Life Insurance Policies

Question 1

Annually renewable term (ART)

Answer 1

Death benefit remains level, but the premium increases annually as the probability of death increases. Considered the purest form of term insurance.

Question 2

Level premium term

Answer 2

Both benefit and premium remain level throughout the entirety of the term

Question 3

Re-entry option

Answer 3

Some policies contain a discounted rate for those insureds who qualify for a renewable term

Question 4

Decreasing term

Answer 4

Level premium with death benefit that decreases over the length of the term

Primarily used when the amount of needed is time-sensitive or decreases over time, such as covering a mortgage

Policy is usually convertible

Question 5

Renewable

Answer 5

Allows the policyowner to renew their coverage at the end of the experation date without evidence of insurability

Question 6

Convertible

Answer 6

Provides the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability

Question 7

Permanent life insurances

Answer 7

Remain in effect until death or age 100 (as long as premium is paid)

Build cash value

Question 8

Cash value

Answer 8

Created by accumulation of premium and is scheduled out to equal the face amount of the policy when gne imsuted reaches age 100 (the policy mature date), and us paid out to the policyowner

Regulaly credited to the policy and have a guaranteed interest rate

Usually begins accumulating the third policy year when it grows tax deferred, and it can be borrowed against. The policyowner is entitled to the cash value in the event the policy is surrendered.

Called nonforfeiture value

Question 9

Level premium

Answer 9

Based on issuance age

Question 10

Living benefits

Answer 10

Policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surendered

Question 11

Continuous premium

Answer 11

Continuous premium is the basic whole life policy: lowest annual premium with ascending cash value

Also called straight life, ordinary life, continuous premium whole life

Question 12

Limited payment

Answer 12

Designed so the payment will be paid-up well before 100. Common is 20-pay life (20 years) and paid-up at 65. Cash value builds up faster than other policies. Higher premiums because of the shorter time frame.

Whole life

Question 13

Single premium

Answer 13

One-time lump-sum payment at the beginning and generates immediate cash value

Whole life

Question 14

Adjustable life insurance

Answer 14

Key features: can assume the form of either term or whole life insurance
Premium and/or premium-paying period: can be increased or decreased by policyowners
Face Amount: flexible; set by policyowners with proof of insurability
Cash Value: fixed rate of return; general account
Policy Loans: can borrow cash value

Basically, as insurer’s needs change, the policyowner can make adjustments

Question 15

Universal life

Answer 15

Key Features: permanent insurance with renewable term protection component
Premium: flexible; minimum or target
Face Amount: set by policyowner with proof of insurability
Cash Value: guaranteed at a minimum level; general account
Policy Loans: can borrow cash value

• If an insured skips a premium payment, the missing premium can be deducted from the policy’s cash value. The policy will not lapse.
• Interest-sensitive policy where the insurer guarantees a contract interest rate (usually 3 to 6%), but there is potential for the policyowner to get a concurrent interest rate
• Also known as flexible premium adjustable life

Question 16

Variable universal

Answer 16

Key features: permanent insurance
Premium: fixed (if whole life); flexible (if variable life)
Face Amount: can increase or decrease to a stated minimum
Cash value: not guaranteed; separate account
Policy loans: can borrow cash value

• Combination between universal life and variable life. Flexible premiums and adjustable death benefits.
• The policyowner decides where the cash value will be invested. Cash values are not guaranteed and death benefits are not fixed, but death benefit cannot generally decrease below the initial face value of the policy.
• A producer must be licensed to sell in both securities and life insurances to sell variable universal life insurance

Question 17

Comparison of flexible insurances: adjustable life

Answer 17

Can be term or whole — can convert from one to the other
Premium: can be increased or decreased by policy owner
Face amount: flexible; set by policyowners with proof of insurability
Cash value: fixed rated of return; general amount
Policy loans: can borrow cash value

Question 18

Comparison of flexible life insurance: universal life

Answer 18

Permanent insurance with renewable term protection component
Premium: flexible; minimum or target
Face amount: flexible; set by policyowner with proof of insurability
Cash value; guaranteed at minimum level; general account
Policy loans: can borrow cash value

Question 19

Comparison of flexible life insurance: variable life

Answer 19

Permanent insurance
Premium: fixed (if whole life); flexible (if universal life)
Face amount: can increase, or decrease to a stated minumum
Cash value: not guaranteed; separate account
Policy loans: can borrow cash value

Question 20

Joint-life

Answer 20

First-to-die

Can be term or perm

Question 21

Survivorshipship life

Answer 21

Second-to-die

Cheaper premium since extended time for second death

Question 22

Juvenile life

Answer 22

Also called jumping juvenile

Premium stays the same, but the death benefit increases at a predetermined age (usually 21)

Question 23

Group life insurance

Answer 23

Like a workplace of organization formed for some other purpse other than to get insurance
Evidence of inusurability usually not required
Participants do not receive a policy since they do not own or control the policy, but they are issued a certificate of insurance evidencing they have coverage. The master policy/contract is issued to the sponsor, who is the policyholder and exercies control over the policy

If an employee terminates membership in the insured group, he/she has the the option to, within 31 days of terminating, convert to an individual policy without proving insurability
If the employee dies during the conversion period, a death benefit will be issued by the group policy equal to what the individual policy would be, whether or not the individual completed an application

Question 24

Attained age

Answer 24

The insured’s age at the time a policy is renewed or replaced

Question 25

Cash value

Answer 25

A policy’s savings element or living benefit

Question 26

Endow

Answer 26

To have the cash value of the whole life policy reach the contractual face amount

Question 27

Nonforfeiture values

Answer 27

Benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Question 28

Policy maturity

Answer 28

In life policies, the time when the face value is paid out

Question 29

Securities

Answer 29

Financial instruments that may trade for value, such as stocks, bonds, or options

Question 30

Term insurance

Answer 30

Also known as pure life insurance
Usually a max age
No cash value or other living benefits

Question 31

Attained age

Answer 31

The insured’s age at the time the policy is renewed or replaced

Question 32

Endow

Answer 32

To have the cash value of a whole life policy reach its contractual face amount