Chapter 6

Question 1

what is another name for cash value insurance, and what sets it aside from term insurance?

Answer 1

Permanent life insurance,
its insurance offered throughout the insured’s lifetime and provides a savings element in addition to insurance protection.

Question 2

define whole life insurance

Answer 2

provides lifetime insurance coverage usually at a level premium rate that does not increase as the insured ages.

Question 3

the size of a whole life insurance policy cash value at any given time depends on what number of factors?

Answer 3

the face amount
length of time the policy has been in force
length of policy premium payments period

Question 4

what is the typical growth rate of whole life policies?

Answer 4

slow at first, with no value increase until a couple years after its been in place, then rapid. During the first years the cash value

Question 5

can the owner of a whole life policy use the policy’s cash value as a secured loan?

Answer 5

yes, its called a policy loan, from the insurance comapny its self, but if the applicant dies before the loan is payed back, the amount + interrest is deducted from the benefits

Question 6

what happens if a cash value life insurance policy does not remain in force until the insured’s death?

Answer 6

the insurer agrees to refund the cash value- less any surrender chardes and outstanding policy loans.

Question 7

What term is used for the cash value amount that a policyownder is entitled to receive upon surrender ?

Answer 7

cash surrender valye-

Question 8

what are the two classifications of whole life policies in terms of payments periods?

Answer 8

1. continuous-premium

2. limited-payment policies.

Question 9

how are the payments on continuous-premium policies set up?

Answer 9

premiums are payable until the death of the insured. the payments are usually lower than the other option

Question 10

how are the payments on limited-payments policies set up?

Answer 10

premiums are payable only for a stated period of time or until the insured’s death, which over comes first. if the owner is still alive and has reached the premium payment period, then premiums stop but the coverage is still in force.

Question 11

what is the specific terms used when a policy that requires no further premium payments but continues to provide coverage ?

Answer 11

paid-up policy

Question 12

Which premiums tend to be more expensive continuous-premium or limited-payment policies?

Answer 12

limited- but its cash value grows at a faster rate.

Question 13

what is a modified-premium whole life policy?

Answer 13

its a whole life for which the annual premium amount changes after a specified initial period. the faceamount does not change, but the premiums in the first few years would be less, then after the period of time would increase. Great for young people who may make more in the future but not a lot rn.

Question 14

what is a graded-premium policy?

Answer 14

these policies call for 3 or more levels of annual premium payment amounts, increasing at different points in time (such as every 3 years)

Question 15

what is a modified coverage policy?

Answer 15

the amount of insurance provided decreases by a specified percentage or amounts either when the insured reaches certain ages or at the end of stated time periods.

Question 16

name 3 examples of policies where there can be coverage provided on more than one life

Answer 16

joint whole life insurance
last survivor life insurance
family policies

Question 17

what is joint whole life insurance [joint-first-to-die]?

Answer 17

upon the death of one of the owners the benefit is payable to the beneficiary, (usually the other life) and coverage ends. usually some companies with provide a specific period (60-90 days) where the survivor can purchase single life insurance for the same amount without providing new evidence.

Question 18

What is last survivor life insurance [second-to-die]

Answer 18

the benefit is only paid after both people insured by the policy have died. Ideal becuase its cheaper than two individual whole life insurance policies and a joint whole life insurance policy.

Question 19

what is a family policie?

Answer 19

includes term life insurance coverage on the primary insures’ spouse and children. The amount of term insurance coverage provided on the insured’s spouse and children is a fraction of the amount of the insured’s whole life insurance coverage. Usuallt evidence is required to prove all lives are insurable on the benefit.

Question 20

What is a characteristic of universal life insurance that sets it apart?

Answer 20

its flexible premiums,
its flexible face amount
its flexible death benefit amount
and its separation of the three primary policy elements.

Question 21

what 3 policy elements are separate on a universal life policy?

Answer 21

1. mortality charges that the insurer will apply
2. the interest rate that the insurer will credit to the policies cash value.
3. the expense charges that the insurer will apply.

Question 22

What is another name for mortality charge- in which the insurance company periodically deducts from the policy’s cash value?

Answer 22

cost of insurance-

Question 23

will insurers only pay the minimum interest rate required on the policies cash value each year?

Answer 23

they guarentee the minimum but will pay a higher interrest rate if economic and competitive companies warrant.

