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Insurance CFP > Life Insurance > Flashcards

Life Insurance Flashcards

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1
Q

What happens to cash value LI if you terminate the policy

A

owner receives it

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2
Q

Can you sell a LI policy to a third party?

A

Yes

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3
Q

Other than a loan how else can you access cash value of LI

A

take a withdrawal

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4
Q

Main difference between term and whole life

A

cash value

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5
Q

Protection ceases at the end of term policy unless what

A

it is renewed

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6
Q

Premium patterns on term LI policy

A

level or increasing on annual or set period basis, like 5 year renewable term

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7
Q

Face amount on term LI can be

A

level, decreasing, or increasing

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8
Q

Exponentially increasing premiums for older-age entry or renewal can cause what

A

many policies to lapse

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9
Q

Does term insurance have a savings component?

A

no

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10
Q

Typical term set up for mortgage

A

decreasing term

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11
Q

Term insurance should be able to convert to permanent w/o what

A

evidence of medical insurability

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12
Q

4 main uses of permanent insurance

A

-provide for family or business at death
-build cash to supplement retirement income
- pay taxes upon death
- available for loan in emergency or opportunity

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12
Q

Endowment LI allows what re: maturity date

A

purchaser can specify

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13
Q

Pure endowment

A

pays only if insured survives the endowment period - NOT SOLD IN US

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14
Q

Regular endowment policy does what if you survive the endowment period

A

pays out as an annuity

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15
Q

Regular endowment policy does what if you die during the endowment period

A

pays the face amount of the policy

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16
Q

Cash values that accumulate in whole life can be utilized as

A

-cash surrender values
-paid up insurance
-extended term insurance

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17
Q

Savings component on WL has what re:interest rate

A

guaranteed rate

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18
Q

Nonparticipating/Non-dividend paying WL

A

-stock life company
-co retains all gains

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19
Q

Participating WL

A

-charges extra margin in fixed premium - intention of returning portion as policy dividends
-mutual co

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20
Q

Nonparticipating is with what type of co

A

stock co

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21
Q

Dividends paid with what kind of co

A

mutual

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22
Q

Where are dividends paid from by WL co?

A

better than expected investments or decreased M&E or operational expenses

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23
Q

Ordinary life insurance premiums paid until when

A

until the insured’s death

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24
Q

Lowest premium rate for any WL is what type of WL

A

ordinary life insurance

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25
Q

Lower premiums result in what re: cash value

A

lower cash values than other types of WL

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26
Q

Limited pay LI

A

premiums limited to a certain number of years

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27
Q

What is extreme end of limited pay LI

A

single premium WL policy

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28
Q

45 yr old who wants to retire at 65 and policy paid up same time - use what?

A

Limited pay WL

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29
Q

Limited pay WL will cost more or less than other payment methods in event of premature death

A

more

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30
Q

Graded premium WL morphs from what to what

A

term to whole life - starts as yearly renewable term - premiums level off later in life when converts to WL

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31
Q

Modified life premium

A

-first 5 years slightly higher than convertible term
-after 5 years converts to what WL prems would have been at age of inception, but slightly less than level premium for ordinary life at the attained age of conversion

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32
Q

Current Assumption WL

A

premium charge varies with changes in insurers actual or anticipated M&E and interest earnings experience

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33
Q

CAWL is sometimes called what

A

interest sensitive WL

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34
Q

CAWL premiums initially are what in comparison to traditional WL

A

low level premium in comparison to traditional WL

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35
Q

low premium CAWl

A

-premium affected by co’s changes in M&E and interest assumptions
-low initial premium increases later

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36
Q

high premium CAWL

A

high premium compared to traditional WL - high premium then reduces

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37
Q

Most flexible type of WL?

A

universal

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38
Q

Universal allows you to change what

A

premium payments and death benefits

39
Q

Variable WL shifts the investment uncertainty to whom

A

the policyholder

40
Q

Variable life shifts the investment return to whom

A

the policyholder

41
Q

Does variable life have guaranteed interest rate or minimum cash value?

A

no

42
Q

Why is variable life a poor choice for a short term investment

A

bc it has sales load, mortality charges and surrender charges

43
Q

Can cash value go to zero in variable life?

A

theoretically yes and could cause the policy to lapse

44
Q

When selling variable life, the buyer must receive what

A

accompanying prospectus - seller must be finra licensed

45
Q

When can you adjust the premium on universal life?

A

after the first year - for the first year its fixedD

46
Q

2 death benefit options on universal life

A

level or increasing

47
Q

What type of policy allows you to withdraw part of the cash value (not a policy loan)

A

universal life

48
Q

Calculation of cash value on universal life

A

Balance from previous period
+ flexible premium paid
-Mortality charge
-Expense charge
+ interest earned at current rate
- any withdrawals
= ending account balance

49
Q

Universal type A

A

flexible premium, adjustable death benefit, unbundled

50
Q

Universal Type A death benefit can do what?

