Chapter 2: Types of Life Policies Flashcards
______ is temporary protection because it only provides coverage for a specific period of time. It also known as pure life insurance.
Term Insurance
______ policies provide the greatest amount of coverage for the lowest premium as compared to any other form of protection.
Term
Term insurance provides what is known as ______:
- If the insured dies during this term, the policy pays the death benefit to the beneficiary.
- If the policy is canceled or expires prior to the insured’s death, nothing is payable at the end of the term.
- There is no cash value or other living benefits.
Pure Death Protection
There are three basic types of term coverage available, based on how the ______ (______) changes during the policy term:
- ______
- ______
- ______
- Face Amount
- Death Benefit
- Level
- Increasing
- Decreasing
Regardless of the type of term insurance purchased, the ______ is level throughout the term of the policy; only the amount of the ______ may fluctuate, depending on the type of term insurance.
- Premium
2. Death Benefit
______ is the most common type of temporary protection purchased and refers to the death benefit that does not change throughout the life of the policy.
Level Term Insurance
______ term provides a level death benefit and a level premium during the policy term. For example, a $100,000 10-year policy will provide a $100,000 death benefit if the insured dies any time during the 10-year period.
Level Premium
______ is the purest form of term insurance. The death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually to the attained age, as the probability of death increases.
Annually Renewable Term (ART)
______ policies feature a level premium and a death benefit that decreases each year over the duration of the policy term. It is primarily used when the amount of needed protection is time sensitive, or decreases over time.
Decreasing Term
______ coverage is commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely.
Decreasing Term
______ life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid, either if the death occurs within a specified period of time or if the insured outlives the policy term.
Return of Premium (ROP)
Most ______ policies are renewable, convertible, or renewable and convertible (R&C).
Term Insurance
The ______ provision allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability. The premium for the new term policy will be based on the insured’s ______.
- Renewable
2. Current Age
The ______ provision provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. The premium will be based on the insured’s attained age at the time of ______.
- Convertible
2. Conversion
______ life insurance is 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 ______) as long as the premium is paid.
- Permanent
2. 100
______ insurance provides lifetime protection, and includes a savings element (or cash value). These policies endow at the insured’s age ______, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at that age.
- Whole Life
2. 100
The ______ key characteristic of a whole life insurance policy means that the premium is based on the issue age; therefore, it remains the same throughout the policy.
Level Premium
The ______ key characteristic of a whole life insurance policy means that the *______ is guaranteed and remains level for life.
Death Benefit
The ______ key characteristic of a whole life insurance policy means that the *______, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policyowner.
Cash Value
The ______ key characteristic of a whole life insurance policy means that the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered.
Living Benefits
______ provides lifetime (permanent) protection and accumulates cash value.
Whole Life Insurance
The three basic forms of whole life insurance are ______ whole life, ______ whole life, and ______ whole life; however, other forms and combination plans may also be available.
- Straight
- Limited-Pay
- Single Premium
______ (also referred to as ______ or ______ whole life) is the basic whole life policy. The policyowner pays the premium from the time the policy is issued until the insured’s death or age 100 (whichever occurs first). Of the common whole life policies, this policy will have the ______ annual premium.
- Straight Life
- Ordinary Life
- Continuous Premium
- Lowest
______ whole life is designed so that the premiums for coverage will be completely paid-up well before age 100.
Limited-Pay
______ whole life 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.
Single Premium (SPWL)
Which type of insurance?
Type of protection: Temporary
Premium: Level
Death Benefit: Level, Increasing, or Decreasing
Living Benefits: Not available
Term Life
Which type of insurance?
Type of protection: Permanent until age 100
Premium: Level
Death Benefit: Level
Living Benefits: Cash values, policy loans, nonforfeiture values
Whole Life
A(n) ______ policy can assume the form of either term or permanent insurance. Typically, the policyowner has the following options:
- Increase or decrease the premium or the premium-paying period.
- Increase or decrease the face amount.
- Change the period of protection.
Adjustable Life
______ insurance is also known by the generic name of flexible premium adjustable life. That implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again.
Universal Life
In a(n) ______ insurance policy, the policyowner may 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.
Universal Life
The ______ is the amount needed to keep the Universal Life policy in force for the current year. Paying this will make the policy perform as an annually renewable term product.
