Chapter 5

Question 1

what are some common personal needs thats life insurance can meet?

Answer 1

dependents support
estate planning
paying debt
final expenses

Question 2

Are lump sum death benefits paid to the beneficiary taxable?

Answer 2

not typically

Question 3

define estate

Answer 3

the accumulated assets that an individual owns when he dies. Can include cash, bank, investments account, real estate, personal possessions and possibly ownership interests in a business.

Question 4

How is an estate divided following a death, and how can an individual control this?

Answer 4

its distributed according to the will, a legal document that directs how the individual property is to be distributed after their death

Question 5

what is an executer?

Answer 5

the personal representative to appoint and settle the deceased person’s estate.

Question 6

what is the name given to the personal representative, if the person died without a will?

Answer 6

an administrator

Question 7

What are the two reasons a business / owner may want to purchase life insurance?

Answer 7

1. provide funds to ensure that the business continues in the death of an owner, partner, or key person
2. provide benefits for its employees

Question 8

What is a business continuation insurance plan?>

Answer 8

a plan designed to enable a business owner to provide for the business’ continued operations if the owner or key person dies.

Question 9

what is key person life insurance

Answer 9

is individual insurance that a business purchases on the life of a key person. When a business purchases this plan they pay the premiums on, and is the beneficiary of the insurance.

Question 10

define a buy-sell agreement, and both ways it can take place

Answer 10

an agreement in which on party agrees to purchase the financial interest that a second party has in a business following the second parties death and the second party agrees to direct his estate to sell his interest in the business to the purchasing party.

Question 11

how is term life insurance applied?

Answer 11

provides a death benefit only in the insured dies during the period specified in the policy “during the term”

Question 12

what are the two conditions that have to be met for a term life insurance policy to be payable?

Answer 12

1. the insured dies during the policy term

2. the policy is in force when the insured dies.

Question 13

when is the policy anniversary?

Answer 13

the date on which coverage under the policy became effective

Question 14

what is the most common plan of term insurance, and why?

Answer 14

the level term insurance, which provides a policy benefit that remains the same over the term of the policy.

Question 15

define decreasing life term insurance

Answer 15

provides a policy benefit that decreases in amount over the term of coverage. the policy benefit begins as a set face amount and then decreases over the policy term according to some stated method that the policy describes.

Question 16

what are three common reasons/ debt sources that one would buy a decreasing term insurance to cover?

Answer 16

1. mortgage life insurance
2. credit life insurance
3. family income insurance.

Question 17

what is mortgage life insurance?

Answer 17

is a plan of decreasing term insurance designed to provide a benefit amount that corresponds to the decreasing term insurance desgined to provide a benefit amount that corresponds to the decreasing amount owned on a mortgage loan.
the term is based on the length of the mortgage

Question 18

What is credit life insurance, and how is it payable?

Answer 18

type of term life insurance desgined to pay the balance due on a loan if the borrower dies before the loan is repaid

Question 19

which type of life insurance (credit or mortgage) always provide that the policy benefit is payable directly to the lender?

Answer 19

credit

Question 20

what is family income coverage?

Answer 20

is a plan of decreasing term life insurance that provides to the beneficiary a stated monthly income benefit amount if the insured dies during the term of coverage,.
sometimes the insuere promises to pay the income benefit amount for at least a stated minimum number of years if the insured dies during the policy term

Question 21

what is the most commonly purchased policy rider to a cash value insurance policy?

Answer 21

family income coverage

Question 22

what is another name for policy rider, and define it.

Answer 22

an endorsement is an amendment to an insurance policy that becomes part of the insurance contract and either expands of limits the benefit payable under the contract

Question 23

when would some one use a rider?

Answer 23

to provide supplementary benefit or to increase the amount of a policy’s death benefit.

Question 24

what is included in the family income policy?

Answer 24

a cash value life insurance policy with a family income coverage rider

Question 25

Define an increasing term insurance plan, and how does it pay out?

Answer 25

provides a death benefit that starts at one amount and increases by some specified amount or percentage at stated intervals over the policy term.

Question 26

when would someone typically use an increasing term insurance plan?

Answer 26

purchased as rider

usually limited time to meet specific need, such as providing funds for a child education.

Question 27

is increasing term insurance common?

Answer 27

no,

Question 28

what is a renewable term policy

Answer 28

a term life insurance policy that gives the policy owner the option to continue the coverage at the end of the specified term without presenting evidence of insurability.

Question 29

what is renewal provision

Answer 29

give the insured the right to continue coverage without presenting evidence of insurability
- typical right to renew the coverage for the same term and face amount.

Question 30

what are the most common restrictions to renewable term insurance polices in terms of renewal?

Answer 30

1. coverage may be renewed only until the insured attains a stated age
2. the coverage may be renewed only a stated maximum number of times.

Question 31

how is the payment affected during a renewal?

Answer 31

the premium increase because the person is older

Question 32

most one year term insurance policies and riders are yearly renewable term insurance or annyally renewable term insurance. What does that mean?

Answer 32

they are renewable for a stated number of years.

they can get very expensive so now adays most of them have policy terms of 5-30 yrs.

Question 33

What is a convertible term insurance policy?

Answer 33

it gives the policyownder the right to convert the term policy to a cash value life insurance policy. They contain certain conversion privilege that allows for conversion of term to cash value policy WITHO)UT evidence.

Question 34

the specified amount of premium charged for the cash value insurance coverage provided following a conversion depends on what?

Answer 34

the effective date of the cash value for the life insurance policy

Question 35

what is more common when converting- to use an attained age conversion or an original age conversion and why?

Answer 35

attained, because if you use original you ow the lump sum at time of conversion of the difference on premiums between the original and attained age at conversion.

Question 36

what is return of premium term insurance?

Answer 36

a form of term life insurance that provides a death benefit if the insured dies during the policy term and promises a return of premiums if the insured does not die during the policy term.

Question 37

when could a person get back the premiums for an ROP if still alive during the policy period?

Answer 37

if they cancel before the end of term; the longer the policy is kept in force the greater the percentage of premium that is returned.

Question 38

what is a disadvantage of an ROP?

Answer 38

most are only for 15 year terms

premiums are 25% higher than for a comparable term policy without return of premium features.