Types of Life Insurance Policies

Question 1

The amount of the death benefit is called the ______ ______

Answer 1

Face amount

Question 2

Simplest type of life insurance

Answer 2

Term life

Question 3

Term life insurance policies only offer

Answer 3

A death benefit and remain in force for a specified period of time. No death benefit is payable if the insured dies after the term expires

Question 4

The death benefit of a level term policy equals

Answer 4

The face amount throughout the term of coverage. Premiums also remain level and term of coverage may be expressed in number of years or specified age

Question 5

The death benefit of a decreasing term policy..

Answer 5

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

Question 6

The death benefit of an increasing term policy…

Answer 6

Begins near zero and grows over term of coverage

Question 7

Return of premium term policies

Answer 7

Will return all or a part of the premium paid for the policy if the insured is still alive at the end of the term. Premium will be higher and dependent on percentage returned

Question 8

Renewability feature (term)

Answer 8

Guarantees that the policy will renew (extend) at the end of its term. Insured does not have to re-apply or qualify medically and new renewal period will be for the same term originally purchased

Question 9

Convertibility feature (term)

Answer 9

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

Question 10

The premium for a converted term policy will be based on one of two options:

Answer 10

-attained age (at time of conversion)
-original age (at time policy written)

Question 11

Initially the least expensive form of life insurance

Answer 11

Term policy

Question 12

_____ ______ is a permanent insurance policy which is guaranteed to remain in force for the insured’s entire lifetime provided the required premiums are paid, or to the policy maturity date

Answer 12

Whole life

Question 13

Whole life insurance is designed to

Answer 13

Remain in force for the whole life of the insured and the premiums will never increase

Question 14

The purpose of a level premium with whole life policies is to

Answer 14

Make lifetime coverage affordable at older ages

Question 15

The level premium system results in

Answer 15

Overpaying for the risk of dying at younger ages and underpaying in later years toward the end of life expectancy

Question 16

Whole life mode of payment for the policy’s level premium is on a _____ _______

Answer 16

Fixed schedule

Question 17

Like its premium, the death benefit of a whole life policy is ____ and _____

Answer 17

Fixed; level

Question 18

Cash values reflect

Answer 18

The reserves necessary to assure payment of the guaranteed death benefit

Question 19

The “cash surrender” value of the whole life policy arises from…

Answer 19

….the policyholder’s rights to quit the contract and reclaim a share of the reserve fund attributable to the policy

Question 20

By cashing in a whole life policy, the policy owner gives up….

Answer 20

….the death benefit

Question 21

Allow the policyholder to borrow up to the cash value of the policy

Answer 21

Loan provisions on life insurance policies with a cash surrender value

Question 22

The whole life death benefit consists of two components:

Answer 22

1. The cash value (savings element)
2. An insurance protection element that must be paid in addition to the cash value so the death benefit equals the policy’s face amount (net amount of risk)

Question 23

A whole life policy usually endows at age ____ or _____

Answer 23

100; 120

Question 24

Continuous premium whole life

Answer 24

The premiums are the same each year for the duration of the contract. If the policy owner discontinues making payments, they will receive the cash value of the policy

Question 25

Limited-payment whole life policies

Answer 25

Allow for a lifetime of premiums to be paid in a shorter period of time. Annual premiums will be higher than continuous policies.

Question 26

Common forms of limited payment whole life

Answer 26

-10-pay or 20-pay whole life; premiums are payable in 10 or 20 level annual installments -Life paid-up at age 65; premiums are payable in level annual installments from the date of purchase to the year insured turns 65

Question 27

A ______ _______ whole life policy has one payment made at the time of purchase and creates immediate cash value

Answer 27

Single premium

Question 28

Modified premium whole life policies

Answer 28

Have lower premiums during the first 3-5 years. After initial period, premiums increase to a certain amount and then are level for the life of the policy

Question 29

Graded premium whole life policies

Answer 29

-have an even lower initial premium than modified whole life -the graded premium starts out lower than other whole life policies and increases every year for 5-10 years until leveling off for as long as policy is in force

Question 30

Indeterminate premium whole life policy

Answer 30

-provides for adjustable premiums -company will charge a current premium based on its current estimate of investment earnings, mortality and expense costs -premiums never go above max guaranteed premium stated in policy

Question 31

A type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant

Answer 31

Interest-sensitive whole life

Question 32

The interest sensitive whole life policy has:

Answer 32

-a fixed, level death benefit -a premium schedule fixed in regard to the timing of payments

Question 33

With interest sensitive whole life, the insurer will make investments with…

Answer 33

…a percentage of each premium payment. Excess or current interest from those investments may be credited to the policy to make the cash value rise

Question 34

Cash values in whole life insurance policies accumulate ____ _____

Answer 34

Tax deferred

Question 35

Advantages of Whole Life Insurance

Answer 35

-permanent coverage -guaranteed level premiums -lifetime coverages

Question 36

Disadvantages of whole life insurance

Answer 36

-premium not flexible -higher initial premium

Question 37

Types of whole life policies

Answer 37

-continuous payment -limited payment -single premium -modified premium -graded premium -indeterminate premium -interest sensitive

