Chapter 4: Life Insurance and Whole Life Flashcards
Three main types of life insurance?
Ordinary
Industrial
Group
Term, Whole, Universal, Variable, and Other interest sensitive life insurance plans, are all types of ______ life insurance
ordinary
_______ life emcompasses home service insurance, issued in small face amounts such as 1,000 or $5,000
Industrial
_____ life insurance is written for members of an entity, such as employer/employee, Association, Union, or Creditor/Debtor
Group - underwritten as a whole group, not based on individual
“Pure death protection” refers to term life insurance and means what?
No living benefits such as cash accrual and policy loans
At what age can term life policies no longer be renewed?
75
_____ life insurance is appropriate for a person wanting to insure a short or long term debt, such as a car loan or mortgage
Term
______ life insurance is appropriate for young families or professionals who require large coverage amounts but don’t have the financial means to support permanent insurance options
Term
When term life insurance policies are renewed, is the premium based on the original insured’s age or their attained age?
Attained age
Level Terms Insurance provides a level ____ _____ throughout the policy period
Face Amount (Level Term= Level Benefits)
Two types of level term insurance?
______ _______ term and _____ ______ term
Annual renewable
Level Premium
Annual Renewable term (ART) also called Yearly (YRT) provides a _____ face amount with an _____ premium. ART policies do NOT require proof of insurability each year
Level
Increasing
Level Premium Term (also called Level Premium Level Term) provides a ______ face amount with _____ premiums during the policy term
Level
Level
Three main types of term life insurance? All words referring to the “benefit”, as the premium is typically level…
Level
Increasing
Decreasing
Term policies with increasing premiums are called ___ - ____ beccause the initial premium literally increases to a higher amount eaach time the policy is renewed
Step-Rate
____ to ____ policies cover the insured to age 65, with level premiums throughout the term, and the insured has the option of converting to a cash value policy before reaching a certain age
Term to 65
_______ _____ insurance provides a face amount that decreases to zero over the policy period, with level premiums
Decreasing Term, good for mortgage protection
_______ ______ insurance provides an increasing face amount with level premiums
Increasing Term, not very common
_____ _____ also referred to as ______ permits the policyowner to renew a term life policy at the end of the period by providing EOI, which serves to lower the premium
Reentry Term, Reissue (as if a new applicant)
_______ ______ policies have premiums that fluctuate between the current rate and the maximum rate, specified in the policy. These account for the insurers actual mortality expense and investment experience
Indeterminate premium (lower premium in early years)
______ ____ coverage provides instantaneous coverage and is intended for people who plan on purchasing permament life insurance coverage within a year.
Interim Term - typically offered to convert to permanent coverage at a specified date in the future
A new kind of policy called the _____ of _____ term policy, where premiums are generally higher than conventional policies, and are returned to the insured if no death benefit has been paid and are not taxable.
Return of Premium
______ ______ ______ is where the number of years that the term policy will be in force is determined by the average life expectancy for the insured’s age and sex classification
Life Expectancy Contract
TF: Convertible Term coverage allows term life policyowners to convert their term insurance into permanent policies, which will require Proof of Insurability
False - no POI is required
TF: Most convertible term policies use attained age upon conversion
True
TF: For convertible term policies, the premiums under the converted policy will be higher than under the term coverage, because the insured is older, and because permanent life insurance policies are more expensive
True
Pure death protection only is provided by which life insurance policy?
Select one:
a. Term life insurance
b. Whole life insurance
c. Annuities
d. None of the above
A
All of the following are drawbacks of term life insurance, EXCEPT:
Select one:
a. Term insurance can be increasingly expensive.
b. Each time a term life insurance policy is renewed, the premium increases.
c. Living benefits are available to the policyholder in the form of cash accrual.
d. If term insurance must be discarded due to expense or the insured has surpassed the maximum age limit, then the insured may be left without any life insurance protection when it is needed most.
C
Wesley purchases an increasing term life insurance policy. Which of the following elements must increase in Wesley’s policy?
Select one:
a. The premium
b. The interest rate
c. The death benefit
d. The dividend options
C
Blake just bought a home and needs insurance to cover his mortgage. He does not have a lot of money to spend on this coverage. What policy would you recommend to Blake?
Select one:
a. Variable life
b. Increasing term
c. Ordinary whole life
d. Decreasing term
D
Mortgage protection insurance uses what type of life insurance coverage?
Select one:
a. Level premium term
b. Convertible term
c. Decreasing term
d. Annual renewable term
C
Term life insurance provides ________________. Whole life insurance provides _______________.
Select one:
a. pure death protection only; pure death protection only.
b. pure death protection; death benefit and living benefits.
c. death benefit and living benefits; pure death protection only.
d. death benefit and living benefits; death benefit and living benefits.
B
All of the following statements regarding renewable term life insurance policies are false, EXCEPT:
Select one:
a. Renewable term life insurance policies can only be renewed by the insurance company, and the insured must provide evidence of insurability.
b. Renewable term life insurance policies are always convertible.
c. Renewable term life insurance policies may be renewed by the insured as long as evidence of insurability is provided.
d. Renewable term life insurance policies are renewable at the insured’s option.
