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Life Insurance Exam > Chapter 4 - Summary > Flashcards

Chapter 4 - Summary Flashcards

1
Q

Term Life

A
  • temporary life insurance provided for a specific period of time.
  • “Pure Life Insurance”
  • greatest amount of coverage for the lowest premiums.
  • Provides “Pure Death Protection”
  • No cash value or any living benefits available
  • If the insured dies during the policy term, the policy pays a death benefit to the beneficiary
  • If the policy is canceled or expires prior to the insured’s death, nothing is payable.
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2
Q

Pure Death Protection

A
  • If the insured dies during the policy term, the policy pays a death benefit to the beneficiary
  • If the policy is canceled or expires prior to the insured’s death, nothing is payable.
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3
Q

Level Term Insurance

A
  • most common type of temporary protection
  • the death benefit does not change through the life of the policy
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4
Q

Decreasing Term Policies

A
  • feature a level premium
  • death benefit that decreases each year
  • Used primarily when the amount of protection needs to decrease over time.
  • most commonly used for insuring the payment of a mortgage.
  • the policy amount decreases as the outstanding mortgage loan balance decreases each year.
  • the death benefit will be zero dollars at the end of the policy term
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5
Q

What is the most common type of term life insurance?

A

Level Term Insurance

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6
Q

When is decreasing term policies used?

A

when the amount of protection needs to decrease over time such as a mortgage.

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7
Q

How much of the death benefit will be left at the end of a decreasing term life policy?

A

Zero

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8
Q

Increasing Term Life Policies

A
  • Level premiums
  • Death benefit that increases each year
  • amount of increase is set a specific amount or percentage
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9
Q

Most term policies are…

A
  • Renewable
  • Convertible
  • Renewable and convertible
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10
Q

Renewable Term Policy

A
  • allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability.
  • The premiums for the new term policy will be based only the insured’s current attained age.
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11
Q

Convertible Term Policy

A
  • allows the policy owner the right to convert the coverage to ta permanent whole life insurance policy without evidence of insurability.
  • The premium for the new whole life permanent policy will be based only on the insured’s current attained age.
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12
Q

Whole Life

A
  • Permanent life insurance
  • policy remains in effect to the age 100 as long as premium is paid
  • lifetime protection
  • savings element/cash value
  • the cash value created by the payment of premiums is scheduled to equal the face amount of the policy at age 100.
  • Premiums for whole life polices are higher than those for term insurance.
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13
Q

Level Premiums of Whole Life

A
  • based on age of the individual, when originally purchased
  • premiums remain the same throughout the entire life of the policy
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14
Q

Level Death Benefit of Whole Life

A
  • the death benefit is guaranteed and remains level for the entire lifetime of the policy.
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15
Q

Cash Value of Whole Life

A
  • Accumulation of premiums is scheduled to equal the face amount of the policy when the insured reached age 100.
  • also referred to as “Nonforfeiture Values”
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16
Q

Living benefits of whole life

A
  • a policy owner can borrow against the cash value while the policy is in effect
  • can receive the cash value when the policy is surrendered.
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17
Q

Nonforfeiture Values is also known as…

A

Cash Value

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18
Q

what are the three types of term insurance?

A
  • level term insurance
  • increasing term insurance
  • decreasing term insurance
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19
Q

what are the three types of whole life insurance?

A
  • straight whole life
  • limited pay whole life
  • single premium whole life
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20
Q

Straight whole life

A
  • the policy owner pays a fixed premium for the time the policy is issued until the insured’s death or age 100.
  • also called Continuous Premium Whole Life
21
Q

Limited Pay Whole Life

A
  • Designed so that the premiums for the coverage will be completely paid up well before age 100.
  • most versions are 20 year pay/coverage completely paid in 20 years or Life paid up by 65.
22
Q

Single Premium Whole Life

A
  • a onetime lump sum payment is made, while will provide a level death benefit to the insured at age 100.
  • policy is completely paid up and will generate cash cash value immediately
23
Q

Rights of Ownership

A
  • assignment provision that specifies the policy owner’s right to transfer ownership of the policy.
24
Q

What are the types of policy assignments?

