Insurance types and meanings

Question 1

Term life insurance

Answer 1

Coverage for a period of time; greatest amount of coverage for the lowest premium

Question 2

Three types of term coverage

Answer 2

Level, increasing and decreasing

Question 3

Level term insurance

Answer 3

Refers to death benefit which does not change

Question 4

Annually renewable term

Answer 4

Death benefit remains level, rentable each year, premium increases annually

Question 5

Decreasing term

Answer 5

Level premium and death benefit that decreases each year

Question 6

Return of premium (ROP)

Answer 6

life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.

Question 7

Renewable

Answer 7

The renewable provision allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability

Question 8

Convertible

Answer 8

convertible provision provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability

Question 9

Permanent

Answer 9

a general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured

Question 10

Whole life insurance

Answer 10

provides lifetime (permanent) protection and accumulates cash value.

Question 11

Attained age

Answer 11

the insured’s age at the time the policy is issued or renewed

Question 12

Straight life

Answer 12

policyowner pays the premium from the time the policy is issued until the insured’s death or age 100 (whichever occurs first). Of the common whole life policies, straight life will have the lowest annual premium

Question 13

limited-pay whole life

Answer 13

premiums for coverage will be completely paid-up well before age 100. Some of the more common versions of limited-pay life are 20-pay life whereby coverage is completely paid for in 20 years, and life paid-up at 65 (LP-65) whereby the coverage is completely paid up for by the insured’s age 65. All other factors being equal, this type of policy has a shorter premium-paying period than straight life insurance, so the annual premium will be higher. Cash value builds up faster for the limited-pay policies.

Question 14

Single premium whole life (SPWL)

Answer 14

designed to provide a level death benefit to the insured’s age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash.

Question 15

three basic forms of whole life insurance

Answer 15

straight whole life, limited-pay whole life and single premium whole life

Question 16

Adjustable life

Answer 16

An adjustable life policy can assume the form of either term insurance or permanent insurance. The insured typically determines how much coverage is needed and the affordable amount of premium. The insurer will then determine the appropriate type of insurance to meet the insured’s needs. As the insured’s needs change, the policyowner can make adjustments in the policy. Typically, the policyowner has the following options:

Question 17

Universal life

Answer 17

the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance. If the cash value is too small, the policy will expire.

Question 18

minimum premium

Answer 18

the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product.

Question 19

target premium

Answer 19

a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.