance

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22
Q

What is Whole Life Insurance?

A

A policy that provides lifetime protection, and includes a savings element (or cash value).

23
Q

When do Whole Life Policies Endow?

A

at the insured’sage 100, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age 100.

24
Q

Are premiums for whole life policies usually higher than for term insurance?

A

Yes

25
Q

What are the 4 key characteristics of Whole Life Insurance?

A

Level Premium, Death Benefit, Living Benefits, Cash Value

26
Q

What are the three basic forms of whole life insurance?

A

straight whole life, limited-pay whole life, and single premium whole life

27
Q

What is the basic whole life policy where the policyowner pays the premium from the time the policy is issued until the insured’s death or age 100 (whichever occurs first).

A

Straight Life (also known as Ordinary LifeorContinuous Premium Whole Life

28
Q

What type of whole life is designed so that the premiums for coverage will be completely paid-up well before age 100?

A

Limited-Pay Whole Life

29
Q

Who are Limited-pay policies are well suited for?

A

Insureds who do not want to be paying premiums beyond a certain point in time.For example, an individual may need some protection after retirement, but does not want to be paying premiums at that time. A limited-pay (paid-up at 65) policy purchased during the person’s working years will accomplish that objective.

30
Q

Single premium whole life(SPWL)?

A

is designed to provide a level death benefit to the insured’s age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash.

31
Q

What is an Adjustable Life policy?

A

can assume the form of either term insurance or permanent insurance. The insured typically determines how much coverage is neededand the affordableamount of premium. The insurer will then determine the appropriate type of insurance to meet the insured’s needs. As the insured’s needs change, the policyowner can make adjustments inthe policy.

32
Q

What is Universal life insurance (also known as Flexible Premium Adjustable Life)

A

the policyowner has the flexibility to increase the amount of premiumpaid into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance. If the cash value is too small, the policy will expire.
Since the premium can be adjusted, the insurance companies may give the policyowner a choice to pay either of the two types of premiums:

33
Q

What is the the amount needed to keep the policy in force for the current year called?

A

Minimum Premium

34
Q

What is the recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime called?

A

Target Premium

35
Q

What are the two components of a Universal Life Policy?

A

Insurance Component, Cash Amount

36
Q

The insurance component of a universal life policy is always…

A

annually renewable term insurance

37
Q

What type of policies allow thepartialwithdrawal(partialsurrender) of the policy cash value?

A

Universal Life Policies

38
Q

What is Option A (Level Death Benefit option)?

A

The death benefit remains level while the cash value gradually increases, thereby lowering thepure insurancewith the insurer in the later years. The pure insurance is decreasing as time passes, lowering the expenses,and allowing for greater cash value in the older years

39
Q

What is Option B (Increasing Death benefit Option)?

A

the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. Since thepure insurancewith the insurer remains level for life, the expenses of this option are much greater than those for Option A, thereby causing the cash value to be lower in the older years (all else being equal).

40
Q

What is Variable lifeinsurance (sometimes referred to asvariable whole life insurance) ?

A

a level, fixed premium, investment-based product. Like traditional forms of life insurance, these policies have fixed premiums and a guaranteed minimum death benefit. The cash value of the policy, however, is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in variable contracts.

41
Q

Because the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract are held where?

A

In a separate account which invests in stocks, bonds, and other securities investment options. Any domestic insurer issuing variable contracts must establish one or more separate accounts.

42
Q

What is Variable Universal Life?

A

a combination of universal life and variable life. Like universal life, it provides the policyowner with flexible premiums and an adjustable death benefit. Like variable life, the policyowner rather than the insurer, decides where the net premiums (cash value) will be invested. Also, like variable life, the cash values are not guaranteed, and the death benefit is not fixed. The cash value and/or death benefit may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. The death benefit, however, generally cannot decrease below the initial face amount of the policy

43
Q

A producer must belicensed for both _______ and ______ insurancein order to sell variable universal life.

A

Securities and Life

44
Q

What is Interest-sensitive Whole Life (also known as current assumptionlife)

A

a whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals. In addition, interest-sensitive whole life policies credit the cash value with the current interest rate that is usually comparable to money market rates, and can be higher than the guaranteed levels. The policy also provides for a minimum guaranteed rate of interest.
Interest-sensitive whole life provides the same benefits as other traditional whole life policies with the added benefit of current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period.

45
Q

What is the main feature ofIndexedWhole Life(or Equity Index Whole Life)?

A

The cash value is dependent upon the performance of the equity index, such as S&P 500although there is a guaranteed minimum interest rate. The policy’s face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability.

46
Q

If the policyowner assumes the risk in a Indexed Whole Life Policy, do the premiums increase or remain level the face amount?

A

Increase

47
Q

If the insurer assumes the risk in a Indexed Whole Life Policy, do the premiums increase or remain level the face amount?

A

Level

48
Q

What is a Joint (Whole) Life policy ?

A

a single policy that is designed to insure two or more lives.

49
Q

What are the two major exceptions for joint whole life that differentiate it from an individual whole life policy?

A
  • The premium is based on ajoint average agethat is between the ages of the insureds; and
  • The death benefit is paid upon thefirst death only.
50
Q

What Joint Lifepolicy pays on the last deathrather than upon the first death?

A

Survivorship Life (also referred to as “second-to-die” or “last survivor” policy)

51
Q

Joint Life = _____ to die

A

first

52
Q

Survivorship Life = ______ to die

A

second (last survivor)

53
Q
A

Life Insurance (2 decks)

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