Minimum Premium
The ______ is a recommended amount that should be paid on a Universal Life policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
Target Premium
A universal life policy has two components: a(n) ______ and a(n) ______. The ______ of a universal life policy is always annually renewable term insurance.
- Insurance Component
2. Cash Account
Universal life policies allow the partial ______ (partial ______) of the policy cash value, which will reduce the death benefit by the amount taken.
- Withdrawal
2. Surrender
Universal life offers one of two death benefit options to the policy owner. Option A is the ______ death benefit option and Option B is the ______ death benefit option.
- Level
2. Increasing
Under ______ (______ Death Benefit option) of a Universal Life policy, the death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years.
- Option A
2. Level
Under ______ (______ Death Benefit option) of a Universal Life policy, 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.
- Option B
2. Increasing
______ insurance is a level, fixed premium, investment-based product. These policies have fixed premiums, a guaranteed minimum death benefit, and a non-guaranteed, fluctuating cash value.
Variable Life
______ is 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.
Variable Universal Life
A producer must be licensed for both ______ and ______ in order to sell variable universal life.
- Securities
2. Life Insurance
Variable life insurance products are dually registered by the ______ and ______ Government.
- State
2. Federal
Variable contracts are considered ______, and are thus regulated by ______ and ______. Variable life insurance is also regulated by the Insurance Department as an insurance product.
- Securities
- the SEC
- FINRA
______ whole life, also referred to as ______ life, is a whole life policy that provides a guaranteed death benefit to age 100. This policy 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.
- Interest-Sensitive
2. Current Assumption
The main feature of ______ whole life (or ______ whole life) insurance is that the cash value is dependent upon the performance of the equity index, such as S&P 500, although there is a guaranteed minimum interest rate. The policy’s face amount increases annually to keep pace with inflation without requiring evidence of insurability.
- Indexed
2. Equity Index
If the policyowner of indexed life insurance plan assumes the inflation risk, the policy premiums ______ with the increases in the face amount. If the insurer assumes the risk, the premium remains ______.
- Increase
2. Level
Which policy?
Key Features: Can be Term or Whole Life; can convert from one to the other
Premium: Can be increased or decreased by policyowners
Face Amount: Flexible; set by policyowner with proof of insurability
Cash Value: Fixed rate of return; general account
Policy Loans: Can borrow cash value
Adjustable Life
Which policy?
Key Features: Permanent insurance with renewable term protection component
Premium: Flexible; minimum or target
Face Amount: Flexible; set by policyowner with proof of insurability
Cash Value: Guaranteed at a minimum level; general account
Policy Loans: Can borrow cash value
Universal Life
Which policy?
Key Features: Permanent insurance
Premium: Fixed (if Whole Life); flexible (if Universal Life)
Face Amount: Can increase or decrease to a stated minimum
Cash Value: Not guaranteed; separate account
Policy Loans: Can borrow cash value
Variable Life
______ is a single policy that is designed to insure two or more lives. These policies can be in the form of term insurance or permanent insurance.
Joint Life
Joint whole life functions similarly to an individual whole life policy with two major exceptions:
- The premium is based on a(n) ______ that is between the ages of the insureds.
- The death benefit is paid upon the ______ only.
- Joint Average Age
2. First Death
______ policies are used when there is a need for two or more persons to be protected; however, the need for the insurance is no longer present after the first of the insureds dies.
Joint Life
Premium rates on a(n) ______ policy are determined by averaging the ages of both insureds.
Joint Life
______ (also referred to as “______” or “______” policy) insures two or more lives for a premium that is based on a joint age and pays on the last death.
- Survivorship Life
- Second-To-Die
- Last Survivor
______ policy is often used to offset the liability of the estate tax upon the death of the last insured.
Survivorship Life or Second-To-Die or Last Survivor
______ = first to die; ______ = second to die (last survivor)
- Joint Life
2. Survivorship Life
A(n) ______ is a contract that provides income for a specified period of years, or for life. It protects a person against outliving his or her money.
Annuity
______ are not life insurance, but rather a vehicle for the accumulation of money and the liquidation of an estate.
Annuities
Annuities use ______, which indicate the number of individuals within a specified group (e.g. males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age.
Mortality Tables
The ______ is the purchaser of the annuity contract, but not necessarily the one who receives the benefits. This individual, corporation, trust, or other legal entity has all of the rights, such as naming the beneficiary and surrendering the annuity.
