Chapter 9: Insurance Contracts Flashcards
A(n) ______ is a contract with an insurance company that provides for payments to the ______ over the life of the contract term. These payments are made by the insurance company that issued the contract.
- Annuity
2. Annuitant
The person receiving the payments is known as the ______ and typically receives the payments at retirement, but may annuitize at any time according to the terms of the contract.
Annuitant
The annuity contract specifies that purchasing deposits be made into the contract either in a(n) ______ or through a series of ______.
- Lump Sum
2. Periodic Installments
Most annuities are offered by ______; however, ______ may also offer annuities.
- Insurance Companies
2. Broker/Dealers
To sell annuities, an individual must hold a(n) ______. Individuals selling variable annuities must hold a(n) ______ as well.
- Insurance License
2. Securities Registration
Annuities fall into two categories: ______ and ______.
- Fixed
2. Variable
______ annuities guarantee a certain amount of income based on the purchase payments deposited. The ______ assumes the investment risk of generating the return to support the income payments.
- Fixed
2. Insurance Company
The purchase payments are invested into the ______ of the insurance company for all fixed insurance products.
General Account
______ annuities are not securities because the insurance company assumes all investment risk.
Fixed
In a(n) ______ annuity, the contract holder, or ______, bears the investment risk in the separate account.
- Variable
2. Annuitant
Variable annuities keep purchase payments in a(n) ______, which is a professionally managed portfolio of securities, similar to a mutual fund.
Separate Account
The ______ performance will determine the amount of income the annuitant will receive.
Separate Account
The payments an annuitant receives from a(n) ______ remain constant for the life of the contract. The performance of the insurance company’s (or issuer’s) investment portfolio has ______ effect on the payments made to the annuitant.
- Fixed Annuity
2. No
The annuitant is guaranteed a(n) ______, which is stated in the contract. In other words, the insurance company accepts all ______ and is fully responsible for all gains or losses respective to the annuity contract.
- Minimum Rate of Return
2. Investment Risks
A(n) ______ afford annuitants guaranteed income that they cannot outlive. The annuitant also benefits from ______ of the assets on deposit in the contract through the insurance company.
- Fixed Annuity
2. Professional Management
A disadvantage of a fixed annuity is that the fixed payout does not keep up with ______. As ______ rises, the purchasing power of the fixed payments is eroded.
Inflation
The annuitant’s objective with a(n) ______ is lifetime income that will likely keep up with inflation.
Variable Annuity
With a(n) ______ annuity, the investor must accept the risk that portfolios may decline if market conditions are unfavorable.
Variable
With a(n) ______ annuity contract, the payments made by the issuer to the annuitant vary in dollar amount in accordance with the performance of the ______.
- Variable
2. Separate Account
There is no guarantee with a(n) ______ annuity, and the ______ assumes all investment risks of the portfolio.
- Guarantee
2. Annuitant
Variable annuities and insurance products are investments that are subject to ______ communications rules.
FINRA
Because of the substantial early withdrawal fees, deferred loads and potential tax penalties, it cannot be implied that variables annuities and variable life insurance contracts are ______, ______ investments.
- Liquid
2. Short-Term
The Investment Company Act of 1940 defines the ______ as an account established and maintained by the insurance company in which income, gains, and losses are credited to or charged against the account without regard to other income, gains, or loses of the insurance company.
Separate Account
The ______ account and ______ account are completely independent of each other. Assets in the ______ account cannot be commingled with assets in the ______ account or assets in other mutual funds in the family.
- Separate
- General
- Separate
- General
The ______ in a variable contract is a “pool” of securities, much like a(n) _______. It must be registered under the ______, and its units must be sold with a(n) ______.
- Separate Account
- Mutual Fund
- Securities Act of 1933
- Prospectus
The separate account for a variable annuity must also be registered under the ______, unless the account is used to fund a(n) ______ annuity, in which case the account is exempt under the act.
- Investment Company Act of 1940
2. Tax-Qualified
Assets held in the separate account are managed by a(n) ______ or a(n) ______.
- Board of Managers
2. Board of Directors
The insurance company’s investment manager maintains a different ______ for the general account vs. the separate account.
