Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CA Health & Life > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

Endowment

A

The maturity date or time at which the cash value equals the face amount. If the policy matures, it is said to endow, and the proceeds paid to the policy-owner.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Face Amount

A

The Death Benefit payable on a life policy; may also be called limit of liability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Term Policies

A

Term insurance is temporary protection.
Expires at attained age (Ex:65) or after a specified period of time (10-year Period).
Term Insurance doesn’t have a cash or loan value.
Face amount paid only if insured dies during coverage period.
Low initial premium outlay increases at renewal or conversion as insured’s age increases, more expensive.
Age limit for issue or renewal is age 70, however some insurers may allow renewal to age 100.
May be written separately or as a rider.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Types of Term Policies

A 
Level
Decreasing
Increasing
Re-Entry Term
Life-Expectancy Term
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Level

A

The death benefit remains level and the premiums remain level during the policy term. Most group life insurance is written level term.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Decreasing

A

Death Benefit Decreases, but premiums usually remain level for the policy term, often as “Mortgage Redemption” or Credit Life Insurance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Increasing

A

Death Benefits increase over life of the policy and the premiums remain level. Normally written as a rider for the return of premium on a permanent policy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Re-Entry Term

A

Characterized by lower premiums at issue. The insured is able to renew the policy at the lower premium classification as long as he/she can provide evidence of insurability. If health declines, premiums will increase on the policy anniversary stipulated as “re-entry date.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Life Expectancy Term

A

Provides a level term benefit over the life expectancy of the insured using a specific mortality table. The contract is pure protection, but with the level premium concept, a cash value accumulates to help offset required premiums in later years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Options Available (Term Policies)

A

Renewability

Convertibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Renewability

A

The right to renew on renewal date without evidence of insurability. The renewal premium is based upon attained age. Decreasing term is never renewable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Convertibility

A

The right to convert to a permanent policy without evidence of insurability. the premium is based upon attained age or issue age. Group life insurance is usually term and is both renewable and convertible. A term policy that doesn’t contain these 2 options would cost less than one that does.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Characteristics of Whole Life

A

Cash Values are Guaranteed
Loan and Non-forfeiture Values
Permanent Protection
Level Death benefit and a level premium
The shorter the premium payment years, the higher the premium.
You may add term riders to Whole Life Policies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Types of Whole Life

A

Straight Life
Limited Pay Life
Single Premium Life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Ordinary Whole Life/Continuous Whole Life

A

Permanent Protection that matures at age 100.
Builds Cash, loan and non-forfeiture values. May borrow from cash value.
Level Premium and Level Face Amount. The shorter the premium paying period, the higher the premium.
Settlement options are available upon the death of the insured or upon the policy’s maturity.
Cash value equals face value upon maturity, age 100.
You may add a term rider to this policy, but you cannot convert a whole life policy to a term policy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Straight Life/Continuous Premium/Permanent Life

A

Both the premium and the face amount (Death Benefit) remain level to age 100 or death of the insured, whichever comes first.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Limited Payment

A

Premium Payments are for a specified time, such as 20-pay, 30-pay or to age 65. However, the face amount (death benefit) remains level to age 100.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Single Premium

A

The entire cost of the policy is paid at the time of purchase. The face amount (death benefit) remains level to age 100. Cash Value builds more quickly than in Straight Life or Limited Life.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Current Assumption (Interest Sensitive) Whole-Life

A

A Straight Whole Life Policy with the following Variations:
Flexible Premiums, with adjustments made on specific anniversaries.
Face Amount (death benefit) doesn’t fluctuate.
The (current) interest rate is higher than the insurer’s rate for traditional whole life policies, thusly providing some inflation protection.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Enhanced Ordinary Life

A

This policy was designated for participating policies using the dividends to purchase additional insurance. Allows applicant to purchase a reduced amount of whole life with a term rider. Within a stated period of time, the dividends will purchase additional insurance to meet the needs. 70/30. If the actual dividends will be diverted to buy 1 year renewable term until such time as the original contract limits are reached.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Modified Pay

A

Premium is stable and then is modified to accommodate anticipated income changes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Fixed Vs. Flexible

A

Fixed premiums means the premium amount is set and will not change. This type of premium is mostly seen on the ordinary whole life, endowment, and term policies. Flexible premiums change and are seen in Universal, Variable, and the Variable Universal Policies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Flexible Design Policies

A

Adjustable Life - owner can add additional coverages to existing plan. Increasing coverage will require proof of insurability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Adjustable Life

