Chapter 3- Whole Life + T100

Question 1

Concept of Permanent Insurance

Answer 1

• Coverage over entire life of insured

- extended protection for risks that don’t expire

Question 2

Permanent Insurance

Answer 2

• Premiums stay level
• early year premiums higher
• excess amt builds up reserve, funds higher cost of insurance later

Question 3

Types of permanent Insurance (3 W.T.U)

Answer 3

1. Whole life
2. Term-100 (T-100)
3. Universal Life

Question 4

Whole life insurance

Answer 4

• Coverage for entire life
• premiums stay the same
• Cash Surrender Value (CSV)

Question 5

term-100

Answer 5

• Coverage for entire life–> Matures at 100 years old (no more premiums , no CSV)
• Savings from excess premiums

Question 6

Universal Life

Answer 6

Coverage for entire life

• savings b/c of excess premiums
• savings ->tax Sheltered if part of Death benefit
• Savings ->tax deferred if withdraw before death
• flexibile

Question 7

Overview of whole life ins

Answer 7

• Guarantees premiums, DB, CSV
• Doesn’t expire, No renewal
• cannot be cancelled
• early year premiums in excess= Policy reserve
• Policy reserve reinvested to grow, later on offsets when premiums not enough

Question 8

How premiums are set

Answer 8

Premiums based on assumptions on:

• Mortality Costs
• Expenses
• Investment returns

Periodic premiums calculated using modal factor

Question 9

Mortality Costs

Answer 9

• approximates insurance companies cost of paying death benefit
  formula: face amount X life insured probability of death in year

Question 10

Expenses that premiums cover (4- s.u.i.p)

Answer 10

• Cost to sell policy
• Underwriting
• Investigating claims
• Paying death benefit

Question 11

Whole life Premium options (3 O.S.LP)

Answer 11

1. Ongoing premiums
2. Single Premiums
3. Limited payment

Question 12

Ongoing Premiums

Answer 12

• Traditional form

- Fixed premium for entire contract

Question 13

Single Premium

Answer 13

• Single lump sum premium, lasts entire lifetime

- referred to as “paid up”

Question 14

Limited Payment

Answer 14

-Premiums payable for specific period of time or to specific age

Question 15

Death benefit options (2)

Answer 15

1. Guaranteed whole life

2. Adjustable whole life

Question 16

Guaranteed whole life death benefit option

Answer 16

• Death benefit + premiums guaranteed not to change

- Insurance company takes all the risk

Question 17

Adjustable whole life (Death benefit option)

Answer 17

• Death benefit and premiums guaranteed for certain time, then compared to actual projections AND adjusted periodically to reflect actual experience
• policy holder bears risk

Question 18

Non participating policy

Answer 18

• excess revenue keeps policy reserve at required levels

- If excess revenue not req for policy reserve–> ins co keeps as profit

Question 19

Participating policies

Answer 19

• excess revenue keeps policy reserve at required levels

- may distribute some/all as policy dividend to participating policy holders

Question 20

Dividend payment options (participating) C.P.A.P.T

Answer 20

-Cash
-Premium reduction
-Accumulation
-Paid up additions
Term Insurance
Impact of Death benefit nad cash values (??)

Question 21

Cash dividend payment option

Answer 21

-Ins co pays dividends by chq or direct deposit

Question 22

Premium reductions

Answer 22

Insurance co applies policy dividend to reduce premiums

if policy dividend more then premium- excess paid out or allocated

Question 23

Accumulation

Answer 23

Ins co. deposits dividend in seperate accumulation account, invested for growth

Question 24

Paid up additions

Answer 24

Annual policy dividend used as single premium to buy MORE whole life insurance

• same base as initial policy
• has own death benefits csv

Question 25

Term Insurance

Answer 25

Single premium used to buy 1 yr term insurance

-evidence of insurability not req

Question 26

Impact on death benefits and cash values

Answer 26

Participating policy dividend may affect DB and CSV:

• PUA may increase CSV and Death benefit
• Accumulation may increase death benefit
• Term insurance may temporarily increase death benefit (for the term)

Question 27

Non Forfeiture benefits

Answer 27

• cash surrender value (CSV)
• Automatic premium loans (APL)
• Reduced paid up insurance
• Extended Term insurance

Question 28

Cash surrender values

Answer 28

• if polidy holder cancels policy, means they surrendered

- CSV: amount insurnace co. pays to policy holder if surrender contract (may be taxable)

Question 29

Cash surrender values :Surrender charges

Answer 29

-surrender charges against the policy cash value to deter ppl from surrendering before recoup expenses

Question 30

Cash surrender values: Policy loans

Answer 30

• Can get policy loan from insurance company up to 90% of CSV
• Csv and death benefit reduced by outstanding loans and interest

Question 31

Automatic premium loan (APL)

Answer 31

• If policy holder misses a pmt, ins co makes loan against CSV for the amt
• used until total policy loans + interest = 90% of CSV) then policy is canceled, rest of CSV goes to policy holder

Question 32

Reduced paid up insurance

Answer 32

• allows policy holder to stop paying premiums and still keep SOME life insurance
• amount depends on amount of CSV and attained age
• no evidence on insurability req

Question 33

Extended term insurance

Answer 33

???

Question 34

Limited payment whole life insurance

Answer 34

provides coverage for life but premoium only required for certain period of time
- premiums higher

benefits: add later