Objective
The ______ is fundamentally invested in long-term debt instruments, with the primary objective of providing a(n) ______ to fund the guarantees made by the insurance company on its fixed insurance and annuity products.
- General Account
2. Stable Return
The investment policies of the separate accounts are detailed in the ______. Many of the separate accounts have a(n) ______-oriented objective and invest mainly in common stocks.
- Prospectus
2. Growth
There are several ______ within the separate account of a variable annuity. Each ______ is a separately managed account with its own investment policy, which are detailed in the prospectus.
- Subaccounts
2. Subaccount
One way that annuities are classified is by when their annuity payments begin: ______ and ______.
- Immediate
2. Deferred
A(n) ______ annuity can be funded only with a single lump sum payment because the contract begins making payments to the annuitant on the first interval after the deposit is received.
Immediate
With a(n) ______ annuity, payout to the annuitant begins ______ payment period after a lump sum deposit into the contract.
- Immediate
- One*, **
- one month after deposit if monthly payment
- one year after deposit if annual payment
A(n) ______ annuity is either purchased with a single, lump sum or is purchased through periodic payments. Payout is delayed until the contract is ______ at some point in the future. This period may be several years, often at retirement.
- Deferred
2. Annuitized
A deferred annuity purchased with a single, lump sum payment is known as a(n) ______.
Single Premium-Deferred Annuity
A deferred annuity purchased with period payments is known as a(n) ______.
Flexible Premium-Deferred Annuity
A deferred annuity has a(n) ______ that may apply if the owner decides to surrender the annuity prior to annuitization. If a deferred annuity is surrendered prior to owner’s age 59 1/2, ______ must be paid on the gain, in addition to a(n) ______ penalty on the taxable portion.
- Surrender Value
- Income Tax
- 10%
Most annuities are funded with ______ dollars, establishing the investor’s cost basis. However, the real benefit is that the contract value of annuities grows ______ and annuitants are not required to pay taxes on the amount above their ______ until the payout period begins or until the contract is surrendered for its accumulated ______.
- After-Tax
- Tax-Deferred
- Cost Basis
- Cash Value
The value of a variable annuity is expressed in ______, with the ______ values determined by the performance of the separate account.
Unit(s)
The value of the portfolio in the separate account is recalculated ______ at the close of the New York Stock Exchange.
Each Business Day
The ______ begins with the date on which the annuity contract becomes effective and continues until the payout period of begins.
Accumulation Period
The ______ is the accounting measure used to identify the contract owner’s interest in the separate account during the accumulation period.
Accumulation Unit
During the time that the owner is depositing money into the contract, the annuity’s valuation is expressed in a(n) ______ number of ______.
- Increasing
2. Accumulation Units
The value of each accumulation unit is directly related to the performance of the ______. As the value of the ______ increases or decreases, the value of each accumulation unit increases or decreases in proportion to the number of total units issued in the ______.
Separate Account
Accumulation units are purchased at the separate account’s ______, after deducting any sales charges or other fees. New accumulation units are purchasing using ______ in the same manner as mutual fund shares are acquired.
- Net Asset Value (NAV)
2. Forward Pricing
The ______ begins at the conclusion of the accumulation period.
Annuity Period
The accounting measure used in the determination of the payment amounts to an annuitant during the payout, or _____, is referred to as a(n) ______.
- Annuity Period
2. Annuity Unit
At at the beginning of the annuity period, the annuitant has two choices:
- Withdraw the value of all ______ in a lump sum.
- Purchase ______ with the ______ so that periodic payments can begin.
- Accumulation Units
- Annuity Units
- Accumulation Units
The exchange of accumulation units into annuity units is accomplished on the ______. The exchange rate is a combination of factors that consider the annuitant’s ______, ______, ______ selected, and the ______.
- Date of Annuitization
- Age
- Life Expectancy
- Settlement Option
- Assumed Interest Rate (AIR)
The following procedure converts accumulation units into annuity units:
- Calculate the annuitant’s interest in the ______ by multiplying the number of accumulation units by the current value per unit.
- Calculate the first ______ based on actuarial tables.
- Calculate the value of ______ based on the value of each annuity unit.
