Life and Health Insurance

Question 1

Level Term Insurance

Answer 1

Most common
Level death benefit
Annually renewable term (ART)
Purest form of insurance
Premium increases each year renewed
Highest premiums

Question 2

Level Premium Term

Answer 2

Premium remains the same

Question 3

Decreasing Term

Answer 3

Level premium with a decreasing death benefit
Used primarily when amount of protection is time sensitive
Commonly purchased for mortgage and other debts

Question 4

Increasing Term

Answer 4

Level premium with a death benefit that increase each year

Used by insurance companies to fund riders that provide a refund of premiums

Question 5

Whole Life

Answer 5

Permanent protection
Death benefit guaranteed, remains level, level premium
Builds cash value (living benefits)
Cash value (nonforfeiture value) grows tax deferred and accumulates third year
Cash value scheduled to equal face amount at insured age of 100
Participating policies - may be a return of dividends $$$
Non-participating - no returns in dividends $

Question 6

Ordinary (Straight) Life - Whole Life

Answer 6

Continuous Premium Whole Life
Level annual premium and guaranteed level death benefit
Builds cash value
Lowest annual premium of the three common whole life policies

Question 7

Limited Payment Whole Life

Answer 7

Similar to Straight Life but;
Designed so that premiums are well paid before insured reaches age 100
2 common versions 
-20-pay life - coverage paid in 20 years
-Life paid up at 65
Builds cash value quicker

Question 8

Single Premium Whole Life (SPWL)

Answer 8

Level death benefit
Paid with one lump sum payment
Generate immediate cash value
Has surrender charge

Question 9

Adjustable/Flexible Life

Answer 9

Provides policy owner with best of both worlds (Term and Permanent coverage)
Insured determines how much coverage needed and affordable amount of premium
Policy owner may
-Increase/decrease premium and or face amount
-Change premium paying period
-Change protection period

Question 10

Modified Whole Life

Answer 10

Charges lower premium for first few years then a higher premium for the remainder of insured life
Higher than straight life

Question 11

Graded Premium Life

Answer 11

Premium starts lower then gradually increase for 5-10 years then remains level

Question 12

Indeterminate Premium Whole Life

Answer 12

Premium rate may vary each year
Policy specifies two premium rates
-guaranteed maximum
-non-guaranteed lower premium

Question 13

Interest-sensitive Life

Answer 13

Varied premiums
Cash value can be greater than whats guaranteed in policy
First years, premium remains the same
These products pay current interest rates - accumulate cash more quickly

Question 14

Endowments (Whole Life Insurance)

Answer 14

Permanent, level death protection
Cash value builds quicker since funds are intended to be used while insured is alive
Endowment matures (endows) at an earlier age before 100
Higher premiums

Question 15

Universal Life (Adjustable Life)

Answer 15

Goes by Flexible Premium Adjustable Life
Death benefit (face amount) can be increased/decreased
May increase or decrease premium
May skip premium as long as there is sufficient cash value
Insurance offers a minimum premium
-amount needed to keep policy in force for a year
-Target premium keeps the policy in force for a life time
Partial withdrawals

Question 16

Universal Life (Adjustable Life)

Answer 16

Option of two benefits
-Option A is level death benefit while cash value increases. Pure insurance decreases over time.
Death benefit increases overtime in later years. Must be a “corridor” between cash value and death benefit
-Option B is increasing death benefit annually as well as cash value
Pure insurance remains level so more expensive

Question 17

Interest Sensitive Whole Life

Answer 17

Current Assumption Life
Fixed premium with guaranteed death benefit
Credits cash value with non guaranteed interest rates
Benefit of greater cash value with shorter premium paying period
Policy owner may take risks

Question 18

Variable Life

Answer 18

Permanent protection
Guaranteed minimum death benefit
Cash value accumulates on specific portfolios. No guarantees
Invested in companies separate accounts
Death benefit may increase or decreases. Always a minimum

Question 19

Dependent Group Term Life

Answer 19

Voluntarily life insurance to employees entire family

• up to $15,000 for spouse
• $2,500 for each child

Question 20

Dependent Life

Answer 20

Payment of a specific amount for death of an employees insured dependent
Employer pays premiums/tax deductible
Tax free for employee

Question 21

Group Survivor Income Benefit Insurance

Answer 21

Provides monthly income to qualified family members of the death of employee with fixed % rate of employees monthly earnings
Payments ends for surviving child turns 19

Question 22

Group Universal Coverage

Answer 22

Allows employees and spouses to contribute to cash value fund to accumulate cash
Usually for employers with 1000+ employees
Employees pay premiums which are flexible

Question 23

State Group Life Insurance

Answer 23

Employer pays entire cost
Employee may convert
Must be within 31 days of termination

Question 24

Supplemental Group Term Life

Answer 24

Employers with 50+ employees
Additional life insurance
Must have employee participation of at least 65%

Question 25

Annuity

Answer 25

Contract that provides income for a specified period of years
Protect against outliving ones money
Vehicle for cash accumulation and liquidation of an estate
If policy owner withdrawals during surrender charge period (first 10 years of contract) surrender charge
Usually purchased for retirement income or to help fund college education

Question 26

Individual Retirement Annuities (IRS’s)

Answer 26

Tax qualified annuity used to accumulate funds on tax deferred basis in Individual Retirement Account (IRA)

Question 27

Equity Indexed Annuity

Answer 27

Invests aggressively to aim for higher returns

Guaranteed minimum interest rate

Question 28

Straight Pure Life Annuities

Answer 28

Pays specific amount for annuitants life

Provides highest monthly income benefits

Question 29

Policy Riders

Answer 29

Added to policies to add, modify, or delete policy provisions
Used to customize ones policy to meet needs
Riders that delete coverage are called exclusions
Most riders are additional premium

Question 30

Waiver of Premium (Rider)

Answer 30

Waives policies premium if insured becomes totally disabled
waived until insured goes back to work
Insurers impose a 6 month waiting period from time of disability until first premium waived
-If still disabled after 6 months then a refund of those premiums are paid back
Not required to pay back waived premiums
Total disability defined as ability to not perform work for first 2 years of policy

Question 31

Waiver of Stipulated Premium

Answer 31

Designed to waive specific amount of premium

Required proof of total disability

Question 32

Guaranteed Insurability

Answer 32

Rider allows insured to purchase additional coverage at specified future dates (usually every 3 years)
Usually expires at age 40

Question 33

Accidental Death Rider

Answer 33

Pays some multiple (2x or 3x) of base face amount if death is result of accident
Death must occur 90 days from accident

Question 34

Accidental Death and Dismemberment

Answer 34

Pays principle (face amount) & pays % of that amount for additional dismemberment

Question 35

Term Riders

Answer 35

allow for additional temp insurance

Question 36

Variable Annuity

Answer 36

Invested in securities
Hedge against inflation
Premiums placed in separate account
Need securities license to sell these

Question 37

Immediate Annuity

Answer 37

Purchased with single lump sum

income payments begin within one year

Question 38

Deferred annutiy

Answer 38

Single premium deferred annutiy - purchased with lump sum
Flexible premium deferred annutiy - periodic payments
Income payments become after one year