Chapter 5-Whole Life Insurance Flashcards
What are the characteristics of a whole life policy?
- Provides permanent protection
- Contains a cash value
- Premiums can be tailored somewhat with single premium, limited pay, or ordinary whole life
- Face amount payable at death
(May have dividend options and conversion options to other permanent policies)
What are the characteristics of an ordinary whole life policy?
- The reserve eventually reaches the face amount of the policy
- Has the lowest reserve element of any permanent policy
What are the characteristics of a life policy loan?
- May be taken more than once
- Must be repaid by borrower, surrender value, or death benefit
- Sometimes carry a variable loan rate
What are the uses of policy dividends?
- Pay up the policy
- Buy additional insurance (paid up additions or more term coverage)
How does limited pay insurance differ from an ordinary life policy?
- The length of the premium paying period is shorter
- The annual premium is larger
- The cost of coverage is less if death occurs early
What are the characteristics of a vanishing premium policy?
- No guarantee that the premium paying period will end
- Premiums vanish due to dividends which could change and result in a need to pay premiums
Does a joint life policy result in paying more or less premium than single policies on each person for half the amount?
-The premiums would be more for a joint policy than for two policies half the joint amount
How are saving achieved on whole life policies (special policies)?
- A lower expense rate per $1,000 of coverage by purchasing a minimum that lowers the average cost
- A lower mortality rate among insureds (preferred risk)
What are the characteristics of a current assumption whole life policy?
- Resets the premium at specified dates
- Cash value interest rates vary
- Guarantees minimum death benefit
- Guarantees minimum interest rate
(Some policies have maximum mortality and expense charges)
(Current assumption life policies combine characteristics of adjustable and universal life policies)
What are the options if a current assumption whole life policy premium is lowered after redetermination?
- Continue with the past premium and enhance the policy’s cash value
- Pay the lower premium
(To continue paying the old premium and increase the death benefit, evidence of insurability would be required)
What are the characteristics of adjustable life policies?
- Guarantees cash values, mortality costs, and expenses
- Avoidance of investment risks by the policy owner
- Ability to reconfigure the policy at specified intervals
- Premiums that are fixed and inflexible between policy adjustments
- During reconfiguration, policy owner has the right to adjust premiums, face amount, and cash value without evidence of insurability
(Increasing or decreasing the death benefit requires evidence of insurability)
What are the forms of joint life policies?
- First-to-die
- Second-to-die (survivorship policy)
What is an interest sensitive whole life policy?
Current assumption policies that guarantee mortality and expense charges do not exceed a certain level
What is an indeterminate premium whole life policy?
-Current assumption policy where the expense charge and interest rate are not guaranteed
(Mortality charges are guaranteed not to exceed a certain level)
What is redetermination?
Process of reconfiguring policy premiums on specified dates based on mortality, interest, and expenses