- Separate Account
- Monthly Payment*
- Future Payments**
*For example, if the annuity contract is worth $100,000 and the actuarial rate is $5 per $1,000 in the account, the first monthly payment is $500 (100 units x $5 per unit)
**For example, assume that each annuity unit is worth $2.50 at the time of the first monthly payment. In order for the annuitant to receive $500, 200 annuity units must be liquidated ($500 / $2.50 per annuity unit = 200 annuity units). At this time, the number of annuity units is fixed. Each future monthly payment will be the redemption value of 200 annuity units.
The investment portfolio of the variable annuity is assigned a(n) ______ as an assumption of a reasonable rate of return on the investments in the ______.
- Assumed Interest Rate (AIR)
2. Separate Account
The ______ is not guaranteed; it is merely a reference. The registered representative is prohibited from making a statement that can be interpreted by the client as a guarantee.
Assumed Interest Rate (AIR)
The ______ is part of the annuity contract and is used to calculate the amount of each annuity payment over time.
Assumed Interest Rate (AIR)
Even though the number of annuity units is established, the value of each unit will fluctuate in direct relation to the performance of the ______ and the ______. Future payments may be more, less, or the same as the preceding payment.
- Separate Account
2. Assumed Interest Rate (AIR)
A variable annuity performance rate is compared to ______ (%), but payment is compared to the ______’s amount ($).
- Assumed Interest Rate (AIR)
2. Previous Month
An insurance company assigns the AIR to the______ when the account is ______. Once the AIR is set, it will not change for the remainder of the contract.
- Separate Account
2. Annuitized
AIR is not determined until the contract is ______ and will not affect the ______ during the ______.
- Annuitized
- Accumulation Unit
- Accumulation Period
The selection of the annuity ______ is made at the beginning of the payout period and cannot be changed once payments have begun.
Settlement Option
______: Annuitants receive payments as long as they live. Upon the annuitant’s death, all payments end.
Straight-Life / Life Only / Life Income
The ______ settlement option gives annuitants the highest periodic payment but carries the most risk.
Straight-Life Annuity
______: With this settlement option, annuity payments will be made for a minimum period of time (usually 10 to 15 years). If the annuitant dies before the end of the ______, the beneficiary will continue to receive payments for the remaining years of the ______.
- Life Annuity with Period Certain
- Period
- Period Certain
______: With this settlement method, periodic payments are made to the annuitant for a specified number of years (usually 10 or 15). If the annuitant dies before the end of the period, the remaining payments due will be made in a lump sum or in installments to the named beneficiary. There is no life guarantee with this option.
Period Certain / Fixed Period
______: This option provides periodic payments during the annuitant’s lifetime. If the annuitant dies prior to receiving an amount equal to the value of the annuity units, the remaining portion will be paid in a lump sum or installments to the beneficiary.
Unit Refund Life Annuity
______: With this option, payments are made to 2 people. If one annuitant dies, payments continue to be made to the surviving annuitant. All payments cease when the remaining person dies.
Joint and Last Survivor Life Annuity
Contract owners of variable annuities have ______ with regarding to the separate account.
Voting Rights
______ are for election of members of the board, changes in investment policies of the separate account, and other issues as defined in the Investment Company Act of 1940. The ______ are similar to mutual funds, except the votes are based on the number of units instead of shares.
- Voting Privileges
2. Voting Rights
The annuity company guarantees that it will make payments as long as the annuitant lives through a(n) ______. The insurance company deducts a(n) ______ from the separate account to protect itself against an annuitant outliving their expected mortality.
- Mortality Guarantee
2. Mortality Expense Risk Fee
Annuity companies are required to project their administrative expenses for annuity contracts. The ______ establishes the maximum they can charge for the contract. The annuity company is responsible for any increase in expenses beyond the amount guaranteed in the contract.
Expense Guarantee
A(n) ______ is deducted from the separate account to protect the company against rising operating expenses.
Operating Expense Risk Fee
Annuity contracts also have a provision for a(n) ______ in the event the contract owner dies during the accumulation period; the beneficiary will then receive the greater of the gross payments made into the contract or the accumulated value at the time of the owner’s death.
Death Benefit
An annuity can be terminated anytime during the accumulation period for its ______, which is the current value of the assets held in the separate account less any ______ charges.
- Surrender Value
2. Surrender
Contracts with high and/or long-term surrender charges may not be suitable for ______ investors.