A

increase - subject to insurability

51
Q

What does unbundled mean in universal type A

A

policy cash values and pure insurance costs are shown separately

52
Q

Cash accumulation on universal type A is determined by

A

current interest rates

53
Q

Main difference in Universal type B vs A

A

death benefits vary directly with cash value

54
Q

Which is more expensive universal type A or type B

A

Type B

55
Q

Another name for Universal Type A

A

level death benefit or option 1

56
Q

Variable universal life

A

all the flexibility of universal life with the self directed investment choices of variable

57
Q

What happens to death benefit on variable universal life option A

A

death benefit does not change regardless of investment performance

58
Q

Variable universal life death benefit can increase how

A

under increasing death benefit design or 2nd option

59
Q

Is the death benefit guaranteed under variable universal life?

A

no

60
Q

What can the policyowner do on universal variable life if the policy underperforms?

A

pay more premiums or reduce the death benefit amount

61
Q

How can you hedge against inflation under universal variable life?

A

choosing the increasing death benefit option

62
Q

How long is the free look period on life insurance?

A

10 days

63
Q

Grace period on Life Insurance?

A

31 days from the premium due date

64
Q

Can you take more than 1 loan at a time from life insurance?

A

yes as long as the total amount of the loan plus interest isn’t greater than the cash value

65
Q

Law states you must be allowed to take a policy loan if the policy has what

A

cash value

66
Q

Policy loans have 2 types of interest rates

A

fixed rate, usually 8%
OR
variable rate tied to a specific index

67
Q

What happens if the insured dies during the grace period?

A

The unpaid premium will be subtracted from the death benefit

68
Q

Do you have to pay the interest on a cash value loan?

A

No

69
Q

What options do you have to pay the interest on a cash value loan?

A

you can pay the interest in cash
OR
an unpaid interest charge can be added to the value of the loan

70
Q

Incontestable clause insurance

A

policy is incontestable by the insurer after its been in effect for a certain period of time

71
Q

Max time a policy could be contestable?

A

2 years

72
Q

3 exceptions to incontestable clause

A

-no insurable interest at inception
-policy was purchased with intent to MURDER
-fraudulent impersonation of the insured by another person

73
Q

reinstatement clause

A

reacquire coverage if the policy lapses

74
Q

What happens if its found someone misrepresented their age after death?

A

reduce what the premiums would have purchased

75
Q

What does the beneficiary receive if someone commits suicide within 2 years of the policy?

A

they will receive what’s been paid into the policy - not the death benefit

76
Q

Accidental death or double indemnity?

A

accidental death benefit provision that will pay 2X the face value if the death occurs within 90 days of the accident

77
Q

Guaranteed purchase/insurability option

A

protects against possibility of becoming uninsurable - can buy more insurance at specific times or ages - evidence of insurability not required

78
Q

What happens if you reach your guaranteed insurability window and don’t buy more insurance?

A

that provision will lapse

79
Q

When you purchase more insurance under guaranteed purchase option is there a new suicide window or incontestable clause?

A

there is no new suicide window or incontestable clause

80
Q

Waiver of premium policy

A

don’t have to pay premium while you’re disabled - doesn’t apply after stated age, usually 65, or for self-inflicted

81
Q

Primary beneficiary can be either

A

individual or estate

82
Q

Irrevocable beneficiary

A

policy becomes joint property with rights to owner and beneficiary - owner can only borrow from policy with beneficiary consent

83
Q

Dividend option: reduction of premium

A

subtract the dividend amount from premium currently due

84
Q

dividend option: accumulation of interest

A

dividends maintained in an interest bearing savings account - can withdrawal anytime - if not then applied to death benefit or nonforfeiture value if policy is surrendered

85
Q

Does a MEC meet the 7 pay test?

A

No

86
Q

Characteristics of a MEC

A

-entered into after 6/21/88
-DOES meets requirements of a life insurance contract
-DOESNT meet 7 pay test
-DOESNT meet guideline premium and corridor test

87
Q

Cash value must equal what by the end of the mortality table?

A

face amount of coverage

88
Q

Do universal policies have a minimum guaranteed cash value?

A

No

89
Q

You should buy life insurance when loss has a WHAT probability and a WHAT severity

A

low, high

90
Q

Dividends would come off of what value?

A

Premiums paid

91
Q

If you have a life insurance policy with a cash surrender value and a policy loan, what would you receive if you surrendered the policy?

A

The cash surrender value minus the policy loan

92
Q

When would the proceeds of a life insurance policy be included in the estate of the insured?

A

-The proceeds are payable to the estate of the insured
-The insured held incidents of ownership in the policy at the time of death

93
Q

Survivorship LI policy has higher or lower premiums?

A

Lower

94
Q

One way to use a survivorship LI policy?

A

pay the estate taxes upon the 2nd persons death

Insurance CFP (14 decks)

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