Chapter 6

Question 1

What is an Accelerated Benefit (Option) Rider?

Answer 1

This rider allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness that’s certified by a physician and is expected to die within one to two years.

Question 2

Who is a Beneficiary?

Answer 2

This is the person (or entity) who’s designated in a life insurance policy to receive the death proceeds.

Question 3

What is Cash Value in life insurance?

Answer 3

This is the equity or savings element of whole life insurance policies.

Question 4

What does Class Designation refer to?

Answer 4

This is a beneficiary group designation (e.g., all of a person’s children), opposed to specifying one or more beneficiaries by name.

Question 5

What is the Common Disaster Provision?

Answer 5

This provision ensures that death benefits will be paid to the contingent beneficiary if both the insured and the primary beneficiary die within a short period of time of one another.

Question 6

What is a Contingent (Secondary) Beneficiary?

Answer 6

This is the beneficiary who’s second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.

Question 7

What is Earned Premium?

Answer 7

This is the amount of premium that’s paid by the policy owner for policy coverage or insurance protection up to a specific point.

Question 8

What is the Expense Factor?

Answer 8

Also referred to as the loading charge, this is a measure of what it costs an insurance company to continue to operate.

Question 9

What does Excess Interest mean in life insurance?

Answer 9

This provision means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate.

Question 10

What is the Fixed Amount Installment Option?

Answer 10

This option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

Question 11

What is Fixed/Level Premium?

Answer 11

This concept averages what the total single premium would be for a policy over periodic payments.

Question 12

What does Fixed Period or Period Certain Option refer to?

Answer 12

This payment option pays the death benefit proceeds in equal installments over a set number of years.

Question 13

What is Graded Premium?

Answer 13

This premium funding option is characterized by a lower premium in the early years of the contract, with premiums increasing annually for an introductory period.

Question 14

What is Gross (Annual) Premium?

Answer 14

An insurer’s gross premium consists of the net premium for insurance PLUS commissions, operating and miscellaneous expenses, and dividends.

Question 15

What is the Interest Factor?

Answer 15

This is the calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums.

Question 16

What is the Interest Only Option?

Answer 16

This is a death settlement option in which the insurance company holds the death benefit for a period and pays only the interest that’s earned to the named beneficiary.

Question 17

What is an Irrevocable Beneficiary?

Answer 17

This is a beneficiary that cannot be changed by the policy owner without the written consent of the beneficiary.

Question 18

What is the Joint and Survivor Option?

Answer 18

This is a settlement option which guarantees that benefits will be paid on a life-long basis to two or more people.

Question 19

What is the Life Income Option?

Answer 19

This is a death benefit settlement option which provides the beneficiary with an income that she cannot outlive.

Question 20

What is a Life Settlement?

Answer 20

This is an agreement in which a policy owner sells or transfers ownership in all or part of a life insurance policy to a third party for compensation that’s less than the expected death benefit of the policy.

Question 21

What is the Lump-Sum Option?

Answer 21

This is a death settlement option in which the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums.

Question 22

What is Modified Premium?

Answer 22

This is a premium funding option which is characterized by an initial premium that’s lower than it should be during an introductory period.

Question 23

What is Morbidity Rate?

Answer 23

This rate demonstrates the incidence and extent of disability that may be expected from a given group of people.

Question 24

What is Mortality Rate?

Answer 24

This rate is the measure of the number of deaths in some population, scaled to the size of that population, per unit time.

Question 25

What is the Net Payment Cost Index?

Answer 25

This is a formula that’s used to determine the actual cost of a policy for a policy owner.

Question 26

What is Net (Single) Premium?

Answer 26

This is a premium calculation that’s used to calculate an insurer’s policy reserves factoring in interest and mortality.

Question 27

What does Per Capita mean?

Answer 27

This form evenly distributes benefits among all named living beneficiaries.

Question 28

What does Per Stirpes mean?

Answer 28

This form evenly distributes benefits among an insured’s beneficiaries according to the family line, branch, or root.

Question 29

What is Premium Mode?

Answer 29

This is the frequency in which a policy owner elects to pay premiums.

Question 30

Who is a Primary Beneficiary?

Answer 30

This is the first beneficiary in line to receive benefit proceeds upon the death of an insured.

Question 31

What are Policy Proceeds?

Answer 31

This is the amount actually paid as a death, surrender, or maturity benefit.

Question 32

What are Reserves in insurance?

Answer 32

This is the money an insurer sets aside to pay future claims.

Question 33

What is a Revocable Beneficiary?

Answer 33

This is a beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary.

Question 34

What are Settlement Options?

Answer 34

These are optional modes of settlement that are provided by most life insurance policies.

Question 35

What is Single Premium Funding?

Answer 35

This is a policy funding option in which the policy owner pays a single premium that provides protection for life as a paid-up policy.

Question 36

What is a Spendthrift Clause?

Answer 36

This clause prevents creditors from obtaining any portion of policy proceeds upon an insured’s death.

Question 37

What is the Surrender Cost Index?

Answer 37

This is a cost comparison calculation formula which is used to determine the average cost-per-thousand for a policy that’s surrendered for its cash value.

Question 38

What is a Tertiary Beneficiary?

Answer 38

This is the third beneficiary in line to receive death benefit proceeds.

Question 39

What is the Underwriting Department?

Answer 39

This is the department within an insurance company that’s responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

Question 40

What is Unearned Premium?

Answer 40

This includes the premium that has been paid by a policy owner for insurance coverage which has not yet been provided.

Question 41

What is the Uniform Simultaneous Death Act?

Answer 41

This act states that if the insured and the primary beneficiary die in a common accident at approximately the same time, the law will assume that the primary died first.

Question 42

What is a Viatical Settlement?

Answer 42

This settlement involves a person with a terminal illness selling his existing life insurance policy to a third party for a percentage of the death benefit.

Question 43

Who is a Viatical (Viatee)?

Answer 43

This is the new third-party owner in a viatical settlement.

Question 44

Who is a Viator?

Answer 44

This is the original policy owner in a viatical settlement.