Life Insurance Policies - Provisions, Options and Riders Vocab & Notes Chap 3

Question 1

This insurance issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Answer 1

Industrial life insurance

Question 2

Life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Answer 2

Ordinary Life Insurance

Question 3

Insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the coverage benefits is usually there is no evidence of insurability required.

Answer 3

Group Life Insurance

Question 4

Insurance that gives you the greatest amount of coverage for a limited period of time. This insurance is only good for a limited period of time because it has a termination date. It is an inexpensive type of insurance, making it an attractive option for large policies.
It is the CHEAPEST type of pure life insurance, and due to having a termination date and not having any cash value, it will ALWAYS be cheaper than a whole life policy with the same face value. It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.

Answer 4

Term life insurance

Question 5

Life insurance written to cover a need for a specified period of time at the lowest premium. It has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal.
For example
If D needs life insurance that provides coverage for the remainder of her working years and wants to pay as little as possible, D would need ____________. Which, provides a fixed, low premium in exchange for coverage which lasts a specified time period.

Answer 5

Level term

Question 6

Term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection. A __________ policy is a type of life policy which has a death benefit that adjusts periodically (according to a schedule) and is written for a specific period of time.

Answer 6

Decreasing term

Question 7

________________ are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.

Answer 7

Credit policies

Question 8

Term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

Answer 8

Increasing term

Question 9

A provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability. This provides temporary coverage that may be changed to permanent coverage without evidence of insurability.

Answer 9

Convertible Term

Question 10

Term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.

Answer 10

Renewable term

Question 11

______________ provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.

Answer 11

Whole life insurance

Question 12

With this Whole Life insurance, premiums are payable throughout the insured’s lifetime, and coverage continues until the insured’s death. Said differently, premiums are payable as long as coverage is in force. Like all other whole life policies, it provides fixed premiums, a level death benefit, and cash value. Whole life also requires the face amount to be paid out to the insured at age 100 (when the policy matures), provided a death benefit has not already been paid

Answer 12

Straight Life insurance

Question 13

With this Whole Life the coverage remains on this policy until age 100 or death, whichever happens first. Even though the premium payments are limited to a certain period, the insurance protection extends until the insured’s death, or to age 100.
For example
if you were to purchase a 20-pay policy, premiums would need to be paid for 20 consecutive years. After that, you would not be required to make any additional premium payments, and your coverage would be guaranteed until death or age 100.

Answer 13

Limited Pay

Question 14

A policy where the premium stays fixed for the first 5 years, and then increases in year 6 and stays level for the remainder of the policy. This policy has all of the same features of any other whole life except the insurance company cuts you a break on premium for the first few years.

Answer 14

Whole Life - Modified

Question 15

A policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract. A ___________ does not meet the 7-pay test and is considered over-funded, according to the IRS. For that reason, the policy will lose favorable tax treatment.

Answer 15

Whole Life - Modified Endowment Contract (MEC)

Question 16

A ___________ policy covers the lives of 2 individuals and save on premium cost by averaging the ages of the two insureds. These policies pay the face amount after the first person covered on the policy dies. This is similar to a Joint Checking account.

Answer 16

Joint Life

Question 17

A ____________ or ______________ Policies cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. These policies only pay the death benefit upon the death of the last insured person.

Answer 17

Joint Survivor or Last Survivor Life

Question 18

A _________________ policy pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period.

Answer 18

Family Maintenance

Question 19

A__________________ policies pay an income beginning at the insured’s death and continues for a period specified from the date of policy issue.

R signs up for this policy and dies 10 years later so beneficiary would receive 10 years income

Answer 19

Family Income

Question 20

An ______________ policy owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make changes to the premium and/or face amount of an ____________ insurance policy. These policies are able to provide these features by combining whole life and term life into a single plan.

Answer 20

Adjustable Life

Question 21

A flexible insurance policy that allows for changes in premiums and death benefits. The investment gains from this policy usually go toward the cash value, which can be used by the policyowner to manipulate the flexible aspects of the policy. This policy is ideal for customers who want the most options and control over their policy.