A

Adjustable life is a level-premium, level-death benefit policy that can assume the form of Term or Whole Life within a single policy.
Amount of coverage and premium may be changed. Increase in death benefit requires evidence of insurability. When premiums exceed cost of a policy, a cash value develops.
Increase in premium can either, lengthen the protection if in term range, or shorten the premium payment period of whole life range.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Universal Life

A

Combination of Annual Term insurance and a cash value savings.
Death benefit can be increased.
Premiums are flexible
Mortality charge is deducted from cash value account. No guaranteed cash value, only rate of interest.
Loans or withdrawals available - restrict to available cash value. Partial Surrender reduces death benefit but no interest will be assessed.
Annual Status Reports
Surrender charges must be stated.
Two Death Benefit Options: Option A - Level. Option B - As cash value increases, death benefit increases. No proof of insurability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Universal Life

A

Whole Life, cash value, and life insurance. Death benefit is in the form of 1 year renewable term, cash value earns interest at the current rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Variable Life

A

General Account is highly regulated by Insurance Commissioner to promote safety.
Separate Account - similar to mutual funds. Not subject to regulation by Commissioner and beyond reach of creditors.
Deduct administrative and mortality expenses
No guarantee in cash value, only in death benefit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Variable Life

A

Variable Life is a fixed-premium Whole Life Policy which the death benefit and/or cash value varies to reflect the investment experience of a separate pool of assets.
Premiums less administrative and mortality expenses are paid into the separate account.
Guaranteed death benefit but no guaranteed cash value.
Variable life provides protection against inflation. Each prospect must receive a prospectus. This enables the prospect to determine suitability. Policy-owner assumes investment risk.
The application for Variable Life must contain suitability questions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Variable Universal Life

A

Flexible Premiums and Separate Accounts
Policy-owner assumes risk
Flexible Face Amount
Benefit/Premium is Adjustable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Variable Universal Life

A

Premium and death benefits are flexible. Transfer between accounts during life of the policy. Transfers are not taxed, nor are there administrative fees associated with them. Information must be provided in a prospectus.
The prospectus for the VUL must be given for each separate account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Specialized Policies

A

Family Income Policy - Whole Life with Decreasing Term.
Family Maintenance - Whole Life with Term Level Rider.
Family Policy - covers entire family. Whole Life for breadwinner, Spouse term rider, Child term Rider.

32
Q

Family Income

A

A combination of Whole Life and Decreasing Term Insurance. Provides monthly income from the date of the insured’s death until a specified future date.
The income period begins from the effective date of the policy. If the insured dies within the term period the benefits are paid for the remainder of the term followed by the Whole Life Benefits. If the insured lives beyond the income period, only the Whole Life Benefits are paid upon death.
Family Income Rider may be added to any permanent policy.

33
Q

Family Maintenance

A

A combination of Whole Life and Level Term Insurance. Whole life benefit is paid at time of death, not paid at end of the monthly payments as in a Family Income Policy.
If the insured lives beyond the term, only face amount is paid upon death. More expensive than a Family Income Policy.

34
Q

Family Policy (Family Protection Plan)

A

Provides life insurance in a single contract for all members of the family. Whole Life policy is written on head of the family.
Level Term coverage is written on the spouse and the child or children, known as the Family Rider in some states. Spousal coverage is generally Term to age 65, guaranteed convertible while in force.
Child rider provides coverage for all chidlren who are 14-15 days old. Maximum age of coverage is 25. No additional premium, adopted and stepchildren are also covered. Upon reaching maximum age, coverage is convertible without evidence of insurability.

35
Q

Juvenile

A

Written on the life of a minor. Jumping because it increases the face amount at a given age. Usually age 21-25.
Premium remains level for the life of the policy, and the usual increase in the face amount is 5 times the issue amount.

36
Q

Modified Whole Life

A

Premiums are lower than a typical Whole Life Policy in the early years.
In the later years, the premiums are slightly higher than a typical Whole Life Policy.
The purpose of Modified Whole Life is to make the purchase of permanent insurance more attractive for individuals who have limited finances presently, but have the potential for an improved position in the future, such as a new college graduate.

37
Q

Graded Premium

A

Is similar to modified whole life, except the premium increases each year during the early years of the policy and then remains level.
In the later years of the policy, the premium would be greater than a Whole Life Policy.