Older
No ______, either whole or in part, can occur once annuity payments have begun.
Termination
Annuities typically have ______, ______, and ______ during the accumulation period. These features vary from product to product, and are outlined in the contract when applicable.
- Loan Provisions
- Partial Redemptions
- Exchange Privileges
A(n) ______ allows a policyholder to roll the cost basis from the first product into the second, thereby deferring recognition and tax on any capital gain realized in the exchange.
1035 Exchange
The following are allowable ______:
- A life insurance contract to another life insurance contract.
- A life insurance contract to an annuity.
- An endowment contract to an annuity contract.
- An annuity contract to an annuity contract.
1035 Exchanges
An annuity contract may not be ______ for an insurance contract.
Exchanged
Although they enjoy special tax deferral privileges, ______ raise ______ which should be reviewed by a principal. These include the consequences of possible surrender charges on the old policy, the initiation of a new surrender period on the new policy, and sales charges assessed on the new product.
- 1035 Exchanges
2. Suitability Concerns
Variable annuity contracts have ______ that are similar to those of mutual funds, which pays for sales and marketing expenses, administrative expenses, and other costs of distribution.
Sales Charge(s)
All variable annuity contracts that are funded by a specific separate account are subject to the same ______, regardless of whether the annuity is funded by a single premium or with periodic installments.
Sales Charge
Variable annuities can be sold on a(n) ______, or _____, basis. These are deducted from each installment made into the contract.
- Level Sales Charge
2. Level Load
Annuities can also be offered with a(n) ______ to cover the operating expenses and commissions associated with the contract. Under the ______ method, the charge to the contract owner is usually contingent on the length of time that the annuity is held, and is assessed at withdrawal.
Deferred Sales Charge
When considering a replacement or 1035 exchange of an existing variable annuity contract, a representative should clearly explain whether a new ______ period will start, and any other changes in access to ______ or ______ features.
- Surrender Charge
- Funds
- Liquidity
The ______ is made up of several elements, which are designated in the prospectus. An annuity has other expenses that are not part of the ______ . These expenses are deducted from the assets or income of the ______.
- Sales Charge
- Sales Charge
- Separate Account
Additional expenses not part of the ______ include:
- Investment management fee.
- Mortality risk fee.
- Expense risk fee.
- Premium taxes.
- Administrative expenses.
Sales Charge
______ Annuity:
- General Account
- Provides fixed payments of specified amount for the contract term
- Guarantees a minimum rate of return
- Insurance company assumes the investment risk
- Vulnerable to inflation
Fixed
______ Annuity:
- Separate Account
- Provides variable dollar payments at regular interval for the contract term
- Provides no guarantee rate of return
- Annuitant assumes all investment risk
- Resistant to inflation
Variable
______ annuities offer investors first-year interest rate credits as a way to attract sales. For instance, if an investor pays $10,000 into an annuity with a 5% first year bonus, the insurance company will add a $500 bonus and $10,500 will be paid into the annuity.
Bonus
______ annuities are often used to entice investors to exchange existing annuities for new ones.
Bonus
Typically, insurance companies make back the cost of the ______ through longer surrender periods, higher surrender charges, and higher mortality and/or administration expenses.
Bonus Credit
Policyowners of ______ contracts seek greater death benefits and higher cash values than those of traditional whole life and universal life policies.
Variable Life Insurance
Policyowners of ______ contracts anticipate that, over time, the performance of the ______ will produce investment returns that are superior to those of traditional life contracts and will offset inflation.
- Variable Life
2. Separate Account
Both ______ and the ______ have regulatory authority over variable life products.
- FINRA
2. State Insurance Departments
In all variable life policies, the amount and frequency of premium payments are ______.
Fixed
When the term “______” is used to describe either a whole life or a variable life policy, it means that the contract owner is allowed to vary the amount and frequency of premiums as long as the minimum ______ maintained is sufficient to support the cost of insurance.
- Universal
2. Cash Value
Unlike variable life, a variable universal policy may or may not have a minimum guaranteed ______.
Death Benefit
Variable life policies permit ______ against a percentage of the policy’s cash value.
Loans
The insurance must allow a loan of a minimum of ______ of the cash value after the variable life policy has been in place for ______.
