Chapter 4-Term Insurance

Question 1

What policy has been nearly eliminated due to income tax laws?

Answer 1

Endowments because they are now treated as investment vehicles instead of protection so there is no favorable income tax treatment of cash value buildup like other policies

Question 2

What is the advantage of the renewability feature of a term policy?

Answer 2

No need for evidence of insurability

Question 3

What is the disadvantages of the renewability feature of a term policy?

Answer 3

• Rates rise at renewal

- Limitations on the number of times a policy can be renewed (renewal stops at a certain age)

Question 4

What are the advantages of the conversion feature?

Answer 4

• Evidence of insurability is not required
• Guarantees access to permanent protection

(For conversion anytime during a term policy, evidence of insurability may be required)

Question 5

What are the characteristics of the retroactive method of converting a term life policy?

Answer 5

• Premium rate is based on the age of the insured when the term policy was issued
• Permanent policy uses the policy form from the term policy issue
• Lump sum financial adjustment is made by the policy owner to the insurer when the conversion takes place

Question 6

What are the conversion options?

Answer 6

• Attained age
• Retroactive

(There are conversion option limitations such as age or after a period of time)

Question 7

How does reentry/select and ultimate term insurance work?

Answer 7

• There are two premium schedules
• Select rates are available if the insured provides new evidence of insurability at renewal dates and other dates specified by the insurer
• Higher premium schedules are for those who are unable to provide new evidence of insurability at renewal dates and other dates

Question 8

What type of life insurance is a mortgage redemption policy?

Answer 8

Decreasing term

Question 9

Is term coverage suitable for temporary and/or permanent coverage?

Answer 9

-Both, for purely temporary and for permanent if there is a convertibility feature and financing for a permanent policy is not currently possible

Question 10

What are the advantages of buying whole instead of term and investing the difference?

Answer 10

• Life insurance companies have an excellent record of diversifying investments
• Life policy’s cash values receive Federal income tax advantages
• Life insurance cash values are convertible to cash on short notice without significant loss of value

Question 11

What types of non level face amount policies are there?

Answer 11

• Decreasing (mortgage policies)

- Increasing (face amount plus premium payment return)