Types Of Life Insurance Policies

Question 1

Term insurance characteristics

Answer 1

Only offer a death benefit and remain in force for a specialized period of time, or term. No death benefit after the insured dies

Question 2

Level term policy

Answer 2

Equals the face amount throughout the term of coverage. Remains level during term

Question 3

Decreasing term policy

Answer 3

Declines over the coverage period until it reaches zero at end of term

Question 4

Increasing term policy

Answer 4

Begins near zero and grows over term of coverage

Question 5

Return of premium term policies

Answer 5

Return all or part of the premium paid for the policy if the insured is still alive at the end of the term

Question 6

Renewability

Answer 6

With term life insurance guarantees the policy will renew at the end of its term. Insured doesn’t need to reapply

Question 7

Convertibility

Answer 7

Allows a policy owner to convert a term insurance policy to a permanent type of policy without evidence of insurability and with out having to submit an application

Question 8

Advantages of term life insurance

Answer 8

Because it only provides a death benefit it’s premiums are lower. Initially least expensive

Question 9

Disadvantages to term life insurance

Answer 9

Only lasts for the term of the policy. Like renting the policy not owning

Term premiums increase as the insured gets older

Renewability expires before age of life expectancy

Question 10

Whole life insurance

Answer 10

Permanent policy guaranteed to remain in force for the insureds entire lifetime provided the required premiums are paid

Fixed premium
Fixed death benefit
Cash values (guaranteed to gain interest, maybe surrendered or borrowed, endows at age 100)
Death benefit (amount of risk to company, plus cash values)

Question 11

Level premium

Answer 11

Purpose with whole life policies is to make coverage affordable at older ages

Overpay for risk of dying early. Underpay for risk of dying late

Question 12

Death benefit of whole life policy is

Answer 12

Fixed and level. Like premium

Question 13

Policy loan

Answer 13

Policies with a cash surrender value normally have loan provisions that allow policy holder to borrow up to the cash value of the policy

Question 14

Limited Payment Whole Life Policies

Answer 14

Same as whole life but start later

Stops at 65

Question 15

Single premium whole life policy

Answer 15

One payment made at the time of purchase. Creates immediate cash value

Question 16

Modified premium whole life policy

Answer 16

Lower payment at the start but then increase to certain amount and are level for length of policy

Question 17

Graded premium whole life policies

Answer 17

Even lower initial premium than modified whole life policies. Premium increases every year for 5-10 years until leveling off for remainder

Question 18

Indeterminate premium whole life policy

Answer 18

Whole life policy but with adjusting premiums. Company will charge a current premium based on its current estimates, but could adjust later if things change. Never over maximum guaranteed premium stated in policy

Question 19

Interest sensitive whole life policy

Answer 19

Cash value can increase above stated guarantee if conditions warrant. Has a current interest rate and guaranteed interest rate

Question 20

Advantages to whole life insurance

Answer 20

Permanent coverage
Guaranteed level premiums
Lifetime coverages

Question 21

Disadvantages to whole life insurance

Answer 21

Premium is not flexible

Higher initial premium

Question 22

Flexible policy

Answer 22

Give policy owner numerous options in terms of premium, face amounts, length of coverage and investment objectives

Question 23

Universal life policy

Answer 23

Designed for people who want flexible premiums and flexible coverage over the course of their lifetime

Question 24

Equity indexed universal life

Answer 24

Current interest on cash account
-up and down based upon stock market index

-account still guaranteed by the company

Question 25

Advantages to flexible premium policies

Answer 25

Flexible premiums, death benefits options, and cash value

Question 26

Disadvantages to flexible premium policies

Answer 26

More complex

Question 27

Variable policies

Answer 27

Permanent insurance policies designed to provide a lifetime of coverage for the insured and have cash value and a death benefit

Contains an investment element in separate account

Question 28

Separate account

Answer 28

Fund held by insurance company and maintains separately from insureds assets

Question 29

Types of variable policies

Answer 29

Variable Life

• Death Benefit can increase
• has guaranteed death benefit

Variable Universal Life
- No Guaranteed Death Benefit

Question 30

Advantages of variable policies

Answer 30

Potential higher returns than guaranteed rates paid on traditional life insurance products.

Have potential to keep up with inflation

Could cause good tax breaks for higher income brackets

Question 31

Disadvantages to variable policies

Answer 31

No guaranteed rate of return
Complicated
Highly regulated

Question 32

Joint life policies

Answer 32

Covers 2 or more lives with benefit being paid when first insured dies. Less than cost of 2 individual policies

Question 33

Survivor ship life policy

Answer 33

Insures 2 individuals and will pay death benefit when the last spouse dies

Question 34

Juvenile life insurance

Answer 34

Coverage on life of a minor. Death benefit may increase on future age (18-21 also called jumping juvenile policy)