- 75%
2. 3 Years
Loans are subject to a(n) ______, and if not repaid, are deemed a(n) ______, and the amount of the loin is subtracted proportionately from the ______.
- Annual Interest Rate
- Partial Surrender
- Death Benefit
If the performance in the separate account causes the cash value to decline to the point that it becomes ______ (below the loan amount), the contract holder has ______ to pay back enough of the loan to bring the cash value to the contract positive.
- Negative
2. 31 Days
Policyowners of variable life contracts have voting rights in proportion to their cash value in the ______. For every ______ of cash value, the policyowner has one vote.
- Separate Account
2. $100
______: Any administrative expenses above the contractually stated maximum charges are the responsibility of the insurance company.
Expense Limitation
Variable Life Insurance Provisions
There is no minimum guaranteed ______ in a variable life policy.
Cash Value
Variable Life Insurance Provisions
The ______ can be less than the amount that was available when the policy was issued because it depends on the investment performance of the separate account. The actual amount available is the value calculated at the time of ______.
- Cash Surrender Value
- Surrender
Variable Life Insurance Provisions
At ______, if a policyholder stops making premium payments into the policy, the owner is entitled to the ______ of the policy.
- Termination
- Surrender Value
Variable Life Insurance Provisions
The ______ is the cash value of the policy minus any outstanding loans or unpaid interest charges.
Surrender Value
Variable Life Insurance Provisions
The ______ provides that the policyowner receive the accumulated cash value should premium payments cease and the policy is surrendered.
Nonforfeiture Clause
Variable Life Insurance Provisions
Policyowners are entitled to ______ all or portions of their assets held in the separate account among alternative investments available in the account. These ______ are free of any charges and do not create tax liabilities.
Exchange(s)
Variable Life Insurance Provisions
Policyowners have the right to ______ one form of permanent insurance policy for another type of permanent policy. In the case of a variable life policy, the ______ could be to either a traditional whole life or universal policy.
- Exchange
- Conversion
Variable Life Insurance Provisions
The insurance company must allow the conversion to a more conventional whole life policy for the first ______ without having the insured provide any additional evidence of insurability.
2 Years
Variable Life Insurance Provisions
The maximum sales charge allowed on a variable life insurance policy is ______ computed over a period of up to ______.
- 9%
2. 20 Years
______ Period: If the variable life policy is surrendered during the first ______, the contract holder will receive a full refund of the premiums paid.
- Free-Look
2. 45 Days
During the first year of the variable life policy, the maximum sales charge is ______ of the premium paid.
50%
If a policyowner surrenders a variable policy during the first ______, the owner is entitled to the NAV of their account plus a refund of any charge that exceeds ______ of the first year’s premium plus any charge that exceeds ______ of the second year’s premium.
- 2 Policy Years
- 30%
- 10%
The largest cost incurred by the insurance company that is levied against the value of the variable annuity separate account is the ______.
Investment Management Fee
The valuation of a variable life insurance policy is directly related to the performance of the ______.
Separate Account
The policyowner assumes all risks associated with the performance of the ______.
Separate Account
Fluctuations in the value of the separate account will affect both the variable life policy’s ______ and ______.
- Cash Value
2. Death Benefit
The cash value in a variable life policy is usually calculated on a(n) ______, but must be calculated at least ______.
- Daily
2. Monthly
______ risk is the greatest investment risk a variable life insurance policy because the performance of the separate account fluctuates with that of the overall ______.
Market
Variable life insurance policies have a(n) ______ equal to the face amount of the policy at the time of issuance.
Guaranteed Minimum Death Benefit
Most states allow a(n) “______”, which does not require the payment of a death benefit if the insured should die by suicide with the first ______ of the policy. In such cases, the insurer would refund the ______ paid to date.
- Suicide Clause
- 2 Years
- Premiums
Mortality tables consider a person statistically dead at age ______; therefore, death benefits are typically paid at that time.
100
The actual death benefit in a variable life policy is determined by the performance of the ______.
Separate Account
There is a(n) ______ that is stated in the policy; if the performance of the separate account is greater than the ______, the death benefit may be greater than the minimum. A decrease in the performance below the ______ can cause the death benefit to decrease, but never below the policy minimum.