Question 24

Name the 5 expense charges commonly imposed by the insurance company on universal policies

Answer 24

1. Flat charge during the first policy year to cover sales and policy issue costs
2. percentage of each annual premium to cover expenses.
3. a monthly administration fee, (policy fee)
4. Surrender charges- imposed if owner surrenders the policy
5. other charges: coverage changes or policy withdraws

Question 25

how is the first premium payment on a universal life divided by the insurance company?

Answer 25

deducts the amount of any applicable expense charges, and credits remainder to the policy’s cash value.

Question 26

what happens to the following payments on a universal life product?

Answer 26

each month following the insurer deducts the periodic mortality charges from the cash value and credits the cash value with interrest at the current rate.

Question 27

how can a policyowner increase and decrease the cash value of the universal life policy?

Answer 27

making additionl or larger-than-required premiums payments.

and reduce by making withdrawing funds form the cash value. - this has additional charges

Question 28

what happens when the cash value of the policy is not sufficient to pay the periodic mortality charges and expense charges?

Answer 28

it lapses, which is the termination of the policy for nonpayment.
- people are usually given a warning in which they can pay additional premiums or reduce the face amount

Question 29

some universal life products offer no-lapse guarentee, what it that

Answer 29

the insurance coverage of the product will remain in effeect for a stated period of time, or until the insured reaches a specififc age.

Question 30

how is the face amount and death benefit flexible on the universal life products?

Answer 30

the owner can specify the face amount and the amount of the death benefit.

• if increasing face amount may require evidence
• if lowering, the limit must not change the product to an investment rather than insurance

Question 31

what is a flexible premium universal life insurance product?

Answer 31

allows owner to alter the amount and frequency of premium payments (wnl). The owner can also chose when to pay renewal premiums as long as the cash value is always above the needed expenses.

Question 32

describe the regulation used to ensure life insurance products dont become investment plans d/t tax free cash value returns

Answer 32

the US federal tax laws limits the size of a life insurance policy’s cash value in relation to its death benefit. if it exceeds it can be taxed- insurance companies try and not let this happen.

Question 33

What is a fixed premium universal life insurance policy?

Answer 33

required series of schedules premium payemnts of a specific amount for a specific length of time, or until death (which ever is first). Sometimes a products actual experience is less favourable that the insurer projected when it created the financial design of the product- (interrest rates fluctuate)

Question 34

To help with changing aspects of a universal life product, insurers will send reports to their clients, which contain why types of information (9)>

Answer 34

1. amount of the death benefit payable
2. amount of the policy’s cash value
3. amount of the cash surrender value
4. amount of interest earned on the cash value
5. the amount fo the mortality charges deducted
6. amount of expense charges deducted
7. amount of premiums paid during the reporting period
8. amount of policy loans outstanding
9. amount of any cash value withdrawals.

Question 35

What is variable life insurance

Answer 35

a form of cash value insurance in which premiums are fixed but the death benefit and other values may vary, reflecting the performance of investments subaccounts that the policyowner selects.

Question 36

what is a subaccount?

Answer 36

one of several alternative pools of investments to which a variable lif4e insurance policy ownder allocates the premiums she has paud abnd the cash valyes that have accumulated under her policy.

Question 37

what is the seperate acount (segregated account)

Answer 37

in an investment account the insurer maintains seperately from its general account to isolate and help manage the funds placed in various acounds

Question 38

what is the general account

Answer 38

its an undivided investment account in which an insurer maintains funds that support its contractual obligations to pay benefits under its guaranteed insurance products.
these funds are invested in secure investments

Question 39

what is variable universal life insurance which is also called flexible-premium?

Answer 39

it combines the premium and death benefit flexibility of the universal life insurance with the investment flexibility and risk of variable life insurance.
- allows owner to choose premium and facemount, the owner chooses several subaccount and may change the chosen options of investment periodically. the returns that the insurere credits to the policy’s cash value reflects the investment earning of the subacounts.

Question 40

can a person decide if the death will remain level or decrease/increase like the VL insurance?

Answer 40

yes for the VUL insurance.

- this policy does not guarentee investment earnings or cash value just like the VL policies.

Question 41

What is endowment insurance?

Answer 41

it provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.

Question 42

what is the maturity date, in terms of endowment insurance.

Answer 42

the date on which the insurer will pay the policy’s face amount to the policy owner if the insured is sitll living.
reached either at the end of stated term or specific age is reached.

Question 43

how are endowment policies different from other cash value policies?

Answer 43

the reserve and cash value of this policy is usually equal to the policy’s face amount on the policy’s maturity date, which typically is much sooner than when the insured reaches the last age found in the mortality table
- the cash value build quickly and more large but also fall victime to the unfavourable tax treatment