Answer 21

Universal life insurance policy

Question 22

_______________ policies require proper FINRA and NASD securities registration before selling. These policies have fixed level premiums, but the cash value and death benefits can fluctuate based on the investment portfolio performance. They are known as interest sensitive policies and can be used to offset inflation. The investment account of a variable policy grows through mutual funds, stocks, and bonds. Because the policy owner assumes investment risk, proper FINRA securities registration is needed in addition to an insurance license to sell variable contracts.

Answer 22

Variable life insurance

Question 23

The policyowner controls the investment of cash values and selects the timing and amount of premium payments. ________________ policies give a policy owner the best of both Variable Life and Universal Life. If a policy owner was looking for a policy that allowed them to control how much and when premium was due, what investment accounts were used for funding, and where the returns from those investment accounts went, they would be looking for a Variable Universal Life Policy. The policy owner can control the timing and amount of premium payments, as well as the investment of cash values with a Variable Universal Life Policy.

Answer 23

Variable Universal Whole Life, (VUL)

Question 24

__________________combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index. Unlike, a traditional whole life plan, this plan allows policyholders to link accumulation values to an outside equity index

Answer 24

Equity Index Universal Life Insurance

Question 25

When the insured dies, the policyowner (investor) benefits. In normal circumstances, it is a beneficiary with insurable interest who benefits from the death of an insured.

Answer 25

Investor (or stranger) originated life insurance policy
S(I)OLI

Question 26

The equity amount or “savings” accumulation in a whole life policy.

Answer 26

Cash Value

Question 27

A contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured’s death before the end of the stated period.

Answer 27

Endowment Policy

Question 28

A contract that promises to pay at the insured’s death the face amount of the policy plus a sum equal to the policy’s cash value.

Answer 28

Face amount plus cash value policy

Question 29

________________is written on the lives of children who are within specified age limits and generally under parental control.

Answer 29

Juvenile Insurance

Question 30

________________________ typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone’s risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant’s medical history and lifestyle.

Answer 30

Non-Medical Life Insurance

Question 31

A suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.

Answer 31

Target premium

Question 32

This provision states the insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can’t send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ________________.

Answer 32

Entire Contract

Question 33

The insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage “We ensure to INSURE you for…”

Answer 33

Insuring Clause (or Insuring Agreement)

Question 34

The ___________ states that the policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

Answer 34

Free Look

Question 35

The ____________ states a policyowner must pay a premium in exchange for the insurer’s promise to pay benefits. A policyowner’s consideration consists of completing the application and paying the initial premium.

Answer 35

Consideration Clause

Question 36

A span of time after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the this span of time of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy minus any required premiums.

Answer 36

Grace Period

Question 37

Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Answer 37

Reinstatement

Question 38

This allows the insurance company to deduct overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy.

Answer 38

Automatic Premium Loan provision (or rider)

Question 39

This is also known as, Dependent riders may be added to a primary policy to cover a spouse or “another insured”, children or adopted children.

Answer 39

Other insureds

Question 40

The “_______________” provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured’s lifetime, usually one or two years after issue. After that period, the policy is considered indisputable.

Answer 40

Incontestability Period

Question 41

A policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits.

Answer 41

Absolute Assignment

Question 42

An assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured’s death.

Answer 42

Collateral Assignment

Question 43

The _____________________allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Answer 43

Accelerated Benefit Rider

Question 44

The policy will be voided and no benefit will be paid if the insured commits suicide within 2 years from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.

Answer 44

Suicide Clause

Question 45

The options you have for your cash value if you terminate a policy that has cash value.

Answer 45

Nonforfeiture Options

Question 46

Types of Nonforfeiture Options

Answer 46

1. Cash Surrender
2. Extended Term Option
3. Reduced Paid-Up Option

Question 47

This allows the policyowner to receive the policy’s cash value. Policyowner no longer has coverage at this point. Normally, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is 6 months (Delayed Payment provision).

Answer 47

Cash Surrender

Question 48

This permits the policyowner to use the policy’s cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy.

Answer 48

Extended Term Option

Question 49

The policyowner pays no more premiums but the face amount is decreased.

Answer 49

Reduced Paid-Up Option

Question 50

The options a policyowner has when receiving dividend payments form an insurance policy.

Answer 50

Dividend Options