Assumed Interest Rate (AIR)
The death benefit must be recalculated at least ______.
Annually
______ Life:
- Death Benefit (DB): Fixed/Guaranteed
- Cash Value (CV): Guaranteed
- Loans: Allowed against the entire current CV
- Premium Payment: Generally paid in fixed amounts at fixed intervals
- Investment Account: Assets in the general account of the insurance company
- Risk to Cash Value: Insurer assumes investment risk
Whole
______ Life:
- Death Benefit (DB): May or may not provide a fixed DB
- Cash Value (CV): Guarantees a minimum interest rate
- Loans: Allowed against the entire current CV
- Premium Payment: Flexible in mount and timing
- Investment Account: Assets in the general account of the insurance company
- Risk to Cash Value: Insurer assumes investment risk
Universal
______ Life:
- Death Benefit (DB): Fixed minimum DB
- Cash Value (CV): No guarantees
- Loans: Allowed against a percentage of CV
- Premium Payment: Generally paid in fixed amounts at fixed intervals
- Investment Account: Policyowners can select a separate account that meets their investment objectives
- Risk to Cash Value: Policyowner assumes investment risk
Variable
Policy ______ are added to the basic life insurance policy or annuity contract in order to add, modify, or delete policy provisions.
Riders
______ have value and meaning only when attached to the policy, they haven o independent value.
Riders
______ are used primarily as a means for individuals to customize their policies to meet their individual needs.
Riders
if the additional rider increases the risk to the insurer, ______ will generally be required.
Proof of Insurability
Most riders also require the payment of an additional ______.
Premium
Some riders are often included in the policy for free, such as ______, the automatic ______, and exclusions.
- Terminal Illness (Living Need)
2. Premium Loan
Some riders provide benefits in the event of the insured’s ______, while others provide for partial payment of the death benefit prior to the insured’s death, called ______ or ______.
- Disability
- Accelerated Benefits
- Living Benefits
Variable annuity living benefit riders have become a very popular contract option and are added to more than ______ of contracts sold today.
80%
______ riders provide market growth with downside risk protection in addition to the reliable and predictable income stream delivered by annuity contracts.
Living Benefit
There are three types of living benefit riders:
- Guaranteed minimum ______ benefit rider.
- Guaranteed minimum ______ benefit rider.
- Guaranteed minimum ______ benefit rider.
- Withdrawal
- Income
- Accumulation
A(n) ______ guarantees a minimum return on the investments in subaccounts. Based on this return, the annuitant is guaranteed a minimum income.
Guaranteed Minimum Income Benefit Rider
A(n) ______ guarantees a return of all premiums paid, regardless of how the investments in the subaccounts perform. The annuitant must make annual withdrawals, with each limited to a certain percentage of the premiums paid.
Guaranteed Minimum Withdrawal Benefit Rider
A(n) ______ protects against investment losses in the subaccounts. It guarantees that the annuitant can withdraw a percentage of the original principal each year without penalty for life, regardless of how the investments in subaccounts perform.
Guaranteed Lifetime Withdrawal Benefit Rider
______ guarantee that an annuity will be worth a minimum amount by a set date, even if the investments in the subaccounts do poorly.
Guaranteed Minimum Accumulation Benefit Riders
______ guarantee the minimum amount of the death benefit the insurer will pay the beneficiary if death occurs before the insurer starts to make monthly payments.
Guaranteed Minimum Death Benefit Riders
The ______ rider waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company.
Waiver of Premium
Most insurers impose a(n) ______ ______ from the time of disability until the first premium is waived. If the insured is still disabled after this ______, the insurer will refund the premium paid by the insured from the start of the disability.
- 6-Month
- Waiting Period
- Waiting Period
The waiver of premium rider usually expires when the insured reaches age ______.
65
The ______ or ______ provides for an early payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within ______, or has other qualifying conditions. It does not cover disability.
- Accelerated Benefit
- Living Needs Rider
- 2 Years
The purpose of the ______ rider is to provide the insured with the necessary funds to take care of the necessary medical and nursing home expenses that incur as a result of the terminal illness.
Accelerated Benefit / Living Needs
Many insurance companies do not charge for the ______ rider since it is simply an advance payment of the death benefit. The remainder of the policy proceeds are payable to the beneficiary at the time of the insured’s death.
