LIFE INSURANCE

Question 1

ANNUAL RENEWABLE TERM (ART)

Answer 1

TYPE OF TERM INSURANCE THAT PERMITS THE POLICYHOLDER TO PURCHASE TERM INSURANCE IN SUBSEQUENT YEARS WITHOUT EVIDENCE OF INSURABILITY, BUT PREMIUMS ON THE POLICY INCREASE EACH YEAR TO REFLECT THE INCREASING MORTALITY RISK BEING UNDERTAKEN BY THE INSURER

Question 2

ANNUITY

Answer 2

PERIODIC PAYMENT TO AN INDIVIDUAL THAT CONTINUES FOR A FIXED PERIOD OR FOR THE DURATION OF A DESIGNATED LIFE OR LIVES

Question 3

ASSET ACCUMULATION PHASE

Answer 3

THIS PHASE IS USUALLY FROM THE EARLY 20s TO LATE 50s WHEN ADDITIONAL CASH FLOW FOR INVESTING IS LOW AND DEBT-TO-NETWORTH IS HIGH

Question 4

ASSIGNMENT

Answer 4

THE PROCESS OF TRANSFERRING ALL OR PART OF THE POLICYS OWNERSHIP RIGHTS

Question 5

BENEFICIARY

Answer 5

A PERSON OR INSTITUTION LEGALLY ENTITLED TO RECEIVE BENEFITS THROUGH A LEGAL DEVICE, SUCH AS A WILL, TRUST OR LIFE INSURANCE POLICY

Question 6

CAPITALIZED-EARNINGS APPROACH

Answer 6

METHOS TO DETERMINE LIFE INSURANCE NEEDS THAT SUGGESTS THE DEATH BENEFITS OF A CLIENTS LIFE INSURANCE SHOULD EQUAL AN INCOME STREAM SUFFICIENT TO MEET THE FAMILYS NEEDS WITHOUT DEPLETING THE CAPITAL BASE

Question 7

CONSERVATION (RISK MANAGEMENT) PHASE

Answer 7

THIS PHASE IS FROM LATE 20s TO EARLY 70s, WHEN CASH FLOW ASSETS AND NET WORTH HAVE INCREASED AND DEBT HAS DECREASED SOMEWHAT. IN ADDITION, RISK MANAGEMENT OF EBVENTS LIKE EMPLOYMENT, DISIBILITY DUE TO ILLNESS OR ACCIDENT, AND UNTIMELY DEATH BECOME A PRIORITY

Question 8

CONTINGENT BENFICIARIES

Answer 8

PERSON(S) OR ORGANIZATION NAMED TO RECEIVE THE DEATH BENEFIT IF THE PRIMARY BENEFICIARY IS NOT AVAILABLE TO RECEIVE THE POLICY PROCEEDS

Question 9

DECREASING-TERM INSURANCE

Answer 9

TYPE OF TERM INSURANCE THAT ALLOWS THE OWNER TO PAY THE SAME PREMIUM FOR THE INSURANCE PROTECTION EACH YEAR. THE DEATH BENEFIT ON THE POLICY WILL, HOWEVER, DECREASE EACH YEAR TO OFFSET THE INCREASING MORTALITY COST DUE TO THE PASSAGE OF TIME

Question 10

DISTRIBUTION (GIFTING) PHASE

Answer 10

THIS PHASE IS FROM THE LATE 40s TO END OF LIFE AND OCCURS WHEN THE INDIVIDUAL HAS HIGH ADDITIONAL CASH FLOW, LOW DEBT, AND HIGH NET WORTH

Question 11

FIRST-TO-DIE

Answer 11

TYPE OF JOINT LIFE INSURANCE POLICY THAT COVERS TWO INDIVIDUALS, BUT THE DEATH BENEFIT IS PAID UPON THE DEATH OF THE FIRST INDIVIDUAL

Question 12

GRACE PERIOD

Answer 12

A PROVISION IN MOST INSURANCE POLICIES THAT ALLOWS PAYMENT TO BE RECEIVED FOR A CERTAIN PERIOD OF TIME AFTER THE ACTUAL DUE DATE WITHOUT A DEFAULT OR CANCELLATION OF THE POLICY

