Type of Insurance Policies

Question 1

Ordinary life

Answer 1

-made up of several types of individual life insurance, such as temporary (term),
permanent (whole)

Question 2

Term life

Answer 2

-pure death protection
-only pays a death benefit if the
insured dies during the policy term

Question 3

Term life characteristics

Answer 3

• does not accrue cash value.
•greatest amount of life insurance for a specified period of time/lowest premium
• The initial premium of term insurance is lower than for an equivalent amount of
whole life insurance

Question 4

Whole life

Answer 4

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

Question 5

What insurance type issues small face amounts and is paid weekly?

Answer 5

Industrial life

Question 6

Group life

Answer 6

-for members of a group, ex. employment,
association, or a union
-one master contract.
- no evidence of insurability required.

Question 7

What are the types of term life?

Answer 7

• Level term
• Decreasing term
• Increasing term
• Convertible term
• Renewable term
• Annual renewable term

Question 8

Level term (premium level term)

Answer 8

• level face amount and level premiums.
• higher premiums than annual renewable term because they are level throughout the policy period.
• premiums increase at each renewal.

Question 9

Decreasing term

Answer 9

• annually decreasing face amount over time with level premiums
• usually used for mortgage protection.

Question 10

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

Answer 10

Increasing term

Question 11

Convertible term

Answer 11

-can concert insurance into permanent policies without showing proof of insurability.

Question 12

Mike wants to be able to continue term coverage after the expiration of his initial policy period without having to prove insurability. Which term life insurance is best for him?

Answer 12

Renewable term

Question 13

Annual renewable term

Answer 13

• provides a level face amount that renews annually.

- guaranteed renewable annually without proof of insurability.

Question 14

What is Whole Life Insurance?

Answer 14

Insurance with:

• living and death benefits
• permanent life insurance

Question 15

Advantages of whole life insurance

Answer 15

• Covers the entire life of the insured
• Living benefits - cash value and policy loans
• Fixed premiums

Question 16

Drawbacks of whole life insurance

Answer 16

• Protection is more expensive because of living benefits

* Premium paying period may extend beyond the income-earning years

Question 17

What are the types of Whole Life insurance?

Answer 17

1. straight whole life
2. limited pay whole life
3. single-premium whole life
4. modified whole life
5. graded whole life

Question 18

straight whole life

Answer 18

-basic whole life insurance
-level face amount
-fixed premiums
-Premium payments made until death of insured or age 100 (maturity
of policy)

Question 19

limited pay life

Answer 19

• premiums are paid for a limited time

- As the premium payment period shortens, cash values increase faster and the fixed premiums are higher.

Question 20

single-premium whole life

Answer 20

-pay the entire premium in one lump-sum and have
coverage for the insured’s entire life.
• An immediate nonforfeiture value is created
• An immediate cash value is created
• A large part of the premium is used to set up the policy’s reserve

Question 21

What begins with low premiums than jumps(once) to higher premium in later years?

Answer 21

Modified Whole Life Insurance

Question 22

Graded whole life

Answer 22

• typically the premium increases yearly

for a stated number of years, then remains level.

Question 23

Special Use Policies

Answer 23

• combination or “packaging” of different policy types,

- designed to serve a variety of needs.

Question 24

Family Plan Policies

Answer 24

Family Head-permanent(whole life) insurance
spouse/children- level term life riders (family term riders)
+term coverage usually convertible without evidence of insurability
+children covertible typically at 18 or 21
-premium remains same regardless of the number of children

Question 25

Family income policy

Answer 25

whole life decreasing term insurance (begins date of purchase). - monthly income to a beneficiary if death occurs during a *specified period* after date of purchase. - If the insured dies after the specified period, only the face value is paid to the beneficiary since the decreasing term insurance expired.

Question 26

Family Maintenance policy

Answer 26

Whole life and level term (begins date of death) -Provides income to a beneficiary for a selected period of time if an insured dies during that period. -At the end of the income paying period, the beneficiary also receives the entire face amount of the policy. -If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy.

Question 27

Multiple protection policies

Answer 27

-Pays a benefit of double or triple the face amount if death occurs during a specified period. -after the period has expired, only the policy face amount is paid -period can be specified years or age -combinations of permanent insurance and level term insurance.

