chapter 2 general concepts

Question 1

general characteristics of term life

Answer 1

• pure protection
• lasts for specific term
• no cash value

Question 2

level premium term

Answer 2

level death benefit and level premium

Question 3

anually renewable term

Answer 3

• renews each year without proof or insurability
• premiums increase due to attained age

Question 4

decreasing term

Answer 4

coverage gradually decreases at predetermined times; best used when the need for protection declines from year to year

Question 5

increasing term

Answer 5

coverage increases each year

Question 6

features of term policies

Answer 6

• renewable - renew the policy without evidence of insurability
• convertible - right to convert a term policy to a permanent policy without evidence of insurability

Question 7

general characteristics of whole life

Answer 7

• permanent protection
• guaranteed elements (face amount, premium, and cash value) until death or age 100
• level premium
• cash value and other living benefits
• basic policy
• level death benefit
• insured pays premiums for life or until age 100

Question 8

limited payment

Answer 8

premiums paid until a certain time, coverage in effect to age 100

Question 9

single premium

Answer 9

premiums paid in one lump sum; coverage continues to age 100

Question 10

general characteristics flexible premium

Answer 10

• types of whole life insurance
• flexible premium

Question 11

universal life

Answer 11

• an insurance component in the form of annually renewable term
• 2 death benefit options: option 1 - level death benefit - option 2 - increasing death benefit
• can make partial surrender/ cash withdrawal

Question 12

variable life

Answer 12

• fixed premium, minimum death benefit
• cash value and the actual amount of death benefit are not guaranteed
• assets in separate accounts
• agents must be dually licensed in insurance and in securities

Question 13

joint life

Answer 13

• premium is based on the joint average age of the insured
• death benefit upon the first death only

Question 14

survivorship life

Answer 14

-premium is based on the joint average age of the insured
- death benefit upon the last death

Question 15

viatical settlements

Answer 15

• third party contracts
• viator receives a percentage of the policy’s face amount
• viator has a terminal illness

Question 16

annuities phases

Answer 16

• accumulation (pay-in) - payments made into the annuity
• annuitization (pay-out) - payments made to the annuitant from the annuity

Question 17

annuities parties

Answer 17

• annuitant- insured (must be a person); policy issued on annuitants’ life
• beneficiary - will receive any amount contributed to annuity (plus any gain) if annuitant dies during accumulation period
• owner - has all rights to policy (usually annuitant); can be corporation or trust

Question 18

types of annuities

Answer 18

• fixed annuities - guaranteed, fixed payment amount, premiums in general account
• variable annuities - payment not guaranteed; premiums in separate account, and invested in stocks and bonds
• indexed annuities - interest rate tied to an index; earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds

Question 19

premium payments

Answer 19

• single premium; one lump-sum payment; the principal is created immediately (both immediate and deferred annuities)
• periodic (flexible) premium - multiple payments; the principal is created over time (used for deferred annuity only)

Question 20

income payments

Answer 20

• immediate - purchased with a single premium; income payments start within 12 moths from the date of purchase
• deferred - purchased with either lump sum or periodic-payments premium; benefits start sometimes after 1 year from the date of purchase (often used to accumulate funds for retirement)