Question 38

An adjustable life policy gives the policy owner the options to adjust…

Answer 38

….the face value/benefit, the premium, and the length of coverage without having to change policies

Question 39

Offers the ability to have term and whole life coverage in one policy

Answer 39

Adjustable life insurance

Question 40

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

Answer 40

Universal life

Question 41

Premiums paid into a universal life policy accumulate as…

Answer 41

….interest in the policy’s cash value

Question 42

In universal life, monthly interest credited to the cash value is either…

Answer 42

…the guaranteed rate or current rate, whichever is higher

Question 43

Universal life Option A (Option 1)

Answer 43

Provides for a level death benefit equal to the policy’s face value. As a result, more of the premiums is placed in the cash account, making the cash value rise more quickly

Question 44

Universal life Option B (Option 2)

Answer 44

Provides for an increasing death benefit equal to the face value of the policy plus the cash account. Cash value does not increase as quickly because more of the premium is applied to the higher cost of the increasing death benefit over the life of the policy

Question 45

Both whole life and universal life allow _____ ______ from the cash value

Answer 45

Policy loans

Question 46

Only universal life allows ________ from the cash value

Answer 46

Withdrawals (partial surrenders)

Question 47

A universal life withdrawal is federal income tax-free up to the ______ ______

Answer 47

Cost basis (i.e. premiums paid)

Question 48

Equity-indexed universal life

Answer 48

A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index such as the S&P 500

Question 49

Indexed universal life typically contains a minimum _____ _____ ____ component along with the indexed account option

Answer 49

Guaranteed interest rate

Question 50

Indexed universal life policies give policyholders the security of..

Answer 50

…fixed universal life with the growth potential of the underlying market index

Question 51

The ______ protection of equity-indexed universal life policies guaranteed that the interest credited to the cash value will never be below zero

Answer 51

Downside

Question 52

Types of flexible policies

Answer 52

-adjustable life -universal life -equity indexed universal life

Question 53

Universal life’s ______ _____ means that policy owners can skip premiums without losing their coverage, as long as there is enough cash value to cover the policy’s monthly expenses

Answer 53

Flexible premium

Question 54

Advantages of flexible policies

Answer 54

-flexible premiums, death benefit options, and cash value

Question 55

Disadvantages of flexible policies

Answer 55

More complex

Question 56

Permanent insurance policies designed to provide coverage for the insured, have cash value and a death benefit, and allow the policy owner to participate in various types of options while not being taxed on the earnings until the policy is surrendered

Answer 56

Variable policies

Question 57

The _______ _______ is a fund held by the life insurance company and maintained separately from the insurer’s general assets

Answer 57

Separate account

Question 58

Separate account investment options usually include a mixture of…

Answer 58

Stocks, bonds, mutual funds, money market instruments, and even commodities

Question 59

Variable insurance is an insurance product that contains an _______ element

Answer 59

Investment

Question 60

Both the securities industry and state insurance commissioners regulate these policies

Answer 60

Variable life insurance policies

Question 61

Variable life insurance has a _______ _____ instead of guaranteed cash value

Answer 61

Separate account

Question 62

Variable universal life policy option A

Answer 62

Remains level regardless of increases or decreases in the cash value

Question 63

Variable universal life option B

Answer 63

Varies with the fluctuating cash values

Question 64

The death benefit of a variable life policy will increase with…

Answer 64

…positive investment results, however in the event of negative performance it cannot decrease below the original face amount

Question 65

The original face amount of a variable life policy is the _____ _______ death benefit

Answer 65

Guaranteed minimum

Question 66

Types of variable policies

Answer 66

-variable life (death benefit can increase, has guaranteed death benefit) -variable universal life (no guaranteed death benefit)

Question 67

Advantages of variable policies

Answer 67

-potential for high returns -keep pace with inflation -tax advantages

Question 68

Disadvantages of variable policies

Answer 68

-no guaranteed rate of return -complicated -highly regulated

Question 69

Usually covers two or more lives with the death benefit being paid when the first insured dies

Answer 69

Joint life policy

Question 70

A joint life (or first to die) policy may be the right product for married people who want a surviving spouse to be able to maintain a certain lifestyle but want…

Answer 70

…to pay less than the cost of two individual policies

Question 71

Insures two individuals and will pay the death benefit when the last insured dies

Answer 71

Survivorship life policy

Question 72

Coverage written on the life of a child or minor

Answer 72

Juvenile life insurance

Question 73

In addition to the death benefit juvenile life insurance provides the benefit of…

Answer 73

….locking in the low premium for the child’s entire life, and guarantees the child has life insurance in case their health changes in the future

Question 74

Jumping juvenile policies

Answer 74

Face amount of policy increases when the child reaches 18 or 21, with no corresponding increase in premium. Jumps to five times its original amount