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

Question 1

Industrial life insurance

Answer 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.

Question 2

Level Term Insurance

Answer 2

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

Question 3

Decreasing term

Answer 3

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

Question 4

Mortgage Redemption Insurance

Answer 4

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.

Question 5

Credit policies

Answer 5

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.
-designed to cover the life of a debtor and pay the amount due on a loan if the debtor does before the loan is repaid

Question 6

Renewable term

Answer 6

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 7

whole life

Answer 7

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 8

Straight Life insurance

Answer 8

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 9

Limited Pay Whole Life

Answer 9

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 10

single premium whole life

Answer 10

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

Question 11

Modified whole life

Answer 11

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

Question 12

graded whole life

Answer 12

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

Question 13

Family Maintenance policy

Answer 13

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 14

Family Income policies

Answer 14

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 15

Adjustable Life policy

Answer 15

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

Question 16

Universal life insurance policy

Answer 16

• type of whole life
• incorporates flexible premiums and an adjustable death benefit.
• The investment gains usually go toward the cash value.
• policy owner can determine the amount & frequency of premium payments (which will adjust the policys face amount)

Question 17

Variable life insurance policies

Answer 17

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.

Question 18

Variable Universal Whole Life (VUL)

Answer 18

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

Question 19

The Endowment Policy

Answer 19

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.

Question 20

Monthly debit ordinary insurance

Answer 20

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 21

Absolute Assignment

Answer 21

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 22

Accidental Death Benefit (Multiple Indemnity) Rider

Answer 22

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

Question 23

Accumulate Interest Option

Answer 23

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 24

Assignment clause

Answer 24

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

Question 25

Collateral assignment

Answer 25

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.

Question 26

Extended Term Option

Answer 26

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 27

One-Year Term Option

Answer 27

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

Question 28

Paid-Up Additions Option

Answer 28

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

Question 29

Reduced Paid-Up Option

Answer 29

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

Question 30

Reduced Premiums Option

Answer 30

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

Question 31

The return of premium rider

Answer 31

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 32

waiver of premium rider

Answer 32

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