Question 13

GROUP TERM INSURANCE

Answer 13

A TYPE OF LIFE INSURANCE COVERAGE OFFERED TO A GROUP OF PEOPLE (OFTEN A COMPONENT OF AN EMPLOYEE BENEFIT PACKAGE) THAT PROVIDES BENEFITS TO THE BENEFICIARIES IF THE COVERED INDIVIDUAL DIES DURING THE DEFINED COVERED PERIOD

Question 14

GUIDELINE PREMIUM AND CORRIDOR TEST

Answer 14

ONE OF TWO CONGRESS-IMPOSED TESTS TO DETERMINE WHETHER A LIFE INSURANCE CONTRACT MEETS THE DEFINITION OF A MEC. THIS TEST CALLS FOR THE POLICY TO BE TESTED USING ACTUARIAL PRINCIPLES AND REQUIRES THE PREMIUMS TO REPRESENT NO MORE THAN A SPECIFIED PORTION OF THE DEATH BENEFIT

Question 15

HUMAN-LIFE VALUE APPROACH

Answer 15

METHOD TO DETERMINE LIFE INSURANCE NEEDS THAT SUGGESTS THE DEATH BENEFIT OF A CLIENTS LIFE INSURANCE SHOULD EQUAL TO THE ECONOMIC VALUE OF THE CLIENTS FUTURE EARNINGS STREAM

Question 16

ILLUSTRATION

Answer 16

A PROJECTION OF THE FINANCIAL RESULTS THAT CAN BE ACHIEVED WITH A LIFE INSURANCE POLICY, BASED ON ASSUMPTIONS ABOUT PREMIUM PAYMENTS, INVESTMENT EARNINGS, AND DIVIDENDS

Question 17

IN-FORCE POLICY ILLUSTRATION

Answer 17

ALLOWS THE PLANNER AND CLIENT TO MONITOR THE PERFORMANCE OF THE POLICY VERSUS WHAT WAS EXPECTED, ENABLING THEM TO CORRECT ANY POTENTIAL PROBLEMS BEFORE THEY OCCUR

Question 18

INSURED

Answer 18

THE PERSON WHOS LIFE IS INSURED BY THE POLICY

Question 19

JOINT AND SURVIVOR ANNUITY

Answer 19

AN ANNUITY BASED ON THE LIVES OF TWO OR MORE ANNUITANTS, USUALLY SPOUSES. ANNUITY PAYMENTS ARE MADE UNTIL THE LAST ANNUITANT DIES

Question 20

LEVEL PREMIUM TERM INSURANCE

Answer 20

TYPE OF TERM INSURANCE THAT CHARGES A FIXED PREMIUM EACH YEAR OVER A SPECIFIED PERIOD OF YEARS, SO THE PREMIUM DOES NOT INCREASE OVER THAT PERIOD

Question 21

LIMITED-PAY POLICIES

Answer 21

TYPE OF WHOLE LIFE POLICY WITH A PAYMENT SCHEDULE (TYPICALLY 10 OR 20 YEARS). AT THE END OF THE PAYMENT PERIOD, THE POLICY IS CONSIDERED TO BE PAID-UP, AT WHICH TIME NO ADDITIONAL PREMIUM PAYMENTS ARE DUE

Question 22

MODIFIED ENDOWMENT CONTRACT (MEC)

Answer 22

A CASH VALUE LIFE INSURANCE POLICY THAT HAS BEEN FUNDED TOO QUICKLY. UNDER A MEC, THE DEATH BENEFIT PAYABLE TO THE BENEFICIARY IS NOT SUBJECT TO INCOME TAX, BUT POLICY LOANS OR CASH VALUE WITHDRAWALS ARE TAXABLE

Question 23

MODIFIED WHOLE LIFE POLICIES

Answer 23

TYPE OF WHOLE LIFE POLICY WITH LOWER PREMIUMS THAN A REGULAR POLICY FOR AN INITIAL POLICY PERIOD (OFTEN 3 TO 5 YEARS), WHICH INCREASE TO A HIGHER-LEVEL PREMIUM AT THE END OF THE INITIAL PERIOD