38
Q

Joint Life (First to Die)

A

Policy written to cover 2 or more lives.
Death Benefit is paid upon the death of the first to die.
Premiums are based upon a joint issue age, which is obtained by an average of both insured’s ages resulting in a lower premium.
Provides income protection for spouses when both have earned income. It is also used to fund Buy-Sell agreements.
Written on a Whole Life Basis (matures at age 100).

39
Q

Joint Survivorship Life (Last to Die)

A

A policy written to cover 2 or more lives.
Death Benefit not paid until the last insured dies.
Premiums are based upon a joint issue age determined from a table.
Used in couples who plan to defer taxes until second one dies.
Written on a Whole Life Basis (Matures at 100). Face amounts are typically more than $1,000,000.

40
Q

Comparing Policy Values

A

Surrender Cost Index

Comparative Interest Rate

41
Q

Surrender Cost Index

A

Most recognized method of comparing policies of the same type. Disadvantage in that it cannot be used to compare any policy that doesn’t have a fixed interest rate and a systematic accumulation of cash value.

42
Q

CIR

A

Can determine the amount of interest rate necessary to compare a cash value policy with a term plan and investing the premium difference in a side plan. Useful in determining interest rate necessary to equal cash value at a specified time in both policies. Applicable to Universal Life, Variable Life, and Variable Universal Life. Term policies don’t have cash value accumulations.

43
Q

Life Insurance Policy Riders

A

An amendment or rider modifies conditions of the policy by expanding or decreasing its benefits, or excluding certain conditions from coverage, and are at the option of the insured.

44
Q

Disability Riders

A

Waiver of Premium
Waiver of Payors Premium (Payor Benefit)
Waiver of Premium/Disability Income
Waiver of Cost of Inusrance

45
Q

Waiver of Premium

A

If the insured becomes totally disabled, the company waives premiums for the duration of the disability. There is usually a maximum 6 month elimination period before premiums are waved. Waiver of premium becomes inoperative at an age stipulated in the contract. Cash value, dividends and protection continue as under normal payments.

46
Q

Waiver of Payors Premium (Payor Benefit)

A

Premium is waved if the premium payor becomes disabled or dies. It is commonly used on juvenile policies or policies in which the owner and the insured are 2 different people, such as Cross Purchase Buy-Sell Agreement. When added to a juvenile policy, the waiver normally cancels at insured age 21-25.

47
Q

Waiver of Premium/Disability Income

A

In the event of disability, premiums are waved and the insured is paid a monthly income, such as $10 per month for each $1,000 face amount.

48
Q

Waiver of Cost of Insurance

A

A rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life Policy while the insured is totally disabled, usually after 6 months of continuous disability. Usually, the disability must occur prior to a stipulated age.

49
Q

Term Riders

A

Riders Covering Additional Insureds
Spouse
Child
Family

50
Q

Spouse Rider

A

Level or decreasing term rider added to cover primary insured’s present spouse.

51
Q

Child Rider

A

Children are covered from age 14-15 days at no additional cost until the 25th birthday max. Those born under the rider is issued are covered immediately. Upon reaching the maximum age, the coverage is convertible without insurability.

52
Q

Family Rider

A

Combination of Spouse and Child. Usually less than the primary insured’s coverage.

53
Q

Riders affecting the Death Benefit Amount

A 
Accidental Death (Double Indemnity) 
Guaranteed Insurability
Return of Premium
Return of Cash Value
Cost of Living (COL)
Living Need (Accelerated Benefit)
Annuity Rider
Guaranteed No Lapse Rider
54
Q

Accidental Death (Double Indemnity)

A

In the event of a claim, the policy normally pays double the face amount if death was a result of an accident. Payable only if death occurs before a specified age and within 90 days of the accident. It does not add any additional values to the base policy.

55
Q

Guaranteed Insurability

A

Allows the insured to purchase additional amounts of insurance at certain ages, events, or specified dates without evidence of insurability. The premiums are based on attained age.

56
Q

Return of Premium

A

Increasing Term insurance equal to the amount of premiums paid. If the insured dies within the term, the beneficiary would receive the amount plus an amount equal to the premiums paid. It adds flexibility when added to a whole life policy.

57
Q

Return of Cash Value

A

Increasing Term insurance equal to the cash value. Provides that the payment of term insurance equal to the cash value amount at time of death. Doesn’t relive obligation to pay loans from the claim proceeds at the time of death.

58
Q

Cost of Living

A

Increasing Term insurance that increases as the Consumer Price Index Increases. Adjustments are normally made each anniversary with no evidence of insurability. Premiums are adjusted to pay for adjusted coverage.