Owner
The ______ is the person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written. This individual does not need to be the owner but most often is; he or she must be a natural person and not a corporation, trust, or legal entity.
Annuitant
Because annuities are based on the life expectancy of an ______, this individual must be a natural person, regardless of who owns the policy.
Annuitant
The ______ is the person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out.
Beneficiary
The ______, also known as the ______, is the period of time over which the owner makes payments (premiums) into an annuity.
- Accumulation Period
2. Pay-In Period
The ______, also known as the ______, ______, or ______, is the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.
- Annuity Period
- Annuitization Period
- Liquidation Period
- Pay-Out Period
The ______ is the time when the annuity benefit payouts begin (trigger for benefits).
Annuitization Date
During the ______ period, funds are paid INTO the annuity. During the ______, funds are paid OUT to the annuitant.
- Accumulation Period
2. Annuity Period
The annuity income amount is based upon the following:
- The amount of ______ paid or ______ accumulated.
- The frequency of the ______.
- Interest rate.
- The ______’s age and gender.
- Premium
- Cash Value
- Payment
- Annuitant
Annuities:
Shorter life expectancy = ______ benefit; longer life expectancy = ______ benefit.
- Higher
2. Lower
Annuities are purchased, for the most part, to provide or supplement ______ and are also purchased to fund or to help fund a(n) ______.
- Retirement Income
2. College Education
Annuities are also used to provide what is known as ______, which would take on the form of a court settlement arising from a civil lawsuit, income that is provided to the winner of a state lottery, or even settlement options for a life insurance policy.
Structured Settlements
The basic function of an annuity is that of ______ a principal sum, regardless of how it was accumulated.
Liquidating
Classification of ______:
- Premium payment method: single premium vs. periodic
- When income payments begin: immediate vs. deferred
- How premiums are invested: fixed vs. variable
- Disposing of proceeds: pure life, annuity certain, or life refund annuity
Annuities
Annuities can be funded either by ______ (one-time lump-sum payment) or through ______ in which the premiums are paid in installments over a period of time.
- Single Premium
2. Periodic Payments
Periodic payment annuities can be either ______, in which the annuitant/owner pays a fixed installment, or ______, in which the amount and frequency of each installment varies.
- Level Premium
2. Flexible Premium
A(n) ______ provides the following features:
- Guaranteed minimum rate of interest to be credited to the purchase payment(s).
- Income (annuity) payments that do not vary from one payment to the next.
- The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.
Fixed Annuity
With ______, the annuitant knows the exact amount of each payment received from the annuity during the annuity period; this is called ______.
- Fixed Annuities
2. Level Benefit Payment Amount
A disadvantage to fixed annuities is that the ______ that they afford may be eroded over time due to inflation.
Purchasing Power
A(n) ______ serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity.
Variable Annuity
The payments that the annuitant makes into the variable annuity are invested in the insurer’s ______, not their general account.
Separate Account
In a(n) ______, the issuing insurance company does not guarantee a minimum interest rate.
Variable Annuity
A variable annuity is considered a(n) ______ and is regulated by the SEC in addition to state insurance regulations.
Security
Variable premiums purchase ______ in the fund, which is similar to buying shares in a Mutual Fund. These represent ownership interest in the separate account.
Accumulation Units
Upon annuitization, the accumulation units are converted to ______. Income is then paid to the annuitant based on the value of these units. The number of units received remains level but the unit values will fluctuate.
Annuity Units
Which type of annuity?
Interest Rate: Guaranteed by insurer Underlying Investment: General account (safe, conservative) License Needed: Life insurance Expenses: Guaranteed Income Payment: Guaranteed
Fixed Annuity
Which type of annuity?
Interest Rate: No guarantee
Underlying Investment: Separate account (equities, no guarantee)
License Needed: Life insurance PLUS securities
Expenses: Guaranteed
Income Payment: No guarantee
Variable Annuity
______ are fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, this annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the S&P 500.
Index (or Equity Indexed) Annuities
A(n) ______ annuity is one that is purchased with a single, lump-sum payment and provides income payments that start within ______ from the date of purchase. This type of annuity is commonly known as a SPIA.
- Immediate
- One Year
SPIA = Single Premium Immediate Annuity
A(n) ______ annuity is an annuity in which the income payments begin sometime after ______ from the date of purchase. These can be funded with either a single lump sum (SPDA) or through periodic payments (FPDA).
