Chapter 3 Policies, provisions, options, and riders

Question 1

3 Basic Categories of Coverage

Answer 1

1. Ordinary
2. Industrial
3. Group

Question 2

Ordinary Insurance

Answer 2

Life insurance of commercial companies not issued on a weekly premium basis.

Amount of protection is usually $1,000 or more

Question 3

Industrial Insurance

Answer 3

Provides modest benefits on relatively short benefit period.

Premiums collected on weekly or monthly basis by an agent calling at insureds home.

Question 4

Group Insurance

Answer 4

Coverage for group of people, usually employees of a company under 1 contract.

Question 5

Term Insurance (3 types)

Answer 5

• No cash values

1. Level term
2. decreasing term
3. increasing term

Question 6

Level Term Insurance

Answer 6

face value remains unchanged from the date policy comes into force until the day it expires.

Question 7

Decreasing Term Life Insurance

Answer 7

Face value decreases in scheduled steps from the day policy comes into force until expiration.

premium remains level

Question 8

Increasing Term Life Insurance

Answer 8

Death benefit increases periodically over the policy’s term

Question 9

most term policies contain option to renew or convert, what do those terms mean?

Answer 9

renew- renew policy without having to show evidence of insurability

convert- choice to change term policy to whole life policy at renewal without evidence of insurability

Question 10

6 variations of Permanent (whole) Life Insurance

Answer 10

1. Straight Whole Life
2. Universal Life
3. Variable Life
4. Adjustable Life
5. Modified Life
6. Family Life

whole life policies build cash value and mature at age 100

Question 11

Straight Whole Life

Answer 11

permanent level insurance protection for whole life of policy

level premiums, level benefits, cash values

Question 12

Modified Whole Life

Answer 12

• premiums payable during first few years
• slightly larger than rate for Term insurance
• afterward, premium is higher for remainder of life than premium for ordinary life at original age of issue but lower than rate at age attained

Question 13

Are death benefits payable to the beneficiary taxable?

Answer 13

NO

Question 14

Rights of ownership provides right to…

Answer 14

choose and change beneficiary
determine how benefits will be dispersed
right to policy loans
right to policy dividends
assign ownership to someone else
right to cancel policy

Question 15

When a life policy is reinstated does a new suicide exclusion go into effect?

Answer 15

NO

Question 16

Suicide Clause

Answer 16

2 year time period, if owner commits suicide benefits will not be paid.

Question 17

Transfer of ownership also know as…

new owner known as…

Answer 17

assignment

assignee

Question 18

Accelerated Death Benefits Provision

Answer 18

allows insured to become their own beneficiary if they become terminally ill or suffer a life threatening condition

Question 19

Nonforfeiture options include

Answer 19

1. cash surrender
2. reduced paid up
3. extended term
4. automatic loan
5. dividend accumulations

Question 20

Are policy dividends taxable income?

Answer 20

NO, considered a return or premiums paid.

Question 21

Endowment Policies

Answer 21

contract for payment of face amount at end of a fixed period, at a specified age, or at insureds death

Question 22

Graded Premium Whole Life

Answer 22

lower than normal premium rates during first few years.
premiums increase gradually each year
after preliminary period premiums level off and remain constant.

Question 23

Indexed Whole Life

Answer 23

death benefit increases according to inflation

Question 24

Limited Pay Whole Life

Answer 24

premium payments only made for a limited # of years

Question 25

Modified Endowment (MEC)

Answer 25

amount owner pays during first years exceeds level that would have been payable to provide paid up future benefits in 7 years

Question 26

Single Premium Whole Life

Answer 26

Whole Life Insurance, premium paid all at once up front.