Question 24

MORTALITY COST

Answer 24

EQUALS THE PROBABILITY OF DYING WITHIN THE YEAR TIMES THE FACE VALUE OF THE POLICY

Question 25

MORTALITY RISK

Answer 25

THE RISK THAT AN INDIVIDUAL WILL DIE WITHIN THE YEAR

Question 26

NEEDS APPROACH

Answer 26

METHOD TO DETEMINE LIFE INSURANCE NEEDS THAT SUGGESTS THE DEATH BENEFITS OF A CLIENTS LIFE INSURANCE SHOULD EQUAL THE CASH NEEDS THAT THE FAMILY WILL REQUIRE AT DEATH PLUS INCOME REPLACEMENT NEEDS

Question 27

ORDINARY (OR STRAIGHT) LIFE

Answer 27

TYPE OF WHOLE LIFE POLICY THAT REQUIRES THE OWNER TO PAY A SPECIFIED LEVEL PREMIUM EVERY YEAR UNTIL DEATH (OR AGE 100)

Question 28

OWNER

Answer 28

PERSON OR INSTITUTION WHO OWNS THE POLICY AND CAN EXERCISE THE ECONOMIC RIGHTS IN A POLICY, INCLUDING ASSIGNMENT, SALE, ETC. ALSO THE PERSON WHO IS GENERALLY OBLIGATED FOR THE PAYMENT OF THE PREMIUMS

Question 29

PRIMARY BENEFICIARY

Answer 29

PERSON(S) (MAY BE A GROUP DESIGNATION) OR ORGANIZATION TO RECEIVE THE DEATH BENEFIT UPON THE DEATH OF THE INSURED

Question 30

RIDERS

Answer 30

PROVISIONS OR ENDORSEMENTS THAT ARE ADDED TO THE LIFE INSURANCE POLICY IN ORDER TO INCREASE OR DECREASE BENEFITS, WAIVE A CONDITION, OR AMEND THE ORIGINAL CONTRACT IN SOME SPECIFIC MANNER

Question 31

SECOND-TO-DIE

Answer 31

TYPE OF JOINT LIFE INSURANCE POLICY THAT IS OFTEN USED IN ESTATE PLANNING TO PROVIDE LIQUIDITY AT THE DEATH OF THE SECOND SPOUSE. A SECOND-TO-DIE POLICY NAMES TWO INSUREDS AND PAYS THE DEATH BENEFIT ONLY WHEN THE SECOND INSURED DIES

Question 32

7-PAY TEST

Answer 32

ONE OF TWO CONGRESS-IMPOSED TESTS TO DETERMINE WHETHER A LIFE INSURANCE CONTRACT MEETS THE DEFINITION OF A MEC. THIS TEST STATES THAT IF THE CUMULATIVE PREMIUM PAYMENTS MADE ON THE POLICY ARE IN EXCESS OF THE NET LEVEL PREMIUM FOR THE POLICY DURING THE FIRST SEVEN YEARS (OR FOLLOWING A MATERIAL CHANGE TO THE POLICY), THE LIFE INSURANCE CONTRACT WILL BE DEEMED A MEC

Question 33

SIMULTANEOUS DEATH PROVISION

Answer 33

PROVISION IN A LIFE INSURANCE POLICY FOR SITUATIONS IN WHICH THE INSURED AND THE BENFICIARY DIE WITHIN A SHORT TIME OF ONE ANOTHER AND IT IS NOT POSSIBLE TO DETERMINE WHO DIED FIRST, GENERALLY THE POLICY DEATH BENEFIT IS DISTRIBUTED AS IF THE BENEFICIARY HAD PREDECEASED THE INSURED

Question 34

SINGLE-PREMIUM POLICY

Answer 34

TYPE OF WHOLE OR UNIVERSAL LIFE POLICY THAT REQUIRES THE OWNER TO PAY A LUMP SUM FOR INSURANCE PROTECTION THAT WILL EXTEND THROUGHOUT THE INSUREDS LIFETIME. THESE POLICIES WILL ALWAYS BE MECs