- Deferred
- One Year
SPDA = Single Premium Deferred Annuities
FPDA - Flexible Premium Deferred Annuities
A(n) ______ policy’s limits increase each year by the amount of premium paid. This policy is sometimes called a return of premium policy.
Increasing Term
______ insurance is renewable without a physical examination, up to a certain age.
Term
______ insurance may be converted to ______, but not the reverse. Conversion is based on the insured’s current age.
- Term
2. Whole Life
In a(n) ______ policy, the premium and the amount of coverage are level throughout the term.
Level Term
On a(n) ______ policy, the premium will increase every year, although the face amount will remain the same.
Annual Renewable Level Term
It is the face amount that decreases on a(n) ______ policy, not the premium.
Decreasing Term
Premiums used to purchase ______ insurance are kept in the insurance company’s general account, which is invested more conservatively.
Whole Life
______ policies must contain a table showing their guaranteed cash value at the end of each year (anniversary date) for the first 20 years. The ______ and ______ used in determining those values must also be shown.
- Whole Life
- Mortality Table
- Interest Rate
A(n) ______ insurance policy is designed to provide protection until a person dies or reaches age 100.
Whole Life
______ and ______ both reach maturity at the same time (age 100).
- Whole Life
2. Limited-Pay Life
A(n) ______ may buy a policy that is paid up for life. This type of policy has an immediate ______.
- Single Premium
2. Cash Value
______ policies, though paid up earlier, do not mature until the insured dies or reaches age 100, whichever occurs first.
Limited-Pay Whole Life
On a(n) ______, the cash value will equal the face amount at maturity (age 100).
20-Pay Life
A(n) ______ policy refers to a whole life policy in which the premium will be paid up in 20 years.
20-Pay Life
A(n) ______ insurance policy has a choice of death benefits: option A or B.
Universal Life
Option A (Level Death Benefit): The death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years. This results in an IRS corridor.
Option B (Increasing Death Benefit): 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.
Policyowners may skip, reduce, or increase their premium payments on ______ insurance policies. The policy will not lapse as long a there is enough ______ to cover expense deductions.
- Universal Life
2. Cash Value
______ offers flexible premiums and a minimum guaranteed rate of return.
Universal Life
______, ______, and ______ are all interest-sensitive whole life products.
- Universal Life
- Variable Life
- Variable/Universal Life
______ products have no guarantees and not backed by the state guaranty fund.
Variable
An agent must be registered with FINRA in order to sell a(n) ______ product.
Variable
______ products provide a hedge against inflation.
Variable Life
Premium funds invested in a variable life contract or variable annuity must be kept in the insurance company’s ______, which is similar to a mutual fund.
Separate Account
______ is an insurance and a securities product; thus, it is regulated on the state level by the department of insurance and on the federal level by the SEC.
Variable Whole Life
Applicants with incomes that tend to fluctuate may benefit most from purchasing a(n) ______ policy.
Adjustable Whole Life
A(n) ______ policy pays only when the first insured dies. A(n) ______ policy pays only when the second insured dies.
- Joint Life
2. Joint and Survivor Life
______ insurance is commonly used in estate planning so the death benefit of the policy can be used to pay estate taxes when due.
Survivorship Life
______ is commonly purchased to fund estate taxes.
Survivorship Life
______ are the opposite of life insurance. Life insurance creates an estate, while ______ systematically liquidate an estate over a period of time.
Annuities
A(n) ______ cannot outlive the income from an annuity.
Annuitant
A(n) ______ would be funded with a single premium and would begin payments one month later.
Immediate Annuity
______ guarantee a fixed rate of return and are backed by the state guaranty fund.
Fixed Annuities
On a(n) ______, during the payout period, the annuity is valued in annuity units.
Variable Annuity
A(n) ______ has the least amount of risk to the annuitant.
Refund Annuity
If a(n) ______ dies during the accumulation period of an annuity, the account value will be paid to the ______ or to the estate.
- Annuitant
2. Beneficiary
A(n) ______ annuity, also known as a(n) ______ or ______ annuity, has no beneficiary and is the most risky option for the annuitant.
- Life Income
- Straight
- Pure Life
A(n) ______ annuity would pay while either party is alive.
Joint and Survivor
______ are different than mortality tables since there is no insurance protection.
Annuity Tables
______ are often used as life insurance settlement options.
Annuities
A(n) ______ does not involve underwriting.
Annuity