59
Q

Living Need (Accelerated Benefit)

A

Allows early payment of a portion of the death benefit, should the insured become critically or terminally ill. Monthly report must include the benefit amount remaining. Upon death, the early payment will be deducted from the benefit paid to the beneficiary. It could also include nursing home benefits and dread disease benefits, but doesn’t include disability income benefit. Normally provided without additional premium.

60
Q

Annuity Rider

A

As part of a life Policy. First year’s premium pays only for the life insurance. Beginning with the second year, the premiums are split between the insurance and the annuity.

61
Q

Guaranteed No Lapse Rider

A

Attached to a Universal Life insurance policy and ensures the policy will not lapse if the cash value is reduced to zero. So long as the policy-holder adheres to payment schedule, the policy will not lapse.

62
Q

Life Settlement

A

A financial transaction in which the owner of a life insurance policy sells an unneeded policy to a third party for more than its cash value and less than its face value. Popular amongst high net worth policyowners over age 70.

63
Q

Typical Criteria for the owner of a Life Policy to become an eligible candidate for a life settlement transcation

A 
Policy-holder age 70 and older
$50,000 minimum face amount
Policy active 2 years
Low cash surrender value
Premiums less than 8% per annum.
64
Q

Agent, Broker, Provider Responsibilities

A

Accelerated Death Benefits
Some or all proceeds may be taxable.
Jeopardizes public assistance eligibility.
Proceeds from a life settlement could be subject to the claims of creditors.
Life settlements could result in forfeiture of rights or benefits.
Change in ownership of the settled policy could limit the insured’s ability to purchase insurance in the future on the insured’s life because there is a limit to how much coverage insurers will issue on one life.

65
Q

Life Settlements

A

Owner has right to rescind life settlement contract within 30 days of the date it is executed by all parties and the owner has received all required disclosures; or 15 days from receipt by the owner.
Proceeds will be sent to the owner within 3 business.

66
Q

Disclosures

A

Name, business address, and telephone number of the broker.
Full complete description of all the offers, counteroffers, acceptances, and rejections relating to the proposed life settlement contract. Includes purchase price, proceeds and commissions.
Disclosure and affiliation or contractual arrangements.
All estimates of life expectancy

67
Q

Life Settlement Provider

A

The purchaser in a life settlement transaction that is responsible for paying the client a cash sum greater than the policy’s cash surrender value. Life Settlement Providers must be licensed in the state where the policy-owner resides.

68
Q

Life Settlement Broker

A

Represents only the owner and owes a fiduciary duty to the owner to act according to the owner’s instructions, and in the best interest of the owner.

69
Q

Life Expectancy Providers (LEPs)

A

Specialized independent companies that issue lif expectancy reports (LERs) that estimate the life expectancy (LE) of an individual (typically the insured individual on whose life a life insurance policy involved in a life settlement is based) Made up of actuaries and medical underwriters.

70
Q

Tracking Agent

A

Provides information to investors regarding the whereabouts and mortality status of each insured. Most tracking agents also provide premium management, death claim processing, and reporting services.

71
Q

California Life Insurance: Contract and Viatical Settlements

A

Beginning July 1, 2010, life agents who have been licensed at least 1 year are required to notify CDI within 10 days of transacting life settlements. Notification must be renewed every 2 years at the same time that the individual’s Life license is to be renewed.

72
Q

Licensing Regulations

A

Provider - Providers who contract directly with the policy-owner for the purchase of a Life Insurance Policy are required to be licensed but not the financing entity supplying the capital.
Broker - A person licensed to act as a viatical settlement broker or provider as of December 31, 2009 as a life settlement broker or provider.

73
Q

Stranger-Originated Life Insurance (STOLI)

A

An Act, practice, or arrangement to initiate the issuance of a life insurance policy in this state for the benefit of a third party investor who, at the time of policy origination, has no insurable interest, under the laws of this state, in the life of the insured.

74
Q

Tracking

A

Insured may be contacted for the purpose of determining the insured’s health status or to verify the insured’s address. This contact is limited to once every 3 months if the insured has a life expectancy of more than 1 year, and no more than once a month if it’s less than 1 year.

75
Q

Gross Purchase Price

A

must provide prior to execution, and it includes total amount, or value paid by the provider for the purchase of one or more life insurance policies, including commissions and fees. Must include business address, name and telephone number of broker.

76
Q

Privacy Life Settlement Contracts

A 
Owner prior written consent.
Necessary to effectuate sale
In response to a Commissioner Investigation
From provider to provider
Health Inquiry

CA Health & Life (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions