Chapter 3- Life Insurance Policies (Provisions, Options & Riders)

Question 1

issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents.
- They were designed for burial coverage.

Answer 1

Industrial life insurance

Question 2

life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Answer 2

Ordinary Life Insurance

Question 3

insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract.
- One of the benefits is usually there is no evidence of insurability required.

Answer 3

Group Life Insurance

Question 4

group life insurance is underwritten as ____

Answer 4

whole life

Question 5

Term life insurance

Answer 5

gives you the greatest amount of coverage for a limited period of time.
- is only good for a limited period of time because it has a TERMination date.
- inexpensive type of insurance
- It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.

Question 6

has a level face amount and level premiums.
- Premiums tend to be higher than annual renewable term
- However, the premiums will increase at each renewal

Answer 6

Level term (also called level premium level term)

Question 7

Level Term Insurance

Answer 7

Life insurance written to cover a need for a specified period of time at the lowest premium

Question 8

Decreasing term

Answer 8

Term life insurance that provides an annually decreasing face amount over time with level premiums.
- These policies are usually used for mortgage protection.

Question 9

a type of decreasing-term life insurance policy. Its purpose is to provide policyholders a way to have their mortgages paid off if they die before it is fully paid. This prevents the full burden of paying the mortgage from falling on the surviving family members’ shoulders. With this design, the face value decreases as the balance remaining on the mortgage decreases.

Answer 9

Mortgage Redemption Insurance

Question 10

are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.

Answer 10

Credit policies

Question 11

Increasing term

Answer 11

term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

Question 12

Convertible term

Answer 12

a provision that allows policy owners to convert their term insurance into permanent policies without showing proof of insurability.

Question 13

Renewable term

Answer 13

is term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.
-temporary level coverage at the lowest possible cost for a limited period of time

Question 14

Annual renewable term (ART) or yearly renewable term (YRT)

Answer 14

term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.

Question 15

Term Rider

Answer 15

a type of life insurance product which covers children under their parent’s policy.

Question 16

• provides both living and death benefits
• provides permanent life insurance protection for the insured’s entire life
• provides living benefits such as cash value and policy loans

Answer 16

Whole life insurance

Question 17

whole life

Answer 17

provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.

Question 18

means that the cash value accumulations are equal to the face amount.

Answer 18

“Mature” or “endow”

Question 19

Straight Life insurance

Answer 19

the basic whole life insurance with a level face amount and fixed premiums payable over the insured’s entire life
- premium payments made until death of insured or age 100 (maturity of policy)

Question 20

Limited Pay Whole Life

Answer 20

whole life insurance where the insured is covered for his entire life, but premiums are paid for a limited time
- as the premium payment period shortens, cash values increase faster and the fixed premiums are higher
- these policies are in effect until the insured’s death or they reach age 100

Question 21

single premium whole life

Answer 21

allows the insured to pay the entire premium in one lump-sum and have coverage for the insured’s entire life

Question 22

single premium whole life:
- an immediate ___ ___ is created
- an immediate ___ ___ is created
- a large part of the premium is used to set up the policy’s ____

Answer 22

nonforfeiture value; cash value; reserve

Question 23

low (or fixed) premiums in the early years (first 5 years) and jumps to a higher premium in the later years (year 6) and remains fixed thereafter
- premiums increase just once

Answer 23

Modified whole life

Question 24

graded whole life

Answer 24

premium increases yearly for a started number of years, then remains level

Question 25

is best described as a policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract.

Answer 25

Modified Endowment Contract (MEC)

Question 26

a policy that covers two or more people
- average the ages of the two insureds and a single premium is charged
- pay the face amount after the first person covered on the policy dies

Answer 26

A Joint Life policy

Question 27

Joint Survivor or Last Survivor Life Policies

Answer 27

cover the lives of two individuals and save on premium costs by averaging the ages of the two insureds.
- benefit is paid upon the death of the last surviving insured

Question 28

Family Maintenance policy

Answer 28

pays a monthly income from the date of death of the insured to the end of the preselected period.
- The payment of the face amount of the policy is payable at the end of such preselected period.

Question 29

Family Income policies

Answer 29

whole life and decreasing term insurance (begins date of purchase)
- provides monthly income to a beneficiary if dealth occurs during a specified period after date of purchase

Question 30

owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make adjustments to the premium and/or face amount

Answer 30

Adjustable Life policy

Question 31

incorporates flexible premiums and an adjustable death benefit.
- The investment gains usually go toward the cash value.

Answer 31

Universal life insurance policy

Question 32

require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities.

Answer 32

Variable life insurance policies

Question 33

Variable Universal Whole Life (VUL)

Answer 33

the policyowner controls the investment of cash values and selects the timing and amount of premium payments.

Question 34

combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index.
- Unlike, a traditional whole life plan, this plan allows policyholders to link accumulation values to an outside equity index like S&P 500.

Answer 34

Equity Index Universal Life Insurance or Equity Indexed Life

Question 35

when the insured dies, the policyowner (investor) benefits. In normal circumstances, it is a beneficiary with insurable interest who benefits from the death of an insured.

