Chapter 3 - Life Insurance Policies

Question 1

What types of term insurance are there? (4)

Answer 1

1. Annual Renewable Term - Premium increases, death benefit unchanged.
2. Increasing Term - Premium unchanged, death benefit increases.
3. Level Term - Premium unchanged, death benefit unchanged.
4. Decreasing Term - Premium unchanged, death benefit decreases.

Question 2

When does term insurance mature?

Answer 2

At death

Question 3

What are two potential features you can have on term insurance?

Answer 3

• Renewable

- Convertible

Question 4

Whole life policies continue until what age?

Answer 4

100

Question 5

At age 100, what will a whole life policies cash value equal?

Answer 5

The death benefit.

Question 6

What are some ways to pay for a whole life policy? (3)

Answer 6

1. Single Premium
2. Limited Pay - pay a set number of years or to a specified age
3. Straight life - pay until death or age 100

Question 7

What is Adjustable Life? (3)

Answer 7

• Can assume the form of either term insurance or permanent insurance
• The policy owner may adjust:
  
  • -The premium or premium payment period
  • -The face amount
  • -The coverage period
• Suitable for insureds whose incomes are unpredictable

Question 8

What is Universal Life (Interest Sensitive Whole Life)? (2)

Answer 8

• Has a stated interest rate that grows the cash value (set for 1 year at a time)
• They have a minimum interest rate

Question 9

What are some forms of Universal Life? (3)

Answer 9

• Flexible premium adjustable life
• Universal Life - Option A
• Universal Life - Option B

Question 10

What type of life insurance uses the term separate account?

Answer 10

Variable Life

Question 11

When is the death benefit paid out for a joint life policy?

Answer 11

Death benefit paid upon first death

Question 12

When is the death benefit paid out for a survivorship life policy?

Answer 12

Death benefit paid upon last death

Question 13

What is group conversion?

Answer 13

.Allows you to make coverage under a group plan into permanent insurance

• You must have been covered at least 5 years under the group plan
• You must convert to whole life
• If done with 31 days you can do it without proof of insurability.
• Premiums will increase

Question 14

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as what is true?

Answer 14

The policy contains sufficient cash value to cover the cost of insurance.

Question 15

What is not allowed in credit life insurance? (Debtor buying policy to pay off creditor)

Answer 15

The creditor cannot require that a debtor buys insurance from a certain insurer.

Question 16

A Universal Life Insurance policy is best described as what?

Answer 16

Annually renewable term policy with a cash value account.

Question 17

A straight life policy has what type of premium?

Answer 17

A level annual premium for the life of the insured.

Question 18

What is the cost of group insurance based on?

Answer 18

The ratio of men and women in the group.

Question 19

What type of insurance can group life be converted into?

Answer 19

An individual whole life policy

Question 20

What entities regulate variable life policies? (3)

Answer 20

1. The Insurance Department
2. Federal Government
3. The SEC

Question 21

When does an adjustable life policy accumulate cash value?

Answer 21

When the premiums paid are more than the cost of the policy.

Question 22

What type of whole life insurance generates immediate cash value?

Answer 22

Single-Premium Whole Life

Question 23

Who owns a group life insurance contract?

Answer 23

The employer (aka the sponsor of the group)

Question 24

What is the major difference between the most common types of whole life policies: Straight Life, Limited Payment, and Single Premium?

Answer 24

Premium payment mode

Question 25

Universal life policies have two types of interest rates. What are they?

Answer 25

• Guaranteed

- Current

Question 26

What type of life insurance policy offers pure death protection?

Answer 26

Term

Question 27

What is the purpose of establishing the target premium for a universal life policy?

Answer 27

To prevent the policy from lapsing

Question 28

What are the characteristics of the group that underwriters will consider before issuing a group life policy? (4)

Answer 28

• Group’s purpose
• Size
• Financial Strength
• Turnover

Question 29

If an employee wants to join group life insurance coverage outside of the open enrollment period, what would the employee have to provide?

Answer 29

Evidence of Insurability

Question 30

What is the main advantage of converting from group life insurance to individual coverage?

Answer 30

Evidence of insurability is not required

Question 31

What happens to the cash value when a whole life insurance policy matures?

Answer 31

Cash value is paid to the policy owner.

Question 32

What are the living benefits of whole life insurance?

Answer 32

Loan values

Question 33

When the amount of insurance is increased in an adjustable life policy, what will the insurer require from the insured?

Answer 33

Evidence of insurability

Question 34

Between adjustable life and universal life policies, which one provides more flexibility to the policyowner?

Answer 34

Universal Life (aka Flexible Premium Adjustable Life)

Question 35

For Universal Life, since the premium can be adjusted, the insurance companies may give the policyowner a choice to pay either of what two types of premiums?

Answer 35

• Minimum Premium - The amount needed to keep the policy in force for the current year. Paying this will make the policy perform as an annually renewable term product.
• Target Premium - The recommended amount that should be paid on a policy to cover the cost of insurance protection and keep the policy in force throughout its lifetime.

Question 36

What happens if an insured skips a premium payment on a Universal Life policy?

Answer 36

The missing premium may be deducted from the policy’s cash value. The policy will NOT lapse.

Question 37

What are the two components of a universal life policy?

Answer 37

• Insurance Component - Is always annually renewable term insurance.
• Cash Account

Question 38

What does it mean that Universal Life is an interest-sensitive policy?

Answer 38

Although the insurer guarantees a CONTRACT INTEREST RATE (usually 3% to 6%), there is also potential for the policyowner to get a current interest rate, which is not guaranteed in the contract but may be higher because of current market conditions.

Question 39

What are the two death benefit options Universal Life offers?

Answer 39

Option A - Level death benefit option - the death benefit remains the same while the cash value gradually increases, lowering the pure insurance with the insurer in the later years. But because pure insurance cannot go away the death benefit increases late in the policy.
Option B - Increasing Death Benefit option - 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.

Question 40

What does it mean for a life insurance or annuity contract to be fixed?

Answer 40

They are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract.

Question 41

What does it mean for a life insurance or annuity contract to be variable?

Answer 41

Contracts in which the cash values accumulate based on a specific portfolio of stocks with guarantees of performance. Variable annuities keep pace with inflation and are determined by the value of the securities backing it.

Question 42

What is Variable Life Insurance (aka variable whole life)?

Answer 42

It is a level, fixed premium, investment-based product with a guaranteed minimum death benefit. The cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums are invested by the insurer.