Chapter 8: Introduction to Life Insurance

Question 1

Human Life Value

Answer 1

A person’s earning capacity the the financial dependence of others on that earning capacity.

Question 2

Yearly Renewable Term Insurance

Answer 2

Provides protection for 1 year with option to renew at end of year without medical exam.

Question 3

Cash Value Life Insurance

Answer 3

Policy written so that premiums are sufficient to pay the insurer’s death claims while also building cash value or savings so that premiums and earnings equal face value of policy at age 100 or 120.

Question 4

Net Amount At Risk

Answer 4

The difference between the face amount of the policy and the cash reserves that have built up.

Question 5

Modified Whole Life Insurance

Answer 5

Guarantees a level premium for the first few years, followed by a higher guaranteed premium in the future.

Question 6

Return of Premium Term Insurance

Answer 6

Returns all premiums if the insured is still alive at the end of the policy term.

Question 7

Renewability

Answer 7

Right to renew contract without medical exam or other evidence of insurability.

Question 8

Reentry Term Insurance

Answer 8

Permits insurer to use one set of renewal payments if insured can prove his or her continuing insurability and a higher premium if health has declined.

Question 9

Convertibility

Answer 9

Right to replace term coverage with permanent coverage within a specified period of time without showing evidence of insurability.

Question 10

Decreasing Term Insurance

Answer 10

Mainly sold through mortgage lenders to pay off loan if insured dies. Decreasing amount of insurance.

Question 11

Increasing Term Insurance

Answer 11

Intended to increase coverage in order to keep pace with inflation to meet future responsibilities.

Question 12

Whole Life Insurance

Answer 12

Offers lifetime protection and builds cash value.

Question 13

Participating Policy vs. Nonparticipating Policy

Answer 13

May pay dividends vs. does not pay dividends

Question 14

Ordinary Life Insurance

Answer 14

Whole life with premiums intended to be paid until the insured’s death.

Question 15

Limited Payment Life Insurance

Answer 15

Payment of premiums only for specified number of years.

Question 16

Single Premium Whole Life Policy

Answer 16

Fully paid up based on single, substantial premium.

Question 17

Vanishing Premium

Answer 17

Policyowner dividends pay all remaining premiums as soon as dividends accumulated are adequate to do so.

Question 18

Endowment Life Insurance

Answer 18

Designed with a target accumulation amount and reach maturity at specified date when cash value equals death benefit.

Question 19

Current Assumption Whole Life Insurance

Answer 19

Premiums change with insurer’s actual or anticipated mortality, expense and investment earnings. Premiums can go up or down.

Question 20

Variable Life Insurance

Answer 20

Policyowner directs how cash value will be invested, assumes risk and death benefit is linked to performance of investments. Premiums are fixed and loans are allowable.

Question 21

Universal Life Insurance

Answer 21

Policyowner does not direct investment, flexible premiums, ability to withdraw and not counted as a loan, and choice of death benefit.

Question 22

Variable Universal Life Insurance

Answer 22

Policyowner chooses from group of investment option, premiums are flexible, death benefit choice.

Question 23

Indexed Universal Life Insurance

Answer 23

Policyowner investments tied to an index, flexible premiums, choice of death benefit.

Question 24

Joint-Life Policy

Answer 24

Policy written to cover two people, first to die payout.

Question 25

Survivorship Policy

Answer 25

Policy written for two or more people, payable upon death of the last two or more people covered. Second to die policy. Popular for estates of wealthy.

Question 26

Group Life Insurance

Answer 26

Probationary period is set time before eligibility.