Answer 35

Investor (or stranger) originated life insurance policy S(I)OLI

Question 36

is the equity amount or “savings” accumulation in a whole life policy.

Answer 36

Cash Value

Question 37

is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured’s death before the end of the stated period.

Answer 37

The Endowment Policy

Question 38

is a contract that promises to pay at the insured’s death the face amount of the policy plus a sum equal to the policy’s cash value.

Answer 38

A face amount plus cash value policy

Question 39

is written on the lives of children who are within specified age limits and generally under parental control.

Answer 39

Juvenile Insurance

Question 40

is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.

Answer 40

Target premium

Question 41

Monthly debit ordinary insurance

Answer 41

is a combination of industrial and ordinary insurance sometimes offered by home service companies.
- The hybrid nature of these policies allow for higher face amounts, and higher premiums.

Question 42

Absolute Assignment

Answer 42

is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and full rights to its benefits.

Question 43

Accidental Death Benefit (Multiple Indemnity) Rider

Answer 43

pays an additional sum to the beneficiary if the insured dies due to a covered accident.

Question 44

Accelerated Benefits Rider

Answer 44

allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years

Question 45

Accumulate Interest Option

Answer 45

dividend option allows the policy owner to leave dividends with the insurer to accumulate interest. In turn, the policy owner will be required to pay taxes on any interest (profit) generated by the dividend.

Question 46

Assignment clause

Answer 46

allows the right to transfer policy rights to another person or entity.

Question 47

Automatic Premium Loan Provision (or rider)

Answer 47

allows the insurance company to deduct the overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy.

Question 48

cash option

Answer 48

a dividend option that allows the policy owner to cash out the dividends they receive.

Question 49

nonforfeiture option allows the policy owner to receive the policy’s cash value. The policy owner no longer has coverage at this point.
- Usually, the maximum length of time a life insurance company may legally defer paying the cash value is six months (Delayed Payment provision).

Answer 49

Cash Surrender Option

Question 50

is an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. Any proceeds above the amount due at the insured’s time of death will be paid to a beneficiary designated by the policy owner.

Answer 50

Collateral assignment

Question 51

consideration clause

Answer 51

states a policy owner must pay a premium in exchange for the insurer’s promise to pay benefits.

Question 52

may be added to as additional (other) insureds through the use of a ____ ___. Other insured riders are typically used for spouses and children.

Answer 52

Dependent Riders (Other Insureds Rider)

Question 53

Dividend Options

Answer 53

are the options a policy owner has when receiving dividend payments from an insurance policy.

Question 54

states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the ____ ____between all parties.

Answer 54

Entire Contract Provision

Question 55

are features of an insurance policy stating that the policy will not cover certain risks.

Answer 55

Exclusions

Question 56

Extended Term Option

Answer 56

a nonforfeiture option that permits the policy owner to use the policy’s cash value to buy level, extended term insurance for a specified period.
- No further premium payments are made.

Question 57

states the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

Answer 57

Free Look Period

Question 58

Grace Period

Answer 58

is a period after the due date of a premium during which the policy remains in force without penalty.

Question 59

Guaranteed Insurability Rider (Future Increase Option)

Answer 59

permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability.

Question 60

Incontestable Provision (Period)

Answer 60

states that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years.

Question 61

is the insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss.
- States the scope and limits of coverage, “We ensure to INSURE you for…”

Answer 61

Insuring Clause (or Insuring Agreement)

Question 62

When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy.if there is cash value remaining, the policy owner must use:
- cash surrender
- extended term option
- reduced paid-up option

Answer 62

Nonforfeiture options

Question 63

dividend option allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.

Answer 63

One-Year Term Option

Question 64

allows the policy owner to exchange the dividend for an additional single payment whole life policy.

Answer 64

Paid-Up Additions Option

Question 65

waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled.

Answer 65

Payor Provision (Rider or Clause)

Question 66

• policies that have cash value also have cash withdrawal and …
• These policies must begin to build cash value after a certain number of years. In most states, this is three years.
• the policy owner has the right to the policy’s cash value
• not taxable

Answer 66

Policy Loan Provisions (Cash Withdrawal)

Question 67

nonforfeiture option allows the policy owner to reduce the policy’s benefit amount and, in turn, cease making premium payments.

Answer 67

Reduced Paid-Up Option

Question 68

allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year’s premium payments.

Answer 68

Reduced Premiums Option

Question 69

is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Answer 69

Reinstatement provision

Question 70

The return of premium rider

Answer 70

pays the total amount of premiums in addition to the face value, as long as the insured dies within a specific period specified in the policy.

Question 71

suicide clause

Answer 71

states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance.

Question 72

waiver of premium rider

Answer 72

allows the policy owner to waive premium payments during a disability and keeps the policy in force.

Question 73

insuring clause

Answer 73

the insurer’s basic promise to pay specified benefits to a designated person in the vent of a covered loss