Chapter 3: Types of Policies

Question 1

An added benefit attached to the policy that supplements existing coverage. It is usually added at the time of the application and typically requires a small increase in premium

Answer 1

Rider

Question 2

The death benefit amount payable or coverage provided on a life insurance policy. Also referred to as the limit of liability

Answer 2

Face Amount

Question 3

The point at which the policy’s cash value in a whole life policy accumulates to equal the face amount and the proceeds are paid to the policy owner

Answer 3

Endow (Mature)

Question 4

Money accumulated in a permanent whole life policy that is considered a living benefit which the policyowner may borrow against or receive if the policy is surrendered before the insured dies

Answer 4

Cash Value

Question 5

Considered pure insurance and provides death benefit. Does not offer any cash value or living benefits; less expensive policies. Considered “temporary” life insurance. Periods could be as short as 1 year or provide coverage for a specific amount of time such as 5,10,20 years.

Answer 5

Term Insurance

Question 6

A term policy that the death benefit remains level and the premiums remain level during the policy term

Answer 6

Level

Question 7

A term policy that the death benefit decreases, but premiums remain level for the policy term
IE: Usually sold as “mortgage protection”

Answer 7

Decreasing

Question 8

A special form of decreasing term policy.

IE: Personal loans, loans to purchase appliances (motor vehicles, educational loans.

Answer 8

Credit Life Insurance

Question 9

A term policy that the death benefit increases over the life of the policy while the premiums remain level. Normally written as a rider to provide cost of living or return of premium benefits

Answer 9

Increasing

Question 10

Simplest form of term life insurance. Death benefit stays level and the premiums increase yearly as the policy renews up to a specified age

Answer 10

Annually Renewable Term

Question 11

The right to convert a term policy to a whole policy without a physical

Answer 11

Convertible

Question 12

Designed to provide coverage for an entire lifetime. It matures (endows) at the insured’s age of 100 when the face amount equals the cash value. The net amount at risk is the face value minus cash value (as cash value increases the net amount at risk decreases); level premiums/face amount. CANNOT be convertible or renewable

Answer 12

Permanent Insurance (Traditional Whole Life)

Question 13

Premium is level and payable to age 100 or death of the insured, whichever comes first. Face amount remains level throughout the life of the policy; highest total premium outlay

Answer 13

Straight Life/Continuous Premium

Question 14

Premium payments are for a specified time (20-Pay Life or 30-Pay Life) or to a specified age (Life Paid up at 65); Face amount (death benefit) remains level and cash value continues to earn interest and mature at age 100. Annual premium is higher but total premium outlay will be lower

Answer 14

Limited Payment

Question 15

Premium that is like a non-participating whole life plan; company will charge a “current” premium based on its current estimates of investment earnings, mortality, and expense costs

Answer 15

Indeterminate Premium

Question 16

Premium that begins lower for the initial 5 years then increases and will remain level throughout the balance of the policy; designed for individuals who cannot afford the premiums of ordinary whole life

Answer 16

Modified Premium

Question 17

A type of permanent life insurance that combines features of term and whole life; gives the policyowner the option to change the characteristics of their policies; more appropriate for people who’s income fluctuates

Answer 17

Adjustable Life

Question 18

Form of whole life that the insurance company can change the premiums or interest rate based on current money market rates. Policy has a guaranteed minimum death benefit but may increase based on the growth of the cash value.

Answer 18

Sensitive Whole Life (Nontraditional Whole Life)

Question 19

Policy that gives policyowners the opportunity to decide the % of cash value that is invested in traditional fixed income securities. Remainder of cash value invested in an equity index account linked to a stipulated stock index.

Answer 19

Indexed Universal Life (Equity Indexed)

Question 20

This type of policy features insurance protection and savings element (cash value) that grows on a tax-deferred basis. Unbundled policy; has built-in guarantees regarding the cost of insurance (mortality risk) and the interest rates applied to cash value

Answer 20

Universal Life (Flexible Premium Adjustable Life Insurance

Question 21

Pays the face amount of the policy and provides a level death benefit; as cash value increases the companies risk decreases; Will benefit from larger cash value accumulations

Answer 21

Option A Death Benefit for UL

Question 22

Pays the face amount stated in the contract which is level term, plus any cash values accumulated over the years. Provides for an increasing death benefit. Mortality charge is higher out of the 2 options

Answer 22

Option B Death Benefit for UL

Question 23

A whole life policy with certain benefits that will vary based on market conditions.

Answer 23

Variable Life

Question 24

The policy provides for flexible premiums and adjustable death benefits. It does not have a general only a separate account; premiums are credited to the separate account and there is no guaranteed minimum death benefit

Answer 24

Variable Universal Life

Question 25

Any policy written on the life of a minor, automatically increase in the face amount at a given age (usually 21 to 25) w/o evidence of insurability

Answer 25

Juvenile (Jumping Juvenile)

Question 26

To cover 2 or more lives, death benefit is paid upon the first injured to die. Once payment is made, the policy no longer exists. Premiums are based upon joint issue age = average of both insured’s ages resulting in a lower premium than 2 separate polices. Designed to provide income protection for the surviving spouse when both have earned income

Answer 26

Joint Life (First to Die)

Question 27

This whole life policy is written to cover 2 or more lives, and the death benefit is not paid until the last insured dies. Premiums are based upon a joint issue age which is obtained by an average of both insureds’ ages resulting in a lower premium than 2 separate polices. Often purchased to provide a lump sum benefit to pay estate taxes once the second spouse dies.

Answer 27

Joint Survivorship Life (Last to die)

Question 28

Policy provides for a full refund of premiums if the insured is still living at the end of the term. Policy charges a higher premium than level term insurance

Answer 28

Return of Premium Term

Question 29

The longer the term period, the higher the initial term ________.

Answer 29

Premium