D
All of the following term life insurance policies have level premiums, EXCEPT:
Select one:
a. Level
b. Decreasing
c. Increasing
d. Annual renewable term
D
Which life insurance policy has annual increasing premiums and does not build cash value?
Select one:
a. Annual renewable term
b. Level premium term
c. Decreasing term
d. Increasing term
A
Sheldon wants a life insurance policy with premiums that do not increase over time. Which of the following policies would you recommend to him?
Select one:
a. Increasing term
b. Annual Renewable term
c. Indeterminate Premium term
d. Convertible term`
A
TF: Whole life insurance = permanent death protection plus living benefits
True
TF: Permanent/Whole life insurance policy premiums are based on the insured’s original age, and remain level for the life of the insured.
True
TF: The cash value in a whole life policy is considered a “Nonforfeiture value,” which means the policyowner is guaranteed and fully entitled to it.
True
TF: If a whole life policyowner stops paying the premium, they forfeit the cash value
False - they can cash out the policy for the cash surrender value
TF: Due to the amount of the agent’s commission in the first year and the expenses associated with effectuating a life insurance policy, permanent policies do not accrue cash value until the fifth policy year
False - third policy year
The face amount of a whole life policy will be paid out to a person if still alive when they reach age _____
100
Two drawbacks to whole life coverage?
More expensive than term
Premium paying period may extend beyond income earning years
Three basic types of Whole Life?
Straight Whole Life
Limited Payment Whole Life
Single Premium Whole Life
_____ _____ ____, also called “continuous premium” or “ordinary life,” has level premiums AND face amount.
Straight Whole Life
____ _____ whole life, the insured is still covered for their entire life, but the premium paying period is only a limited time.
Limited Payment
TF: For limited payment whole life,
20-pay life or 25-pay life, where premiums are paid for 20 or 25 years, respectively
Life paid up at 65, in which case all premiums are paid by the time the insured reaches age 65
True
TF: a limited payment whole life policy accumulates cash value more quickly than a straight whole life policy
True
A ____ ____ whole life policy allows the policyowner to pay the entire premium in one large sum at the outset of the policy, and have permanent coverage.
Single Premium
TF: The Internal Revenue Code requires single premium policy face amounts be at least 100% to 250% of the cash value, contingent upon the insured’s age.
True
Main benefit of single payment whole life
Immediate cash value
TF: Single premium policy is not “front-end loaded”, meaning costs of administering the policy are not deducted from the initial premium. Instead, a surrender charge is levied if the policy is surrendered during its first 10 years.
True
_______ ______ whole life policies provide a lower initial premium that can fluctuate up to a maximum as stated in the policy.
Indeterminate Premium - Lower premium guaranteed for a certain period of time
Judith wants her life insurance policy to grow cash value quickly. Which policy would you recommend to her?
Select one:
a. Straight life
b. 25-pay life
c. Convertible term
d. Reentry term
B
What policy year does cash value begin to accumulate in a whole life policy?
Select one:
a. 1st
b. 2nd
c. 3rd
d. 4th
C
Of the basic types of whole life insurance, which policy has the lowest premium payment?
Select one:
a. Straight life
b. Limited payment
c. Single premium
d. None of the above
A
Blaine wants a life insurance policy that builds cash value the quickest. Which of the following policies best fits Blaine’s needs?
Select one:
a. Reentry term
b. 25-pay life
c. 40-pay life
d. Straight life
B
______________ whole life policies provide a lower initial premium that can fluctuate up to a maximum premium as stated in the policy.
Select one:
a. Continuous premium
b. Straight
c. Indeterminate premium
d. Limited premium
C
Which of the following statements incorrectly describes cash value in an ordinary whole life policy?
Select one:
a. Cash value can be used to pay premiums.
b. Cash value grows on a tax-deferred basis.
c. Cash value may be used as a policy loan, without affecting the death benefit.
d. Cash value is a nonforfeiture value.
C
With respect to whole life insurance, which of the following statements is false?
Select one:
a. Whole life insurance cash values may be withdrawn in part, or in whole.
b. A policyowner may stop paying premiums and surrender the policy for its cash value.
c. If the policy cash values are depleted and no more premium payments are made, the policy will lapse.
d. None of the above
D
Compared to straight life, a limited payment life insurance policy is characterized by all of the following, EXCEPT:
Select one:
a. Policy is paid up before the age of 100.
b. Premiums are higher.
c. Cash value accrues more quickly.
d. Premium-paying period is longer.
D
When considering different types of whole life policies, it is important to know the amount of the premium can vary, depending on the policy chosen. The monthly premium payment would be highest for:
Select one:
a. Current assumption whole life
b. 20-payment whole life
c. 30-payment whole life
d. Continuous premium whole life
B
Ordinary whole life insurance premiums are:
Select one:
a. Fixed
b. Flexible
c. Variable
d. Adjustable
A