Accelerated Benefit / Living Needs
______ allow the early payment of a portion of the death benefit if the insured has any of the following conditions:
- A terminal illness.
- A medical condition that requires an extraordinary medical intervention for the insured to survive.
- A medical condition that without extensive treatment drastically limits the insured’s lifetime.
- Inability to perform activities of daily living (ADLs).
- Permanent institutionalization or confinement to a long-term care facility.
- Any other conditions approved by the Department of Insurance.
Accelerated Death Benefits
The maximum accelerated death benefit is typically a percentage of the face amount of insurance, usually ______, but it is legal for the insurer to pay up to ______ of the death benefits before the insured dies. There may also be a dollar limit, such as ______. The face amount of insurance is reduced after the payments.
- 50%
- 100%
- $100,000
The accelerated death benefit payout will not necessarily result in a reduction of the ______; however, ______ may be waived.
Premium
The ______ provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within ______.
- Living Needs Rider
2. 2 Years
The purpose of the ______ rider is to provide the insured with the necessary funds to take care of necessary medical and nursing home expenses that incur as a result of the terminal illness.
Living Needs
______ = Early payment of part of death benefit to the insured from the insurer for qualifying medical expenses.
Accelerated Benefit
If an insured withdraws a portion of the face amount by the use of the ______ rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in ______.
- Accelerated Benefits
2. Interest Income
______ = Face Amount - Amount Withdrawn - Earnings Lost by Insurer in Interest
Death Benefit
The policy’s face amount is $100,000; however, due to a terminal illness, the insured had to withdraw $30,000 from the policy 3 years before his death. Since this amount was withdrawn, the insurance company lost $300 worth of interest. Upon the insured’s death, how much will the beneficiary receive in death benefit?
$69,700
$100,000 (face amount) - $30,000 (withdrawn) - $300 (interest) = $69,700
The ______ rider permits an insured to submit a claim for living benefits from a policy under one of the following circumstances:
- Diagnosed with a terminal illness.
- Needs long-term care.
- Requires permanent confinement to a nursing home.
- Diagnosed with a dread disease.
Accelerated Benefits
The payment of accelerated benefits usually falls into one of the following categories:
- ______, which generally allows the insured to use part of the policy’s face amount to pay nursing home or at home care.
- ______, which pays (usually limited to 1/4 to 1/2 the death benefit) to cover the cost of heart attack, organ transplant, cancer treatment, or other catastrophic disease.
- ______, which pays most of the death benefit.
- Long-Term Care
- Dread Disease
- Terminal Illness
The ______ has the right to require the insured to submit to examination by a physician of the ______’s choice (and at the ______’s expense) to confirm the diagnosis.
Insurer
Any policy of life insurance may pay the death benefit early under the following circumstances:
- ______.
- ______.
- Eligibility for ______.
- Terminal Illness.
- Catastrophic Illness.
- Long-Term Care.
A(n) ______ rider provides policyowners with additional term insurance on the primary insured with guaranteed convertibility.
Primary Insured
The ______ rider provides coverage for one or more family members other than the insured. The rider is usually level term insurance, attached to the base policy covering the insured.
Other Insured
The other insured rider is also known as a(n) ______ rider.
Family
If the other insured rider covers just the spouse of the insured, it can be specified as a(n) ______ rider, and allows the spouse to be added to coverage for a limited period of time and for a specified amount (it usually expires when the spouse reaches age ______).
- Spouse Term
2. 65
The ______ rider incorporates the spouse term rider along with the children’s term rider in a single rider.
Family Term
When added to a whole life policy, the ______ rider provides level term life insurance benefits covering the spouse and all of the children in the family.
Family Term
Other riders are also available to insure somebody who is not a member of the insured’s family, also known as ______.
Nonfamily Insureds
The ______ or ______ rider does not permit an additional insured, but instead allows for the change of insureds, subject to insurability.
- Substitute Insured
2. Change of Insured
The change of insured rider is most commonly used with ______ insurance when the employee retires or terminates employment.
Key Person
A(n) ______ rider provides term insurance protection for children and offers guaranteed convertibility.
Child Insurance
