Chapter 2: Insurance Policies And Annuities Flashcards
What is another name for term life insurance?
1.) Purelife insurance
*this is because term life insurance is PURELY life insurance, no cash value, investments etc…
What are the 3 characteristics of pure death protection? (Purelife insurance/term insurance)
1.) Policy pays beneficiary if insured dies during term
2.) If the policy is canceled/expired prior (before) death, nothing is payable at the end
3.) There is no cash value or living benefits
What insurance provides the greatest amount of coverage for the lowest premium?
Term insurance
In level term insurance, what is the word level referring too?
The death benefit
What is Annually Renewable Term?
(ART) is the purest form of insurance because it renews every year without proof of insurability. And every year the premium goes up
True or False: Annual Renewable Term provides the lowest initial premium
True: premium starts off low INITIALLY but increases every year
What is decreasing in a decreasing term policy?
The death benefit
What are decreasing term policies typically used for?
Mortgage/debt
In decreasing term, why does the death benefit reach $0 at the end of the policy term?
The death benefit is used to pay off mortgage or debt
What stays level and what increases in an increasing term policy ?
The premium stays level and the death benefit increases
What is an advantage of an increasing term policy?
An increasing term policy can keep up with inflation
How much more is a Return of Premium policy? (ROP)
25% - 50% more
How does Return of Premium (ROP) work?
If insured lives past the term, the insurer with pay back the premium that insurer payed. The insurer also invests the excess funds and keeps it for themselves
When converting or renewing a policy Joe are premiums usually determined?
By age
When converting what is being converted?
A term policy to a whole life policy
Does the insured need evidence of insurability to renew or convert a policy?
No
What are the 4 characteristics of whole life insurance? (Aka permanent life insurance)
1.) Lasts up to 100 years old
2.) Provides insurance + savings (cash value)
3.) Level premium
4.) Living benefits
What is another name for cash value?
Nonforfeiture value
When does cash value usually start to accumulate and is it tax deferred?
1.) Cash value starts to accumulate on the 3RD POLICY YEAR
2.) YES, it is tax deferred
What are the 3 types of whole life insurance?
1.) Ordinary Whole Life
2.) Limited Payment
3.) Single Premium
What are 2 other names for Ordinary Whole Life Insurance?
1.) Straight Life
2.) Continous Premium Whole Life
In Straight Life, how long is the premium paid for?
1.) Until 100 years old
2.) Until death
In a LIMITED pay WHOLE LIFE policy, how long will the insured have to pay if they have a 20-pay life policy?
20 years
How often is the premium paid in a single premium whole life policy?
Once
Which whole life policy is more expensive? A straight life policy or a 30-pay life policy?
30-pay life policy
*the less payments, the more expensive they are
What is the purpose of Adjustable Life Insurance?
To allow someone to have either a term or whole life policy by giving the insured the option to increase the premium, premium paying period, face amount (death benefit), or period of protection
In an Adjustable Life Policy, when will proof of insurability be needed when converting?
1.) When increasing the death benefit
2.) Decreasing premium
In an Adjustable Life Insurance policy, when does the cash value start to develop?
The cash value develops when the premium paid exceeds the cost of the policy
What is another name for Universal Life Insurance?
Flexible Premium Adjustable Life
In Universal Life, what does the insured have the option to increase/decrease?
The premium
In a Universal Life policy, what will happen if the policy owner skips paying a premium?
Policy will not lapse as long as the cash value has enough to cover the premium
What are the two premiums offered in Universal Life Insurance?
1.) Minimum
2.) Target
What is a minium premium?
In a Universal Life policy, the minimum premium is the amount to keep the policy going
What will happen if you pay the minimum premium?
The policy will perform like an annually renewable term policy, in which the price of the premium will increase every year
What is the target premium?
The recommended amount to keep the policy going
What is an important component of the insurance aspect in Universal Life?
It will always be annually renewal term
What is another name for partial withdrawal?
Partial surrender
What is a partial withdrawal?
Allows policyholder to withdrawal money from cars value without paying it back, but in return will subtract that amount withdrawn from death benefit
What are the two death benefit options Universal like offers?
1.) Level death
2.) Increasing death
