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General Insurance > Life Insurance Policy Options > Flashcards

Life Insurance Policy Options Flashcards

1
Q

Used to determine how the proceeds from a life insurance policy death benefit will be distributed to the beneficiary(s)

A

Settlement options

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2
Q

If the life insurance policy owner does not designate a specific settlement option to be paid upon death, the death benefits are distributed as a ____ ____

A

Lump sum

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3
Q

Life insurance settlement options:

A

-interest income only option
-fixed period option
-fixed amount option
-life income option
-life with period certain
-life with refund certain
-joint and survivor life

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4
Q

Under this settlement option, the insurer retains the death benefit and pays a stated amount of interest on the money that is paid to the beneficiary at regular intervals

A

Interest income (only) option

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5
Q

This option will pay both an amount of principal and interest to the beneficiary over a stated period of time

A

Fixed period option

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6
Q

Three factors are used to calculate each payment under the fixed period option

A
  1. Amount of death benefit
  2. A guaranteed interest rate
  3. The length of the chosen period
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7
Q

With this settlement option, the proceeds will be paid out in a fixed amount over time until both the principal and interest have been completely paid to the beneficiary

A

Fixed amounts settlement option

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8
Q

Under the fixed amount settlement option, the recipient of the payments has the ability to either

A

Increase or decrease the payment amount and if they choose, they could also even change to a different settlement option altogether

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9
Q

Three factors are used to determine the minimum length of the payment period under the fixed amount settlement option:

A
  1. Amount of death benefit
  2. A guaranteed interest rate
  3. The chosen payment amount
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10
Q

This settlement option is similar to an annuity; the policy beneficiary will be guaranteed to receive an income for the rest of their life, regardless of how long that may be

A

Life income option

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11
Q

Under the life income option, the actual amount of the income depends on:

A

The policy death benefit and the life expectancy of the beneficiary; their age and gender. The beneficiary can select to receive the entire annuity payout until they die or share it with another individual

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12
Q

This settlement option wil pay the largest amount to the beneficiary for as long as they live, regardless of how long that may be. Upon their death no further payments are made.

A

Life only (straight life) option

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13
Q

Straight life (life only) settlement option

A

-based upon beneficiary’s life expectancy
-guaranteed for life
-payments stop upon death of beneficiary

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14
Q

This settlement option also pays an income for as long as the beneficiary is alive. However, the beneficiary selects a payment period, typically 5, 10 or 20 years, and payments are guaranteed to be made for at least that number of years

A

Life with period certain option

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15
Q

Life income- period certain

A

-life income to beneficiary
-guaranteed for a minimum amount of time

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16
Q

This settlement option pays an income for as long as the beneficiary is alive, but also guarantees total payments will be at least the amount of the death benefit

A

Life with refund option

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17
Q

Life income- with refund option

A

-pays beneficiary an income for life
-guarantees payments will be at least equal the death benefit
-pays someone else balance of death benefit if beneficiary doesn’t live long enough

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18
Q

This option continues paying a benefit for as long as either beneficiary lives. After the death of the first beneficiary, the same or a reduced payment amount is paid to the survivor

A

Joint-and-survivor life settlement option

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19
Q

Joint and survivor settlement option

A

-pays two beneficiaries an income for life
-the survivor may receive the same or a reduced payment (100%, 75%, 66 2/3%, 50%)

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20
Q

If a policyowner needs cash but does not want to surrender their policy, they can access the cash value that is available using the _____ _____ provision

A

Policy loan

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21
Q

Permanent life insurance policies have 2 components:

A

The death benefit or face value and cash value (the savings element funded by a portion of the premium)

22
Q

The main advantages of a policy loan over other loans is that:

A

There is no credit check, the interest rate is usually much lower, virtually any repayment schedule, policyholder is not even legally obligated to pay back the loan

23
Q

When the policy loan and the accumulated interest exceed the cash value of the policy, it _______

A

Lapses

24
Q

Automatic premium loan provision

A

If the insured fails to pay the policy premium by the end of grace period, then the insurer will pay the premium with a policy loan and will continue to do so until the cash value of the policy falls below the premium amount, in which cash the policy will lapse

25
Q

Loans are subject to ____ _____ and any unpaid loan will be deducted from the death benefit upon the insured person’s death

A

Loan interest

26
Q

Withdrawals, or partial surrenders, are allowed on _________ life insurance policies, but not _____ life policies

A

Universal; whole

27
Q

A withdrawal may be subject to:

A

A pro-rata surrender charge and/or processing fee

28
Q

A withdrawal, or partial surrender, cannot be ______

A

Repaid

29
Q

Life insurance policies that pay policy ________ are referred to as participating policies

A

Dividends

30
Q

Life insurance policies that do not pay policy dividends are referred to as ________ policies

A

Nonparticipating

31
Q

A refund of a portion of the premium

A

Policy dividends

32
Q

Policy dividends are based on the difference between

A

The gross premium charged and the activation experience of the insurer

33
Q

Policy dividends are not _________

A

Guaranteed

34
Q

Because policy dividends are a return of premium, they are not _______

A

Taxable

35
Q

The dividend is not taxable, however the ______ credited to the account is taxable

A

Interest

36
Q

The policy dividend can be left with the insurer to..

A

…earn interest in a savings account

37
Q

The dividend can be applied and ______ the next premium due

A

Reduce

38
Q

The paid-up additions option uses

A

Each annual dividend to purchase an additional amount of life insurance

39
Q

The result of a paid-up addition is a

A

Larger amount of life insurance

40
Q

In turn, each paid-up addition builds..

A

..its own cash value and also earns dividends

41
Q

The cash value build-up of a paid-up attention is ___-_______ under the tax rules for life insurance cash value

A

Tax-deferred

42
Q

Paid up insurance

A

Dividends plus interest on dividends are applied to the annual premium and are enough to pay the entire annual premium. In a high interest rate environment, this may allow the policyowner to not have to pay premiums out-of-pocket

43
Q

The dividend may be used to buy

A

One-year term insurance equal to the policy’s cash value

44
Q

Dividend options

A

-cash
-accumulate interest
-reduce next premium amount
-paid up additions at attained age
-paid up insurance sooner
-one year term insurance at attained age

45
Q

The ______ ______ in an insurance policy allows for the insured to receive all or a portion of the benefits or a partial refund on the premiums paid if the insured misses premium payments, causing the policy to lapse

A

Nonforfeiture clause

46
Q

There are three nonforfeiture options:

A

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

47
Q

Cash surrender nonforfeiture clause

A

The policy is canceled and the policyowner receives the current cash value

48
Q

Reduced paid-up insurance nonforfeiture option

A

The policyowner obtains a reduced amount of paid-up whole life insurance based on the insured’s attained age and the amount of guaranteed cash value available to buy a single premium policy. The policy will pay the reduced death benefit whenever the insured dies

49
Q

Extended term insurance nonforfeiture options

A

The net cash surrender value is used to buy a term insurance policy with a death benefit the same as the original whole life policy and is based on the insured’s attained age. The policy will terminate after a stated number of years found in the non-forfeiture table.

50
Q

If the policy fails to select one of the nonforfeiture options when premium payments cease, this option generally goes into effect automatically

A

Extended terms insurance option

51
Q
A

General Insurance (20 decks)

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