Question 28

Joint Life Policy

Answer 28

-covers two or more people. -age of the insureds are “averaged” and a single premium is charged -uses permanent insurance -pays a death benefit when one of the insureds dies -survivors then have the option of purchasing an individual policy without evidence of insurability. -premium for a joint life policy < the premium for separate, multiple policies

Question 29

Juvenile Insurance

Answer 29

-written on the lives of a minor -adult applicant is usually the premium payor until the child comes of age and is able to take over the payments. -payor provision typically attached It provides that -in the event of death or disability of the adult premium payor, the premiums will be waived until the child reaches a specified age

Question 30

Credit life insurance

Answer 30

``` is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid -issued in an amount not to exceed the outstanding loan balance -paid entirely by the borrower. -A decreasing term policy is most often used. ```

Question 31

Nontraditional Life Policies

Answer 31

1980s -designed to keep up with inflation and are interest-sensitive - interest-sensitive whole life - adjustable life - universal life - variable life - variable universal life

Question 32

Adjustable life policies

Answer 32

-flexibile -combines term and whole life insurance • The policyowner determines how much face amount protection is needed and how much premium the policyowner wants to pay • allows you to vary your coverage as your needs change without requiring evidence of insurability • no new policy needs to be issued when changes are desired •has all the usual features of level premium cash value life insurance

Question 33

Universal life

Answer 33

- variation of whole life insurance, - considerable flexibility * Changes may be made with relative ease * allows its policyowners to determine the amount and frequency of premium payments which will adjust the policy face amount * Cash value accumulations are subject to a minimum interest guarantee * Any surrender charges of a universal policy must be disclosed

Question 34

Equity Index Universal Life lnsurance (EIUL)

Answer 34

-permanent life insurance policy -allows policyholders to tie accumulation values to a stock market index -typically contain a minimum guaranteed -fixed interest rate component account option -security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns.

Question 35

Modified Endowment Contracts (MEC)

Answer 35

-A policy that is overfunded must meet 7-pay test(limit on how much you can pay on your policy the 1st 7 years)

Question 36

MEC Taxation

Answer 36

• If withdrawn prior to age 59 ½, there is a 10% penalty. • Taxation only occurs when cash is distributed • Funds withdrawn are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract's values is withdrawn first (making these funds fully taxable as ordinary income). • Penalty taxes on premature distributions normally apply to policy loans

Question 37

Variable insurance products

Answer 37

-are considered securities contracts as well as insurance contracts required to register with the National Association of Securities Dealers to sell variable products.

Question 38

Variable whole life insurance

Answer 38

-created to help offset the effects of inflation on death benefits - permanent life insurance - policy values are invested in the insurer's separate accts (common stock, bond, money market, and other securities investment)

Question 39

Variable universal life (VUL)

Answer 39

combines all the characteristics of a universal life and variable life 'variable' = ability to invest in separate accounts whose values vary 'universal' = flexibility the owner has in making premium payments Evidence of insurability can be required for an individual covered by a variable universal life policy when the death benefit is increased.

Question 40

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?

Answer 40

Variable universal life (VUL)

Question 41

T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this?

Answer 41

Renewable

Question 42

What Insurance Polices are interest sensitive?

Answer 42

- interest-sensitive whole life - adjustable life - universal life - variable life - variable universal life

Question 43

Name the 6 types of Term Life.

Answer 43

- Level - Decreasing - Increasing - Convertible - Renewable - Annual Renewable

Question 44

A 20-pay life policy, the insured only pays for 20 years and is in effect until the insured’s death or they reach age 100 is an example of what?

Answer 44

Limited Pay Life Insurance

Question 45

What type of policy can start out low and increase a small amount every year up until the fifth year, then levels off for the remainder of the policy?

Answer 45

Graded Whole Life | graded like grad-ual{increase}

Question 46

What policy has flexible premiums, flexible benefits, no minimum death benefit, and cash value withdrawals?

Answer 46

Universal Life

Question 47

Fixed premiums, a guaranteed minimum death benefit which fluctuates over the minimum, and cash values which fluctuate and are not guaranteed are basic characteristics of .....

Answer 47

Variable whole life insurance