A
  • Absolute assignment
  • Collateral assignment
25
Q

Absolute Assignment

A
  • involves transferring all rights of ownership to another person or entity.
  • permanent and total transfer of all the policy rights
  • new policy owner does not need to have an insurable interest in the insured
26
Q

Collateral Assignment

A
  • involves a transfer of partial rights to another person
  • usually done to secure a loan
  • temporary assignment
  • once the debt or loan is repaid, the rights are returned to the policy owner
27
Q

Standard Policy Provisions

A
  • the standard policy provisions adopted by the (NAIC) does create uniformity amongst life insurance policies.
28
Q

Entire Contract Provision

A
  • stipulates that the policy and copy of the application along with any riders or amendment’s makeup the entire contract.
29
Q

Insuring Clause

A
  • the insurance company’s agreement and promise to pay the death benefit.
30
Q

Consideration Clause

A
  • the policy owner’s promise to make premium payments.
31
Q

Free Look Provision

A
  • allows the policy owner a free look at the policy for a specific number of days.
  • the free look period starts when the policy owner receives the policy from the insurance company in the mail, or is delivered by an insurance agent.
32
Q

Grace Period Provision

A
  • the period of time after the premium payment is due
  • usually 30 days
  • purpose is to protect the policyholder against an unintentional lapse of the policy.
  • if the insured dies during this period the benefit is payable, however any past due premiums will be deducted from the death benefit.
33
Q

Reinstatement Provision

A
  • allows a lapsed policy to be put back in force
  • if the policy owner elects to reinstate the policy, they will have to provide evidence of insurability, pay all back premiums with interest and may be required to repay any outstanding loans.
34
Q

Policy Loan Provision

A
  • only in polices that contain cash value
  • the policy owner is allowed to borrow an amount equal to the available cash value
  • if there are any outstanding loans at the time of the insured’s death, the death benefit will be reduced by the amount of the outstanding loan.
35
Q

Incontestable Clause

A
  • prevents the insurance company from denying a claim because of incorrect information or a concealment of facts after the policy has been in force for two years.
36
Q

Suicide Provision

A
  • protects insurance companies against people using suicide for a quick payment of the death benefit.
  • If the insured commits suicide within the first two years, the insurance company will not pay the death benefit, only premiums that have been paid will be returned.
37
Q

Misstatement of Age/Sex Provision

A
  • allows the insurance company to adjust the policy at any time due to a misstatement of age or gender.
  • in the event of a claim, the insurance company is allowed to adjust the death benefit or the premium to the correct age or gender.
38
Q

Automatic Premium Loan Provision

A
  • added to contracts with cash value at no additional charge
  • special type of loan that prevents the unintentional lapse of policy due to the nonpayment of premiums.
  • If the policy owner misses a premium payment, the payment is automatically paid using the policies cash value.
39
Q

Exclusions

A
  • The types of risks that an insurance policy will not cover.
40
Q

What are the most common types of exclusions found in life insurance policies?

A
  • War
  • Aviation (non-commercial pilot)
  • Hazardous Occupation or Hobbies
  • Commission of a Felony
  • Suicide
41
Q

Nonforfeiture Options

A
  • if a whole life policy owner has cash value and the policy owner wants to surrender the policy because he does not want it anymore, he must make a decision on what he would like to do with his cash value using cash surrender, reduce paid-up, or extended term.
42
Q

Cash Surrender Option

A
  • take the cash
43
Q

Reduced Paid Up Option

A
  • the cash value is used to purchase a paid up whole life policy
  • the new whole life policy will have a smaller or reduced face amount from the original policy.
  • there will not be anymore premium payments due and it will continue to gain cash value.
44
Q

Extended Term Option

A
  • cash value is used to purchase a term policy
  • new term policy will have the same face value amount as the original whole life policy.
  • it will last for a set period of time based on the amount of cash value available.
  • no additional premium payments due
45
Q

Dividends

A
  • paid only on participating policies
  • when a policy owner purchases a policy form a participating insurance company, they are eligible to receive dividends.
46
Q

What are the five options when receiving dividends?

A
  • Take dividends in cash
  • apply dividends against premium payments
  • allow dividends to accumulate interest
  • buy paid up additions (whole life policy)
  • purchase one year term insurance
47
Q

Policy Riders

A
  • added to a policy and ride along on the basic life insurance policy.
  • only have value when attached to a policy/have no independent value.
  • added to help people customize their insurance policies for their individual needs.
  • they cost money and their cost is added to the life insurance policy premium.
48
Q

Guaranteed Insurability Rider

A
  • allows the insured to purchase additional coverage at specific future dates without evidence of insurability
  • new premiums will be calculated only on the person’s attained age.
49
Q

Waiver of Premium Rider

A
  • waives the premium for the policy if the insured becomes totally disabled.
  • usually a six-month waiting period from the time of disability is imposed by insurance companies.
  • coverage remains in force until the insured is able to work
  • if the insured is never able to return to work, the premiums will continue to be waived by the insurance company.
  • expires when the insured reaches age 65.

Life Insurance Exam (5 decks)

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