Chapter 5-Whole Life Insurance Flashcards

1
Q

What are the characteristics of a whole life policy?

A
  • 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)

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2
Q

What are the characteristics of an ordinary whole life policy?

A
  • The reserve eventually reaches the face amount of the policy
  • Has the lowest reserve element of any permanent policy
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3
Q

What are the characteristics of a life policy loan?

A
  • May be taken more than once
  • Must be repaid by borrower, surrender value, or death benefit
  • Sometimes carry a variable loan rate
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4
Q

What are the uses of policy dividends?

A
  • Pay up the policy

- Buy additional insurance (paid up additions or more term coverage)

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5
Q

How does limited pay insurance differ from an ordinary life policy?

A
  • The length of the premium paying period is shorter
  • The annual premium is larger
  • The cost of coverage is less if death occurs early
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6
Q

What are the characteristics of a vanishing premium policy?

A
  • 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

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7
Q

Does a joint life policy result in paying more or less premium than single policies on each person for half the amount?

A

-The premiums would be more for a joint policy than for two policies half the joint amount

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8
Q

How are saving achieved on whole life policies (special policies)?

A
  • 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)
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9
Q

What are the characteristics of a current assumption whole life policy?

A
  • 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)

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10
Q

What are the options if a current assumption whole life policy premium is lowered after redetermination?

A
  • 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)

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11
Q

What are the characteristics of adjustable life policies?

A
  • 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)

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12
Q

What are the forms of joint life policies?

A
  • First-to-die

- Second-to-die (survivorship policy)

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13
Q

What is an interest sensitive whole life policy?

A

Current assumption policies that guarantee mortality and expense charges do not exceed a certain level

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14
Q

What is an indeterminate premium whole life policy?

A

-Current assumption policy where the expense charge and interest rate are not guaranteed

(Mortality charges are guaranteed not to exceed a certain level)

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15
Q

What is redetermination?

A

Process of reconfiguring policy premiums on specified dates based on mortality, interest, and expenses

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