Question 35

SUICIDE CLAUSE

Answer 35

PROVISION IN A LIFE INSURANCE POLICY SPECIFYING THAT THE INSURANCE COMPANY WILL NOT PAY THE BENEFIT IF THE INSURED ATTEMPTS OR COMMITS SUICIDE WITHIN A SPECIFIED PERIOD FROM THE BEGINNING OF THE COVERAGE. THE CLAUSE IS DESIGNED TO HEDGE AGAINST THE RISK THAT INDIVIDUALS WITH SUICIDAL THOUGHTS WILL PURCHASE LIFE INSURANCE AND COMMIT SUICIDE SHORTLY THEREAFTER

Question 36

SURRENDER CHARGE

Answer 36

A FEE LEVIED ON A LIFE INSURANCE POLICYHOLDER UPON CANCELLATION OF THE POLICY TO COVER THE UP-FRONT COSTS OF ISSUING THE POLICY

Question 37

SURVIVORSHIP CLAUSE

Answer 37

PROVISION IN A LIFE INSURANCE POLICY SPECIFYING THAT THE DEATH BENEFIT WILL ONLY BE PAID TO THE BENEFICIARY IF THE BENEFICIARY SURVIVES THE INSURED BY A SPECIFIC NUMBER OF DAYS

Question 38

TERM INSURANCE

Answer 38

A LIFE INSURANCE POLICY THAT STATES THAT IF THE PREMIUM HAS BEEN PAID AND THE INSURED DIES DURING THE TERM OF THE POLICY, THE INSURANCE COMPANY WILL PAY THE SPECIFIED DEATH BENEFIT

Question 39

UNDERWRITING

Answer 39

THE PROCESS BY WHICH INSURANCE COMPANIES DECIDE WHETHER TO PROVIDE INSURANCE TO AN APPLICANT AND UNDER WHAT TERMS

Question 40

UNIVERSAL LIFE INSURANCE

Answer 40

TYPE OF TERM INSURANCE WITH A CASH-VALUE ACCUMULATION FEATURE ALLOWING INDIVIDUALS TO MAKE PREMIUM CONTRIBUTIONS IN EXCESS OF THE TERM-INSURANCE PREMIUM. THE EXCESS PREMIUMS ARE DEPOSITED INTO AN ACCOUNT WITH VARIOUS INVESTMENT OPTIONS

Question 41

VARIABLE LIFE INSURANCE

Answer 41

TYPE OF LIFE INSURANCE POLICY THAT PERMITS THE OWNER OF THE LIFE INSURANCE POLICY TO DIRECT THE INVESTMENT OF THE POLICYS CASH VALUE. VARIABLE POLICIES TYPICALLY OFFER A SERIES OF INVESTMENT OPTIONS THAT OFTEN INCLUDE INVESTMENT FUNDS MANAGED BY THE INSURER AND OUTSIDE INVESTMENT MANAGERS

Question 42

VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (VULs)

Answer 42

TYPE OF LIFE INSURANCE POLICY THAT COMBINES VARIABLE AND UNIVERSAL LIFE INSURANCE AND GIVES THE POLICYHOLDERS THE OPTION TO INVEST AS WELL AS ALTER INSURANCE COVERAGE

Question 43

VARIABLE WHOLE LIFE POLICIES

Answer 43

TYPE OF LIFE INSURANCE THAT PROVIDES FOR A FIXED PREMIUM PAYMENT AND PERMITS THE CASH VALUE OF THE POLICY TO BE PROFESSIONALLY MANAGED BY THE INSURANCE COMPANY OR AN OUTSIDE INVESTMENT MANAGER

Question 44

WHOLE LIFE INSURANCE

Answer 44

TYPE OF LIFE INSURANCE THAT PROVIDES GUARANTEES FROM THE INSURER THAT ARE NOT FOUND IN TERM INSURANCE AND UNIVERSAL LIFE INSURANCE POLICIES